Earthlink 2004 Annual Report Download - page 34

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discussion under “Regulatory Environment” in the Business section of this 10-K for more information.
(c)
Churn rate is used to measure the rate at which subscribers discontinue service on a voluntary or involuntary basis. Churn rate is
computed by dividing the average monthly number of subscribers that discontinued service during the period by the average subscribers
for the period.
(d)
Average subscribers or accounts is calculated by averaging the ending monthly subscribers or accounts for the thirteen months preceding
and including the end of the fiscal year.
(e)
Narrowband service ARPU represents average monthly service revenue per user (subscriber). Narrowband service ARPU is computed by
dividing average monthly service revenue for the period by the average number of subscribers for the period. Service revenue includes
monthly fees charged to customers for dial-up and wireless Internet access and excludes equipment and related revenues and revenues
associated with acquired Membership Customers (as described below).
(f)
ARPU represents the average monthly revenue per user (subscriber). ARPU is computed by dividing average monthly revenue for the
period by the average number of subscribers for the period. Average monthly revenue used to calculate ARPU includes recurring service
revenue as well as nonrecurring revenues associated with equipment and other one-
time charges associated with initiating or discontinuing
services.
The subscriber amounts in the preceding and subsequent tables do not include Membership Customers that purchased a bundled package
(which included a computer, Internet access, customer support and an in-home warranty) from PeoplePC prior to the date of our acquisition of
PeoplePC in July 2002 that continued to receive service for their prepaid terms. As of December 31, 2002, 2003 and 2004, there were 487,000,
160,000 and 14,000 such Membership Customers, respectively, receiving services, a decline from 518,000 at the date of the acquisition. These
amounts include 99,000 international Membership Customers as of December 31, 2002 and 2003, respectively, which we did not intend to
target in our efforts to convert these Membership Customers to paying subscribers. We have excluded these Membership Customers from our
subscriber counts because they prepaid for service for periods of up to four years prior to the date of our acquisition of PeoplePC. At the
acquisition date, EarthLink established a liability for its estimated cost to deliver services to these Membership Customers pursuant to their
contract terms, and EarthLink reduces the liability and records non-cash revenues as it delivers services to these Membership Customers. Such
reduction is intended to offset the cost of delivering the services. The reduction in the deferred service liability and the amount of associated
revenues recorded were $9.1 million, $14.0 million and $1.8 million during the years ended December 31, 2002, 2003 and 2004, respectively.
31