Earthlink 2004 Annual Report Download - page 32

A growing part of our strategy is to introduce new products and services to enhance our competitive position and generate additional
revenues and profits. Some of the new initiatives we are exploring include wireless data and voice solutions, Voice over Internet Protocol,
wireless broadband and additional value added services, such as enhanced security products. We expect to continue to evaluate the feasibility
of new technologies and develop new service offerings, focusing primarily on offerings associated with traditional wireline and wireless voice
services. In that regard, we entered into an agreement with SK Telecom Co., Ltd. (“SKT”) in January 2005 to form SK-EarthLink, a joint
venture designed to market wireless voice and data services in the U.S. In order to be successful, we must adapt to the competitive, legal and
regulatory environments to deliver compelling, competitive and useful services to consumers and businesses.
However, the factors we believe are instrumental to the achievement of our goals, including the factors identified above, may be subject to
competitive, regulatory, and other events and circumstances that are beyond our control. Consequently, although we have successfully
improved overall profits during the three-year period ended December 31, 2004, we can provide no assurance that we will be successful in
achieving any or all of the factors identified above, that the achievement or existence of such factors will result in profit improvements, or that
other factors will not arise that would adversely affect future profits.
Strategic Alliances
We have a marketing relationship with Sprint Corporation (“Sprint”). During the years ended December 31, 2003 and 2004, our
relationship with Sprint generated approximately 10% of EarthLink’s total gross organic subscriber additions. In April 2004, we entered into a
new three-year marketing and sales agreement with Sprint which provides that EarthLink will be the preferred high-speed ISP for Sprint’
s local
residential and small business customers. Our arrangement with Sprint is not exclusive, and Sprint may pursue relationships with other ISPs.
We have a marketing relationship with Dell Inc. (“Dell”). During the year ended December 31, 2004, our relationship with Dell generated
more than 5% of EarthLink’s total gross organic subscriber additions. Our marketing relationship is not exclusive, and Dell may pursue
relationships with other ISPs.
We have an agreement with Time Warner Cable and Bright House Networks, companies whose networks pass more than 22 million
homes, to offer our broadband Internet services over their systems. In connection with the agreement, Time Warner Cable and Bright House
Networks receive consideration from EarthLink for carrying the EarthLink service and related Internet traffic. As of December 31, 2004, more
than 25% of our broadband subscribers were serviced via either the Time Warner Cable or Bright House Networks network.
Acquisition
In July 2002, we acquired PeoplePC Inc. (“PeoplePC”). PeoplePC provides value-priced Internet access using a cost-efficient technology
platform. PeoplePC also provided a membership package that included a brand-name computer, unlimited Internet access, customer support
and an in-home warranty (“Membership Package”). In the transaction, we acquired approximately 518,000 PeoplePC prepaid, bundled
subscribers (“Membership Customers”) and approximately 55,000 value-priced, monthly billed subscribers. PeoplePC is currently focused
solely on the sale of value-priced access services.
Recent Development
In January 2005, EarthLink entered into a definitive agreement with SKT to form a joint venture—SK-
EarthLink. The new entity will be a
non-facilities-based mobile virtual network operator (“MVNO”) offering mobile communications services and handsets to U.S. consumers.
EarthLink and SKT expect for the closing and initial financing of SK-EarthLink to occur in March 2005 and for SK-EarthLink’s
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