Earthlink 2004 Annual Report Download - page 37

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customers shifted from p remium-priced narrowband subscribers to value-priced narrowband subscribers. Average premium-
priced narrowband
subscribers decreased 386,000 during 2004, while average value-priced access subscribers increased 421,000. The decrease in premium-priced
narrowband subscribers resulted from the migration of subscribers to broadband services and the continued maturing and ongoing
competitiveness of the market for narrowband Internet access. We expect the mix of our narrowband subscriber base to continue to shift from
premium-priced narrowband access services to value-priced access services.
During the year ended December 31, 2005, the transfer of wireless subscribers to the SK-EarthLink joint venture is expected to cause our
narrowband customer base to decline by approximately 30,000 customers and narrowband access revenues to decline approximately $35.0
million compared to the year ended December 31, 2004.
The following table summarizes narrowband subscriber activity for the years ended December 31, 2003 and 2004:
Our results of operations are significantly affected by subscriber cancellations, or “churn.” Our average monthly churn rates for
narrowband subscribers were 4.6% and 5.3% during the years ended December 31, 2003 and 2004, respectively. The increase in churn from the
rates experienced in early 2003 was due to early-life churn related to the high level of gross subscriber additions, particularly for our value-
priced access services whose shorter-
tenured customers comprise an increasingly greater proportion of our customer base; an increased number
of subscribers who are migrating to broadband services; and discontinuing service to certain wireless subscribers during the latter half of 2003
and early 2004 due to the abandonment of the OmniSky platform. If churn rates continue to be at or above the rates experienced in 2004, our
narrowband subscriber base may decrease at an accelerated rate which would adversely affect our business.
Broadband access revenues
Broadband access revenues consist of fees charged for high-speed, high-capacity access services including digital subscriber line (“DSL”
),
cable, satellite and dedicated circuit services; installation fees; termination fees; and fees for equipment. Broadband revenues increased 16% to
$419.4 million. The increase was due to a higher average number of broadband subscribers, from 0.9 million during the year ended
December 31, 2003 to 1.2 million during the year ended December 31, 2004. The increase in average subscribers was due to continued growth
in the market for broadband access and our efforts to promote broadband services. The effect of the increase in average subscribers was
partially offset by an 11% decrease in overall broadband ARPU.
Broadband ARPU for each of our retail broadband service offerings for the year ended December 31, 2004 remained at levels consistent
with rates realized during the year ended December 31, 2003. However, overall broadband ARPU declined 11% due primarily to a shift in the
mix of our broadband subscriber base from retail DSL subscribers to retail cable and EarthLink Experience customers. EarthLink Experience
customers have a lower monthly rate because they purchase EarthLink services and
34
Year Ended December 31,
2003
2004
(in thousands)
Subscribers at beginning of year
4,035
3,984
Gross organic subscriber additions
2,087
2,450
Acquired subscribers
76
12
Narrowband subscribers converted to our broadband services, net
(54
)
(15
)
Churn
(2,160
)
(2,551
)
Subscribers at end of year
3,984
3,880