Earthlink 2004 Annual Report Download - page 30

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Item 1 of Part I, “Business—Risk Factors,” which, along with the following discussion, describes some, but not all, of the factors that could
cause actual results to differ significantly from management’s expectations.
Overview
EarthLink, Inc. (“EarthLink,” “we,” “us” or “our”) is an Internet service provider (“ISP”), providing nationwide Internet access and
related value-added services to individual and business customers. Our primary service offerings are narrowband, broadband or high-
speed, and
wireless Internet access services; web hosting services; and advertising and related services. We provide our broad range of services to more
than five million paying customers through a nationwide network of dial-up points of presence (“POPs”),
a nationwide broadband footprint and
wireless technologies. We derive substantially all revenues from services, primarily Internet access services, and related fees, and such
revenues represented 97% or more of total revenues for each of the three years in the period ended December 31, 2004. The remaining
revenues relate to sales of equipment and devices used by our subscribers to access our services.
The Internet access market in the U.S. grew dramatically from the mid-1990’s through 2000 but has experienced slower growth since as
the market has reached a mature stage of growth. Approximately 74 million households are estimated to have had Internet access services at
December 31, 2004, and about three to four million new households are currently adding Internet access each year. Within the total Internet
access market, the market for traditional, fully-featured, unlimited narrowband dial-up access services, which are typically priced at $17.95 to
$23.95 per subscriber per month, is the most common service but is shrinking. Focused, value-priced narrowband access providers offer
services with a limited set of features priced typically at $9.95 to $14.95 per month and are currently demonstrating an ability to grow by
attracting households new to the Internet or current Internet users interested in reducing their cost of Internet access. Broadband, or high-speed,
access is typically priced at $20 to $50 per month and is growing, having added an estimated seven million households in 2004 to an estimated
total of 29 million households at the end of 2004. It is predicted that households with broadband connections will surpass households with dial-
up connections sometime during 2005.
EarthLink provides all three types of access described above (traditional, fully-featured narrowband access; value-priced narrowband
access; and broadband access). Our subscriber base grew from approximately 5.2 million paying subscribers at December 31, 2003 to
approximately 5.4 million paying subscribers at December 31, 2004. Total revenues decreased from $1,401.9 million during the year ended
December 31, 2003 to $1,382.2 million during the year ended December 31, 2004. While our overall subscriber base grew over the last year,
the mix of customers has shifted toward broadband services, reflecting the growth of this component of the Internet access market and our
expanding broadband footprint and offerings, and toward value-priced narrowband Internet access services. Our traditional, premium-priced
narrowband subscriber base has been declining reflecting the increasing maturity of this service.
Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on high-growth
opportunities such as broadband and value-priced narrowband access to generate organic subscriber growth; marketing high quality,
differentiated products and services; improving operating margins to fund growth; and expanding into new growth markets. The primary
challenges we face in successfully implementing our business strategy are competition, purchasing cost-effective wholesale broadband access,
and delivering continued improvements in overall profits despite broadband and value-priced narrowband access services becoming a larger
percentage of our business.
We operate in a highly competitive market for each of our service offerings, and the competitive environment impacts the churn rates we
experience as well as the number of new customers we are able to add. The largest competitors in broadband access are the cable companies
and regional bell operating
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