Earthlink 2014 Annual Report Download - page 21

Table of Contents
Additionally, future acquisitions may result in the dilutive issuances of equity securities, use of our cash resources, incurrence of debt or
contingent liabilities, amortization expense related to acquired definite-
lived intangible assets or the potential impairment of amounts capitalized
as intangible assets, including goodwill. Any of these items could adversely affect our business, results of operations and cash flows.
Risks Related to Our Business Services Segment
We face significant competition in the communications and managed services industry that could reduce our profitability.
The communications and managed services industry is highly competitive, and we expect this competition to intensify. These markets are
rapidly changing due to industry consolidation, an evolving regulatory environment and the emergence of new technologies. We compete
directly or indirectly with incumbent local exchange carriers (“ILECs”),
such as AT&T, CenturyLink, Inc. and Verizon Communications Inc.;
competitive telecommunications companies (“CLECs”),
such as Level 3 Communications Inc., MegaPath, Inc., Windstream Holdings, Inc. and
XO Communications; interexchange carriers, such as Sprint Nextel Corporation; wireless and satellite service providers; cable service providers,
such as Charter Communications, Inc., Comcast Corporation, Cox Communications, Inc. and Time Warner Cable; stand-
alone VoIP providers;
system integrators such as Accenture, CSC, Hewlett-Packard and IBM; asset-
light network companies such as Industry Retail Group, Masergy
and Virtela; managed hosting and cloud providers such as Amazon Web Services, Equinix, Inc., Internap Network Services Corporation,
Rackspace Hosting, Inc. and Web.com Group, Inc.; and managed security companies such as Dell Secure Works and Perimeter eSecurity. We
experience significant pricing and product competition from AT&T and other incumbents that are the dominant providers of telecommunications
services in our markets, and we experience intense competition from cable companies for small business customers.
We believe the primary competitive factors in our industry include price, availability, reliability of service, network security, variety of service
offerings, quality of service and reputation of the service provider. While we believe our business services compete favorably based on some of
these factors, we are at a competitive disadvantage with respect to certain of our competitors. Many of our current and potential competitors have
greater market presence, engineering, technical and marketing capabilities and financial, personnel and other resources substantially greater than
ours; own larger and more diverse networks; are subject to less regulation; or have substantially stronger brand names. In addition, industry
consolidation has resulted in larger competitors that have greater economies of scale. Consequently, these competitors may be better equipped to
charge lower prices for their products and services, to provide more attractive offerings, to develop and expand their communications and
network infrastructures more quickly, to adapt more swiftly to new or emerging technologies and changes in customer requirements, to increase
prices that we pay for wholesale inputs to our services and to devote greater resources to the marketing and sale of their products and services.
Competition could adversely impact us in several ways, including: (i) the loss of customers and resulting revenue; (ii) the possibility of
customers reducing their usage of our services or shifting to less profitable services; (iii) reduced traffic on our networks; (iv) the need to expend
substantial time or money on new capital improvement projects; and (v) the need to lower prices or increase marketing expenses to remain
competitive.
Failure to retain existing customers could adversely affect our results of operations and cash flows.
We are experiencing churn for our business customers, primarily single location customers using traditional voice and data products, including
traditional voice, lower-
end broadband and web hosting. Many of these customers are coming out of contract term. Our customers have no
obligation to renew their agreements for our services after the expiration of their initial commitment, and these service agreements may not be
renewed at the same price or level of service, if at all. If our customers do not renew their agreements with us or if they renew on less favorable
terms, our revenue could decline and our business may suffer. Changes in the economy, increased competition from other providers or issues
with the quality of service we deliver can also impact our customer churn. In addition, we have implemented, and expect to continue to
implement, targeted price increases, which could negatively impact customer churn. To offset the impacts of churn, we have been and continue
to be focused on re-term efforts, retention offers and targeted price increases, and focused on adding larger multi-
location retail and service
businesses, which have a lower churn profile. However, failure to retain existing customers could adversely affect our results of operations and
cash flows.
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the need to implement and maintain uniform controls, procedures and policies throughout all of our acquired companies or the need
to remediate significant control deficiencies that may exist at acquired companies