Earthlink 2003 Annual Report Download - page 26

The effect of the increase in subscribers was partially offset by a decrease in average monthly revenue per broadband subscriber during the
same period. Average monthly revenue per subscriber declined 13% from $39.38 during the year ended December 31, 2001 to $34.23 during
the year ended December 31, 2002. The decrease in average monthly revenue per broadband subscriber was due to a continued shift in the mix
of our broadband subscriber base from frame relay and dedicated circuit subscribers to retail DSL, retail cable and wholesale broadband
relationships. The decrease also resulted from introductory pricing offered to new retail broadband customers in 2002 to stimulate increased
sales.
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The following table summarizes broadband subscriber activity for the years ended December 31, 2001 and 2002:
Web hosting revenues
Web hosting revenues decreased 10% from $59.3 million during the year ended December 31, 2001 to $53.2 million during the year
ended December 31, 2002. The decrease in web hosting revenues was due to a decrease in average revenue per account during the year ended
December 31, 2002 as compared to the year ended December 31, 2001.
Average monthly revenue per account declined 11% from $28.70 during the year ended December 31, 2001 to $25.61 during the year
ended December 31, 2002. The decline in average monthly web hosting revenue per account reflects the migration to lower price points to be
competitive in the SOHO (small office/ home office) business market. Average web hosting accounts were 172,000 during the year ended
December 31, 2001 and 173,000 during the year ended December 31, 2002.
Content, commerce and advertising revenues
Content, commerce and advertising revenues decreased $2.7 million, or 15%, from $18.5 million during the year ended December 31,
2001 to $15.8 million during the year ended December 31, 2002 due to a decline in the market for Internet advertising.
Cost of revenues
Telecommunications service and equipment costs increased 7% from $509.5 million during the year ended December 31, 2001 to
$544.0 million during the year ended December 31, 2002. Telecommunications service and equipment costs as a percentage of revenues
decreased slightly from 40.9% for the year ended December 31, 2001 to 40.1% for the year ended December 31, 2002. The increase in
telecommunications service and equipment costs during the year ended December 31, 2002 as compared to the year ended December 31, 2001
was due to a slight increase in average subscribers combined with a 5% increase in average monthly telecommunications service and
equipment cost per subscriber.
Average monthly telecommunications service and equipment costs per subscriber increased due to the increasing portion of our business
represented by broadband subscribers, which is a more costly service to deliver. Broadband subscribers were 10% and 16% of total subscribers
at December 31, 2001 and 2002, respectively. Average monthly telecommunications service and equipment costs per subscriber also increased
due to costs associated with personal computers recorded in connection with the sale of Membership Packages. The increase in overall average
monthly telecommunications service and equipment costs per subscriber was partially offset by a decline in average monthly
telecommunications service costs per narrowband subscriber, which resulted from improvements in communications technology, the increasing
scale of Internet-related business and competition among telecommunications providers.
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Year Ended December 31,
2001 2002
(in thousands)
Subscribers at beginning of year
215
471
Gross organic subscriber additions
277
322
Acquired subscribers
—
7
Narrowband subscribers converted to our broadband services
62
98
Churn
(83
)
(119
)
Subscribers at end of year
471
779