Earthlink 2007 Annual Report Download - page 33

whereby SK Telecom agreed to make up to $270.0 million in additional equity contributions to HELIO, while we retain the right
to make additional investments in HELIO. This eliminates any future requirement to invest in HELIO, while allowing us to
maintain a meaningful ownership position in HELIO with potential investment return in the future.
Industry Background
We operate in the Internet access market, which is characterized by intense competition, changing technology, evolving industry standards,
changes in customer needs and new service and product introductions. The Internet access market has reached a mature stage of growth;
however, growth is expected to continue at a slow rate as more services become available online, Internet access prices remain low, computer
prices continue to decline and consumers increasingly gain access at places outside the home.
In the last few years, the composition of the Internet access market has changed and the number of households with broadband access
surpassed the number of households with dial-
up access. Consumers continue to migrate to broadband due to the faster connection and download
speeds provided by broadband access, the ability to free up their phone lines and the more reliable and "always on" connection. The pricing for
broadband services, particularly for introductory promotional periods, services bundled with video and telephone services, and services with
slower speeds, has been declining and is approaching prices for traditional dial-up services, making it a more viable option for consumers that
continue to rely on dial-up connections for Internet access. In addition, advanced applications such as online gaming, music downloads and
photo sharing require greater bandwidth for optimal performance, which adds to the demand for broadband access. However, analysts predict a
continuing market for dial-up customers.
Currently, most residential broadband consumers access the Internet via DSL or cable. One of the outgrowths from the rapid deployment of
broadband connectivity has been the adoption of Voice over Internet Protocol ("VoIP"). VoIP is a technology that enables voice communications
over the Internet through the conversion of voice signals into data packets. VoIP technology presents several advantages over the technology
used in traditional wireline telephone networks and enables VoIP providers to operate with lower capital expenditures and operating costs while
offering both traditional and innovative service features.
Revenue Sources
We provide access services (including traditional, fully-featured narrowband access and value-priced narrowband access; high-
speed access
via DSL, cable and satellite; IP-based voice; and high-speed data networks for small and medium-
sized businesses and communications carriers)
and value-added services (including ancillary services sold as add-
on feature to our services, search and advertising). We earn revenues primarily
from monthly fees charged to customers for services. We also earn revenues from usage fees; installation fees; termination fees; and fees for
equipment used to access our services. Total revenues were $1.29 billion, $1.30 billion and $1.22 billion during the years ended December 31,
2005, 2006 and 2007, respectively. Our traditional, premium-
priced narrowband revenues have been declining due to the maturity of this service.
In addition, the mix of our narrowband customers has shifted towards value-priced narrowband access. However, the decrease in revenues were
offset by an increase in revenues due to our acquisition of New Edge Networks in April 2006, an increase in revenues due to the launch of IP-
based voice services during 2006 and an increase in value-added services revenues.
Business Strategy and Risks
During 2006 and the beginning half of 2007, we were investing in various growth initiatives with the objective of generating a return on our
investments. These growth initiatives included VoIP services, municipal wireless broadband services and business services. We were also
making investments in HELIO,
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