Earthlink 2005 Annual Report Download - page 17

cash and contributed non-cash assets valued at $40.0 million upon completing the formation of HELIO in March 2005, invested $39.0 million
of cash in August 2005, invested $39.5 million of cash in February 2006 and have committed to invest additional cash of $58.5 million in
HELIO at various dates through August 2007. We expect the financing of HELIO’s operations to adversely affect our cash position. In
addition, we expect HELIO to continue to incur losses due to the start-
up nature of its operations, and we include our proportionate share of the
losses of HELIO in our statements of operations, which adversely affects our earnings and earnings per share. In addition, HELIO may not be
successful in developing or implementing its wireless voice and data initiatives, and there can be no assurance that these initiatives will be
commercially successful. This would adversely affect our financial position, results of operations and liquidity.
We continue to evaluate investment opportunities and may make investments in the future in companies that offer products and services
that are complementary to our offerings and in companies that allow us to vertically integrate our business. The value of each of our
investments is subject to general economic, technological and market trends, as well as to the operating and financial decisions of each
company’s management team, all of which are outside of our control. In addition, these companies may not gain the expected number of
customers and/or generate the expected level of revenues, and consequently, these companies may require additional funding, any of which
could diminish the value of or dilute our investment. Our current and future investments in other companies, including our investment in the
HELIO joint venture, may not provide the economic returns we are seeking and may lose value, which would materially, adversely affect our
financial position, results of operations and liquidity.
Our service offerings may fail to be competitive with existing and new competitors.
Competition for Internet Services
We operate in the Internet services market, which is extremely competitive. Current and prospective competitors include many large
companies that have substantially greater market presence and greater financial, technical, marketing and other resources than we have. We
compete directly or indirectly with the following categories of companies:
•
established online services companies, such as Time Warner (AOL) and the Microsoft Network (MSN);
•
local and regional ISPs;
•
free or value-priced ISPs such as United Online;
•
national telecommunications companies, such as AT&T Inc. and Verizon;
•
regional Bell operating companies, such as BellSouth;
•
content companies, such as Yahoo! and Google Inc., who have expanded their service offerings;
•
cable television companies providing broadband access, including Comcast, Charter Communications, Inc. and Cox
Communications, Inc.; and
• utility and local and long distance telephone companies.
Competition is likely to continue increasing, particularly as large diversified telecommunications and media companies continue to
provide ISP services. Diversified competitors may continue to bundle other content, services and products with Internet access services,
potentially placing us at a significant competitive disadvantage. The ability to bundle services, as well as the financial strength and the benefits
of scale enjoyed by certain of these competitors, may enable them to offer services at prices that are below the prices at which we can offer
comparable services. If we cannot compete effectively with these service providers, our revenues and growth may be adversely affected.
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