Earthlink 2010 Annual Report Download - page 64

Table of Contents
constant at 37% of revenues due to our contract renegotiations and internal network cost management efforts which mitigated the effect of the
change in mix of our subscriber base to broadband subscribers. Total cost of revenues decreased $31.0 million, or 12%, from the year ended
December 31, 2009 to the year ended December 31, 2010. This decrease was comprised of a $39.3 million decrease in consumer services cost of
revenues, partially offset by an $8.3 million increase in business services cost of revenue. Total cost of revenues increased from 37% of revenues
during the year ended December 31, 2009 to 38% of revenues during the year ended December 31, 2010 due to the effect of the change in mix of
our subscriber base to broadband subscribers and to business services customers.
Consumer services cost of revenues
Cost of revenues for our Consumer Services segment primarily consists of telecommunications fees and network operations costs incurred
to provide our Internet access services; fees paid to content providers for information provided on our online properties; and the cost of
equipment sold to customers for use with our services. Our principal provider for narrowband services is Level 3 Communications, Inc. We also
purchase lesser amounts of narrowband services from certain regional and local providers. Our principal providers of broadband connectivity are
AT&T Inc., Bright House Networks, Comcast Corporation, Covad Communications Group, Inc., Qwest Corporation, Time Warner Cable and
Verizon Communications, Inc. Cost of revenues for our Consumer Services segment also include sales incentives, which include the cost of
promotional products and services provided to potential and new subscribers, including free modems and other hardware and free Internet access
on a trial basis.
Consumer Services cost of revenues decreased $71.9 million, or 28%, from the year ended December 31, 2008 to the year ended
December 31, 2009 and decreased $39.3 million, or 21%, from the year ended December 31, 2009 to the year ended December 31, 2010. The
decreases are primarily due to the decline in average consumer services subscribers. Also contributing was a decline in average consumer cost of
revenue per subscriber resulting from contract renegotiations with network service providers and internal network cost management efforts.
Business services cost of revenues
Cost of revenues for our Business Services segment primarily consists of the cost of connecting customers to our networks via leased
facilities; the costs of leasing components of our network facilities; costs paid to third-
party providers for interconnect access and transport
services; and the cost of equipment sold to customers for use with our services. Business Services cost of revenues decreased $11.9 million, or
13%, from the year ended December 31, 2008 to the year ended December 31, 2009. The decrease in business services cost of revenues was due
to a decrease in average business services subscribers resulting from declining business demand and competitive pressures. Business Services
cost of revenues increased $8.3 million, or 10%, from the year ended December 31, 2009 to the year ended December 31, 2010. The increase in
business services cost of revenues increased primarily due to the inclusion of ITC^DeltaCom's cost of revenues for the period December 8, 2010
through December 31, 2010. Also contributing was an increase as the product mix of our legacy business services has shifted from legacy
wholesale products to IP-based network services. These were offset by a decline in average business services subscribers.
Selling, general and administrative
Selling, general and administrative expenses consist of expenses related to sales and marketing, customer service, network operations,
information technology, regulatory, billing and collections, corporate administration, and legal and accounting. Such costs include salaries and
related employee costs (including stock-
based compensation), outsourced labor, professional fees, property taxes, travel, insurance, rent,
advertising and other administrative expenses.
Selling, general and administrative expenses decreased $95.2 million, or 30%, from the year ended December 31, 2008 to the year ended
December 31, 2009. The decrease consisted primarily of decreases in
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