Earthlink 2015 Annual Report Download - page 21

Table of Contents
The continued decline in switched access and reciprocal compensation revenue will adversely affect our results of operations.
We are experiencing declines in revenues for switched access and reciprocal compensation as a result of lower volume of traditional long distance voice minutes
and FCC and state regulations compelling a reduction of switched access and reciprocal compensation rates. In late 2011, the FCC adopted policy changes that
over time are reducing carriers' terminating access rates. We have modified our applicable state access tariffs and billing to implement the FCC's required reduction
in intrastate access charges. These rules have resulted in a loss of revenues and an increase in our volume of carrier disputes, and we expect this to continue and we
are required to reduce our interstate access charges and reciprocal compensation charges in coming years. Moreover, the FCC has pending an open proceeding that
asks whether originating switched access charges should also be reduced. Switched access and reciprocal compensation together have been declining over time.
There can be no assurance that we will be able to compensate for the reduction in intercarrier compensation revenue with other revenue sources or increased
volume.
Failure to obtain and maintain necessary permits and rights-of-way could interfere with our network infrastructure and operations.
We must negotiate and manage agreements with state highway authorities, local governments, transit authorities, local telephone companies and other utilities,
railroads, long distance carriers and other parties to obtain and maintain rights-of-way and similar franchises and licenses needed to install, operate and maintain
fiber optic cable and our other network elements. If any of these authorizations terminate or lapse, our results of operations and cash flows could be adversely
affected.
If our larger carrier customers terminate the service they receive from us, our revenues and results of operations could be adversely affected.
We generate wholesale revenue from the sale of transmission capacity to other telecommunications carriers and have substantial business relationships with several
large telecommunications carriers for whom we provide services. Replacing this wholesale revenue may be difficult because individual enterprise and small to
medium business customers tend to place smaller service orders than our larger carrier customers. In addition, pricing pressure on services that we sell to our
carrier customers may challenge our ability to grow revenue from carrier customers. As a result, if our larger carrier customers terminate the services they receive
from us, our wholesale revenues and results of operations could be adversely affected.
We obtain a majority of our network equipment and software from a limited number of third-party suppliers.
We obtain the majority of our network equipment and software from a limited number of third-party suppliers. We also rely on these suppliers for technical support
and assistance. If any of these relationships is terminated or if the third-party suppliers were to otherwise fail to provide necessary equipment and software, our
ability to efficiently maintain, upgrade or expand our network could be impaired. Although we believe that we would be able to address our future equipment needs
with equipment obtained from other suppliers, we cannot assure that such equipment would be compatible with our network without significant modifications or
cost, if at all. If we were unable to obtain the equipment necessary to maintain our network, our ability to attract and retain customers and provide our services
would be impaired.
Risks Related to Our Consumer Services
Our commercial and alliance arrangements may not be renewed or may not generate expected benefits, which could adversely affect our results of operations.
A significant number of our new consumer subscribers are generated through our agreements with Time Warner Cable and Bright House Networks. These
agreements are not exclusive and have a short term. Our agreement with Time Warner Cable expires in October 2017 and our agreement with Bright House
Networks expires in February 2017. There are no assurances we will be able to renew these agreements or our other commercial and alliance arrangements as they
expire or otherwise terminate, or that we will receive the same benefits as we do today if the agreements are extended. There is no commitment for Time Warner
Cable and Bright House Networks or our other partners to provide us with new customers and these partners may market their own services rather than ours. In
addition, mergers and consolidation in the industry, including the proposed merger of Charter Communications, Inc., Time Warner Cable and Bright House
Networks, may impact future agreements. Any of the above could adversely affect our results of operations and cash flows.
Our consumer business is dependent on the availability of third-party network service providers.
Our consumer business depends on the availability, capacity, affordability, reliability and security of third-party network service providers. Only a small number of
providers offer the network services we require, and the majority of our network services are
18