Earthlink 2009 Annual Report Download - page 15

Table of Contents
Item 1A. Risk Factors.
The following risk factors and other information included in this Annual Report on Form 10-
K should be carefully considered. The risks
and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently
deem immaterial also may adversely impact our business operations. If any of the following risks occur, our business, financial condition,
operating results and cash flows could be materially adversely affected.
Risks Related to Our Business and Industry
The continued decline of our consumer access subscribers, combined with the change in mix of our consumer access subscriber base from
narrowband to broadband, will adversely affect our results of operations.
Our consumer access revenues consist primarily of narrowband access revenues and broadband access revenues. Our narrowband
subscriber base and revenues have been declining and are expected to continue to decline due to continued maturation of the market for
narrowband access, increased availability and reduced pricing of broadband access services and an increase in advanced applications such as
music downloads, videos, online gaming and social networking which require greater bandwidth for optimal performance. In addition, our
narrowband subscriber base and revenues have been adversely impacted by the effects of our refocused strategy announced in 2007, which
resulted in significantly reducing our sales and marketing efforts and focusing instead on retaining customers and adding customers that are more
likely to produce an acceptable rate of return. Our broadband subscriber base and revenues have also been declining due to our refocused
strategy and due to increased competition among broadband providers. We expect our consumer access subscriber base and revenues to continue
to decline, which will adversely affect our profitability and results of operations. If we do not maintain our relationships with current customers
or acquire new customers, our revenues will decline and our profitability will be adversely affected.
Changes in the mix of our consumer access subscriber base, from narrowband access to broadband access, have also negatively affected our
consumer access profitability. Our consumer broadband access services have lower gross margins due to the higher costs associated with
delivering broadband services. Our ability to provide these services profitably is dependent upon cost-
effectively purchasing wholesale
broadband access and managing the costs associated with delivering broadband services. While we continuously evaluate cost reduction
opportunities associated with the delivery of broadband access services, our overall profitability will be adversely affected if we are unable to
continue to manage and reduce costs associated with the delivery of broadband services.
We will have less ability in the future to implement cost reduction initiatives to offset our revenue declines, which will adversely affect our
results of operations.
We have implemented significant cost reduction initiatives to align costs with trends in our revenues, including reducing our headcount,
outsourcing certain functions, streamlining internal processes, renegotiating contacts with network service providers and consolidating or closing
certain facilities. We plan to continue to implement cost reduction initiatives and to manage our business more efficiently. However, we believe
that large-
scale cost reduction opportunities will be more limited in the future and in some cases, we may incur upfront costs in connection with
implementing certain initiatives. Although we seek to align our cost structure with trends in our revenue, we do not expect to be able to reduce
our cost structure to the same extent as our revenue declines and our cost reduction initiatives might not yield the anticipated benefits. If we do
not recognize the anticipated benefits of our cost reduction initiatives, or do so in a timely manner, our profitability and cash flows will decline.
We face significant competition that could reduce our profitability.
We face significant competition in the markets in which we operate and we expect this competition to intensify. The intense competition
from our competitors could cause us to decrease the pricing of our
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