Earthlink 2006 Annual Report Download - page 45

Our results of operations are significantly affected by subscriber cancellations, or “churn.” Our average monthly churn rates for
narrowband subscribers were 5.3%, 5.5% and 5.6% during the years ended December 31, 2004, 2005 and 2006, respectively. The increase in
churn over the past few years was due to early-life churn related to the high level of gross subscriber additions, particularly for our PeoplePC
access services whose shorter-tenured customers comprise an increasingly greater proportion of our customer base and an increased number of
subscribers who are migrating to broadband services. If churn rates continue to be at or above the rate experienced in 2006, our narrowband
subscriber base may decrease at an accelerated rate which could adversely affect our business.
Broadband access revenues
Broadband access revenues consist of retail and wholesale fees charged for high-speed, high-capacity access services including DSL,
cable, satellite and wireless services; fees charged for high-speed data networks to businesses and communications carriers; fees charged for IP-
based voice services; installation fees; termination fees; fees for equipment; and regulatory surcharges billed to customers. Broadband revenues
increased 5% to $441.7 million and 27% to $559.7 million during the years ended December 31, 2005 and 2006, respectively, compared to the
prior years. The increases were primarily due to increases in average broadband subscribers.
Subscribers. The following table summarizes broadband subscriber activity for the years ended December 31, 2004, 2005 and 2006:
(a)
Acquired subscribers for year ended December 31, 2006 represents broadband subscribers acquired in the New Edge merger transaction.
The average number of broadband subscribers was 1.2 million, 1.5 million and 1.8 million during the years ended December 31, 2004,
2005 and 2006, respectively. The average number of broadband subscribers increased over the past three years primarily due to the continued
growth in the market for broadband access and our and our partners’
efforts to promote broadband services. Also contributing to the increase in
average broadband subscribers during the year ended December 31, 2006 compared to the prior year was the acquisition of New Edge and the
addition of IP-based voice subscribers due to the launch of EarthLink DSL and Home Phone Service in several markets during 2006.
ARPU. Broadband ARPU depends on a variety of factors including changes in the mix of customers and their related pricing plans; the
use of promotions and discounted pricing plans to obtain or retain subscribers; increases or decreases in the prices of our existing services; and
the addition of new services. We currently offer several broadband access services at different price plans, we offer our broadband access
services to consumers and businesses, and we provide services through retail and wholesale relationships. All of these have an effect on our
overall broadband ARPU.
In a retail relationship, we market the service directly to consumers and businesses under an EarthLink brand, have latitude in establishing
price, and are responsible for most aspects of providing the service, including first tier customer support. In a wholesale relationship, a
telecommunications partner markets the service, has latitude in establishing price and pays us to provide underlying broadband access
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Year Ended December 31,
2004
2005
2006
Subscribers at beginning of year
1,061,000
1,364,000
1,608,000
Gross organic subscriber additions
660,000
616,000
708,000
Acquired subscribers (a)
—
—
58,000
Narrowband subscribers converted to our broadband services,
net
15,000
88,000
44,000
Churn
(372,000
)
(460,000
)
(532,000
)
Subscribers at end of year
1,364,000
1,608,000
1,886,000