Earthlink 2014 Annual Report Download - page 41

Table of Contents
in the industry, the migration of customers to more advanced services and a decreased emphasis on selling these services.
Consumer Services
Consumer Services revenues decreased during the years ended December 31, 2013 and 2014 compared to the prior years primarily due to the
following:
Cost of revenues
The following table presents our cost of revenues for the years ended December 31, 2012, 2013 and 2014 :
Cost of revenues for our Business Services segment primarily consists of the cost of connecting customers to our networks via leased facilities;
the costs of leasing components of our network facilities; costs paid to third-
party providers for interconnect access and transport services; and
the cost of equipment sold to customers.
Cost of revenues for our Consumer Services segment primarily consists of telecommunications fees and network operations costs incurred to
provide our Internet access services; fees paid to suppliers of our value-
added services; fees paid to content providers for information provided
on our online properties; and the cost of equipment sold to customers for use with our services.
Business Services
The following table presents the primary reasons for the changes in Business Services cost of revenues for the years ended
December 31, 2013
and 2014 compared to the prior years:
______________
36
• Decreases in average consumer access subscribers, which were 1.2 million , 1.1 million and 0.9 million
during the years ended
December 31, 2012, 2013 and 2014
, respectively. The decrease resulted from limited sales and marketing activities, the continued
maturation of the market for Internet access and competitive pressures in the industry. However, as we continue to focus on the
retention of customers, our monthly consumer subscriber churn rates were 2.4% , 2.1% and 2.1% during the years ended
December 31,
2012, 2013 and 2014 , respectively, which moderated the decline in average consumer subscribers.
• Partially offset by increases in our average revenue per subscriber, which was $21.34 , $21.83 and $22.89
during the years ended
December 31, 2012, 2013 and 2014
, respectively. The increases were due to targeted price increases and a change in mix of
subscribers. In addition, we began billing certain broadband subscribers for modem equipment rental in April 2014 which also
contributed to the increase in average revenue per subscriber from 2013 to 2014.
Year Ended December 31, 2013 vs 2012 2014 vs 2013
2012 2013 2014 $ Change % Change $ Change % Change
(dollars in thousands)
Business Services
$
527,514
$
506,245
$
469,523
$
(21,269
)
(4)%
$
(36,722
)
(7
)%
Consumer Services
105,102
94,497
87,913
(10,605
)
(10)%
(6,584
)
(7
)%
Total cost of revenues
$
632,616
$
600,742
$
557,436
$
(31,874
)
(5)%
$
(43,306
)
(7
)%
2013 vs 2012 2014 vs 2013
(in millions)
Due to cost saving initiatives and declines in traditional products (a)
$
(5.0
)
$
(36.2
)
Due to favorable settlements (b)
(3.8
)
(10.7
)
Due to change in reserves for regulatory audits (c)
(15.5
)
7.2
Due to acquisitions (d)
3.0
3.0
Total change in Business Services cost of revenues
$
(21.3
)
$
(36.7
)
(a)
Decrease due to a concentrated effort to manage cost of revenues through network grooming, auditing invoices and other cost saving
initiatives, which was a significant strategy during 2014, and declines in traditional voice and data products. Partially offsetting these
declines were increased sales of growth products.
(b)
Decrease due to change in estimates for favorable dispute and other settlements recognized during 2013 and 2014.