Earthlink 2014 Annual Report Download - page 25

Table of Contents
competitors. Many of our competitors have substantially greater market presence and greater financial, technical, marketing and other resources
than we have. Our dial-up Internet access services do not compete favorably with broadband services with respect to speed, and dial-
up Internet
access services no longer have a significant, if any, price advantage over certain broadband services. Most of the largest providers of broadband
services, such as cable and telecommunications companies, control their own networks and offer a wider variety of services than we offer,
including voice, data and video services. Their ability to bundle services and to offer broadband services at prices below the price that we can
profitably offer comparable services puts us at a competitive disadvantage. In addition, our only significant access to offer broadband services
over cable is through our agreement with Time Warner Cable.
Competition could adversely impact us in several ways, including: (i) the loss of customers and resulting revenue; (ii) the possibility of
customers shifting to less profitable services; (iii) the need to lower prices of our services; and (iv) the need to increase marketing expenses or
other operating costs to remain competitive. We experience pricing pressures for our consumer access services, particularly our consumer
broadband services, due to competition, volume-
based pricing and other factors. Many providers have reduced and may continue to reduce the
retail price of their Internet access services to maintain or increase their market share, which could cause us to reduce, or prevent us from raising,
our prices. We may encounter further market pressures to: migrate existing customers to lower-
priced service offerings; restructure service
offerings to offer more value; reduce prices; and respond to particular short-term, market-
specific situations, such as special introductory pricing
or new product or service offerings. Any of the above could adversely affect our revenues and profitability.
The continued decline of our consumer access subscribers will adversely affect our results of operations.
During the years ended December 31, 2012, 2013 and 2014, our average consumer access subscribers were 1.2 million, 1.1 million to 0.9
million. Our consumer access subscriber base and revenues have been declining due to continued maturation of the market for Internet access
and competitive pressures in the industry. We expect our consumer access subscriber base and revenues to continue to decline. We have
implemented, and expect to continue to implement, targeted price increases, which could also negatively impact our churn rates. Our strategy for
consumer access subscribers is to engage in limited sales and marketing efforts and focus instead on retaining customers and managing our
customers for cash. However, we will not be able to reduce costs proportional to our revenue declines over time. If we do not maintain our
relationships with current customers or acquire new customers, our revenues will decline and our results of operations and cash flows will be
adversely affected.
Potential regulation of Internet service providers could adversely affect our operations.
Our Internet access services are not currently subject to substantial regulation by the FCC or state public utilities commissions.
Narrowband and
broadband Internet access are currently classified as “information services”
and are not subject to traditional telecommunications services
regulation, such as licensing, pricing regulation or Universal Service Fund ("USF") contribution obligations. The FCC is currently considering
whether to reclassify some or all aspects of broadband Internet access services as telecommunications services under Title II of the
Communications Act. Such a change may impact our regulatory treatment and service reach, potentially increasing costs but simultaneously
offering a non-discriminatory public Internet that may extend our service reach.
General Risks
Cyber security breaches could harm our business.
We maintain large repositories of personal and proprietary customer data and are a third-
party provider of network and IT services. Cyber
security breaches expose us to a risk of unauthorized access to this information. The risk that a security breach could seriously harm our business
is likely to increase as we expand our managed network, security and cloud services. We are regularly subject to cyber security attacks and are
also subject to employee error or malfeasance or other disruptions, although no attack or other disruption has had material consequences to date.
Techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and generally are not recognized until launched
against a target. We have been and will continue to be required to use significant capital and other resources to remedy, protect against and
alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. A material security breach
could damage our reputation, increase our security costs, expose us to litigation and lead to the loss of existing or potential customers. If our
services are perceived as not being secure, our business, including our strategy to serve as a leading managed network, security and cloud
provider, may be adversely affected.
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