Earthlink 2007 Annual Report Download - page 42

Value-added services revenues. Value-added services revenues consist of search revenues; advertising revenues; revenues from ancillary
services sold as add-on features to our Internet access services, such as security products, email by phone, Internet call waiting and email
storage; and revenues from home networking products and services. We derive these revenues by paid placements for searches; delivering traffic
to our partners in the form of subscribers, page views or e-commerce transactions; advertising our partners' products and services in our various
online properties and electronic publications, including the Personal Start Page™; referring our customers to our partners' products and services;
and monthly fees charged for ancillary services.
Value-added services revenues was $79.5 million, $117.6 million and $128.0 million during the years ended December 31, 2005, 2006 and
2007, respectively. The increases over the past three years were due primarily to increases in sales of security products, anti-spam products and
premium mail products. Also contributing to the increase for the year ended December 31, 2006 compared to the year ended December 31, 2005
was increased search advertising revenues and partnership advertising revenues.
Business services revenue
Business access and service revenues consist of retail and wholesale fees charged for high-speed, high-capacity access services including
DSL, cable, satellite and dedicated circuit services; fees charged for high-speed data networks for small and medium-sized businesses;
installation fees; termination fees; fees for equipment; regulatory surcharges billed to customers; and web hosting. We earn web hosting
revenues by leasing server space and providing web services to individuals and businesses wishing to have a web or e-
commerce presence on the
Internet.
Business access and service revenues increased from $66.7 million during the year ended December 31, 2005 to $158.4 million during the
year ended December 31, 2006 and to $187.7 million during the year ended December 31, 2007. These increases were primarily due to increases
in both average business access and service subscribers and business access and service ARPU, which were attributable to the acquisition of
New Edge in April 2006. Offsetting these increases were a decreases in web hosting revenues primarily due to a decrease in average web hosting
accounts and decreases in business narrowband revenues.
Our business broadband subscriber base consists of customers which are added through retail and wholesale relationships. Retail business
services generally have an ARPU between $100 and $130 for non-networked solutions and an ARPU between $175 and $225 for networked
solutions. Wholesale business services generally have an ARPU between $75 and $95. The pricing of broadband services for small and medium-
sized businesses depends upon customer requirements for different service delivery methods, amounts of bandwidth, quality of service and
distance from the points of presence, and may vary widely from these ranges. The number of customers being added or served at any point in
time through our wholesale efforts is subject to the business and marketing circumstances of our telecommunications partners.
Cost of revenues
Service and equipment costs are the primary component of our cost of revenues and consist of telecommunications fees, set-up fees,
network equipment costs incurred to provide our Internet access services, depreciation of our network equipment and surcharges due to
regulatory agencies. Service and equipment costs also include the cost of Internet appliances. Our principal provider for narrowband
telecommunications services is Level 3 Communications, Inc., and our largest providers of broadband connectivity are Covad Communications
Group, Inc. ("Covad") and Time Warner Cable. We also do lesser amounts of business with a wide variety of local, regional and other national
providers. We purchase broadband access from Incumbent Local Exchange Carriers, Competitive Local Exchange Carriers and
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