Earthlink 2015 Annual Report Download - page 22

Table of Contents
currently purchased from a limited number of network service providers. Many network service providers have merged and may continue to merge, which would
reduce the number of suppliers from which we could purchase network services. Our largest providers of broadband connectivity are AT&T, Bright House
Networks, Comcast Corporation, Fairpoint, Frontier, Global Capacity, Time Warner Cable and Verizon. Our principal provider for narrowband services is
GlobalPOPs. We also have agreements with various other providers, including certain regional and local dial-up providers.
We cannot be certain of renewal or non-termination of our contracts with network service providers or that legislative or regulatory factors will not affect our
contracts. Additionally, each of our network service providers sells network access to some of our competitors and could choose to grant those competitors
preferential network access or pricing. Many of our network service providers compete with us in the market to provide consumer Internet access. As our consumer
business continues to decline, our network service providers may not want to continue their relationship with us or do so at current prices. Our agreements
generally have volume based tiered pricing which is leading to higher unit costs as we experience declines in subscribers. Our results of operations could be
materially adversely affected if we are unable to renew or extend contracts with our current network service providers on acceptable terms, renew or extend current
contracts with our network service providers at all, acquire similar network capacity from other network providers, or otherwise maintain or extend our footprint.
We face significant competition in the Internet access industry that could reduce our profitability.
The Internet access industry is extremely competitive, and we expect competition to continue to intensify. Our primary competitors are national communications
companies and local exchange carriers, such as AT&T, CenturyLink , Verizon and Windstream; cable companies providing broadband access, including Charter,
Comcast, Cox Communications, Inc. and Time Warner Cable; local and regional ISPs; established online services companies, such as AOL and the Microsoft
Network; free or value-priced ISPs, such as United Online, Inc. which provides service under the brands Juno and NetZero; wireless Internet service providers;
content companies and email providers, such as Google and Yahoo!; and satellite and fixed wireless service providers. Competitors for our advertising services
also include content providers, large web publishers, web search engine and portal companies, Internet advertising providers, content aggregation companies,
social-networking web sites, and various other companies that facilitate Internet advertising. The wireless business has expanded significantly and has caused many
subscribers with traditional Internet access services to terminate those services and to rely exclusively on wireless services, and devices such as wireless data cards,
tablets, smartphones and mobile wireless routers that connect to such devices, also compete with our Internet access services.
We believe the primary competitive factors in the Internet access industry are price, speed, features, coverage area and quality of service. While we believe our
Internet access services compete favorably based on some of these factors when compared to some Internet access providers, we are at a competitive disadvantage
relative to some or all of these factors with respect to other of our 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; (iv) the need to respond to particular short-term, market-specific situations, such as special
introductory pricing; and (v) the need to increase marketing expenses or other operating costs to remain competitive. Any of the above could adversely affect our
results of operations and cash flows.
The continued decline of our consumer access subscribers will adversely affect our results of operations.
During the years ended December 31, 2013, 2014 and 2015, our average consumer access subscribers were 1.1 million, 0.9 million to 0.8 million. Our consumer
access subscriber base and revenues have been declining due to continued maturation of the market for Internet access, competitive pressures in the industry and
limited sales and marketing efforts. We expect our consumer access subscriber base and revenues to continue to decline. We have implemented, and may continue
to implement, targeted price increases, which could also negatively impact our churn rates. We are focused on retaining customers and managing our customers for
cash. Although we have reduced costs in order to manage the profitability of our consumer services, 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 results of operations and cash flows will be
adversely affected.
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