Earthlink 2007 Annual Report Download - page 41

decreases in consumer access and service revenues over the past three years were primarily due to decreases in average consumer access and
service subscribers.
Average consumer access and service subscribers decreased over the past three years primarily due to a decrease in premium narrowband
subscribers resulting from the continued maturing and ongoing competitiveness of the market for narrowband Internet access. Contributing to the
decrease during the year ended December 31, 2007 was the removal of 753,000 Embarq subscribers from our subscriber count effective April
2007. These decreases were offset by an increase in average PeoplePC subscribers; an increase in average retail broadband subscribers due to the
continued growth in the market for broadband access and our efforts and our partners' efforts to promote broadband services; and an increase in
average voice subscribers due to the launch of EarthLink DSL and Home Phone Service during 2006. We expect our consumer access and
service subscriber base to continue to decrease due to the continued maturation of the market for premium narrowband access. In addition,
during the year ended December 31, 2007, in response to changing industry trends we refocused our business strategy to reduce sales and
marketing efforts aimed at adding customers that did not provide and acceptable rate of return or that had a pattern of early life churn. We are
focusing efforts primarily on the retention of tenured customers and adding customers that have similar characteristics of our tenured customer
base and are more likely to produce an acceptable rate of return. This may continue to negatively impact the number of subscribers we are able
to add and our revenues.
Contributing to the decrease in consumer access and service revenues from the year ended December 31, 2005 to the year ended
December 31, 2006 was a decrease in ARPU. However, the decrease in consumer access and service revenues from the year ended
December 31, 2006 to the year ended December 31, 2007 was offset by an increase in consumer access and service ARPU. 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 consumer access services at different price plans, and we provide services through retail and wholesale relationships. All of these have an
effect on our overall ARPU.
The decrease in consumer access and service ARPU from the year ended December 31, 2005 to the year ended December 31, 2006 ARPU
was due to the shift in the mix of our narrowband subscriber base from premium narrowband access services, which are typically priced at
$21.95 per month, to our PeoplePC value-priced narrowband access services, which are generally priced at $10.95 per month. During the year
ended December 31, 2005, average PeoplePC access subscribers represented approximately 35% of our average consumer narrowband customer
base, and during the year ended December 31, 2006, average PeoplePC access subscribers represented approximately 42% of our average
consumer narrowband customer base.
The increase in consumer access and service ARPU from the year ended December 31, 2006 to the year ended December 31, 2007 was due
to an increase in broadband access and service ARPU, offset by a decrease in narrowband access and service ARPU. The increase in broadband
access and service ARPU during the year ended December 31, 2007 compared to the prior year was primarily due to a shift in the mix of our
broadband customer base from wholesale DSL subscribers to retail DSL subscribers and to retail cable subscribers due to the removal of Embarq
wholesale subscribers; an increase in our voice subscribers; and certain revenues received pursuant to the Embarq transition agreement.
Offsetting these increases were general declines in retail DSL prices introduced as a result of declines in costs from our DSL service providers
and the increased use of promotional pricing for our service offerings. Narrowband access and service ARPU decreased from the year ended
December 31, 2006 to the year ended December 31, 2007 due to the shift in the mix of our narrowband subscriber base from premium
narrowband access services, as average PeoplePC access subscribers represented approximately 42% and 50% of our average consumer
narrowband customer base during the years ended December 31, 2006 and 2007, respectively.
36