Earthlink 2010 Annual Report Download - page 98

Download and view the complete annual report

Please find page 98 of the 2010 Earthlink annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 152

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152

Table of Contents
EARTHLINK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenue Recognition
General.
EarthLink recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed
or determinable and collectibility is reasonably assured. EarthLink's customers generally pay in advance for their services, and revenue is
recognized ratably over the service period. Advance payments from customers for invoiced services that have not yet been performed are
recorded as deferred revenue in the Consolidated Balance Sheets.
Consumer Services.
The Company's Consumer Services segment earns revenue from narrowband access services (including traditional,
fully-featured narrowband access and value-priced narrowband access) and broadband access services (including high-
speed access via cable
and DSL and Voice-over-Internet Protocol ("VoIP")). The Company's Consumer Services segment also earns revenues from value-
added
services, which include revenues from ancillary services sold as add-
on features to EarthLink's Internet access services, such as security
products, premium email only, home networking, email storage and Internet call waiting; search revenues; and advertising revenues. Revenues
from access services generally consist of recurring monthly charges for such services; usage fees; installation fees; termination fees; and fees for
equipment. Value-
added services revenues consist of fees charged for ancillary services; fees charged for paid placements for searches;
delivering traffic to EarthLink's partners in the form of subscribers, page views or e-
commerce transactions; advertising EarthLink partners'
products and services in EarthLink's various online properties; and referring EarthLink customers to partners' products and services. Advertising
revenues are recorded when earned based on the per unit contractual rate and the number of units sold, number of subscriber impressions, or
number of subscriber purchases or actions.
Business Services. The Company's Business Services segment earns revenue by providing high-
speed or broadband data communications
services, which include managed IP-
based networks and Internet access; voice services, which include local exchange services, long distance
and conference calling services; mobile voice and data services; and the sale of transmission capacity to other telecommunications carriers.
Revenues from these services generally consist of recurring monthly charges for such services; usage fees; installation fees; and termination fees.
The Company's Business Services segment also earns revenue by providing web hosting services. Web hosting revenues consist of fees charged
for leasing server space and providing web services to enable customers to build and maintain an effective online presence.
When the Company receives service activation and installation fee revenues in advance of the provision of services, the Company defers the
service activation and installation fee revenues and amortizes them over the actual weighted average initial contract terms of contracts initiated
each month, assuming a customer churn factor.
The Company generates revenues from the sale of telephone systems, other equipment, and services. Revenues from these sources are
recognized upon installation or as services are performed. Revenues, such as the sale of telephone systems, may be part of multiple element
arrangements. For example, the Company may provide for the sale of equipment and installation of that equipment or, alternatively, may sell
these products separately without installation. The Company identifies the sale of and installation of equipment as separate elements in the
earnings process, and if a separate element (installation) is essential to the functionality of
another element (equipment sale), the Company
recognizes revenue for a delivered element only when the remaining elements in the arrangement are delivered.
Gross versus net revenue recognition.
EarthLink maintains relationships with certain telecommunication partners in which it provides
services to customers using the "last mile" element of the telecommunication providers' networks. The term "last mile" generally refers to the
element of
91