Tucows 2014 Annual Report Download - page 66

Substantially all of our Domain Services revenue is derived from domain name registrations and related
value-added services from wholesale and retail customers using our provisioning and management platforms. The
market for wholesale registrar services is both price sensitive and competitive and is evolving with the introduction of
New gTLDs, particularly for large volume customers, such as large web hosting companies and owners of large
portfolios of domain names. We have a relatively limited ability to increase the pricing of domain name registrations
without negatively impacting our ability to maintain or grow our customer base. Growth in our Domain Services revenue
is dependent upon our ability to continue to attract and retain customers by maintaining consistent domain name
registration and value-added service renewal rates and to grow our customer relationships through refining, evolving and
improving our provisioning platforms and customer service for both resellers and end-users. In addition, we also generate
revenue through pay-per-click advertising and the sale of names from our portfolio of domain names and through the
OpenSRS Domain Expiry Stream. The revenue associated with names sales and advertising has recently experienced flat
to declining trends due to the uncertainty around the implementation of ICANN’s New gTLD Program, lower traffic and
advertising yields in the marketplace, which we expect to continue.
From time-to-time certain of our vendors provide us with Market Development Funds to expand or maintain
the market position for their services. Any decision by these vendors to cancel or amend these programs for any reason
may result in payments in future periods not being commensurate with what we have achieved during past periods.
Sales of domain names from our domain portfolio have a negative impact on our advertising revenue as these
names are no longer available for advertising purposes. In addition, the timing of larger domain names portfolio sales is
unpredictable and may lead to significant quarterly and annual fluctuations in our Portfolio revenue.
The communications industry continues to compete on the basis of network reach and performance, types of
services and devices offered, and price.
As a Mobile Virtual Network Operator “MVNO” our Ting service is reliant on our Mobile Network
Operators "MNOs" providing competitive networks. Our MNOs each continue to invest in network expansion and
modernization to improve their competitive positions. Deployment of new and sophisticated technology on a very
large scale entails risks. Should they fail to implement, maintain and expand their network capacity and coverage,
adapt to future changes in technologies and continued access to and deployment of adequate spectrum successfully,
our ability to provide wireless services to our subscribers, to retain and attract subscribers and to maintain and grow
our subscriber revenues could be adversely affected, which would negatively impact our operating margins.
Ting has also enjoyed rapid growth in its first three years of operation. During this growth phase we have
been able to continue to grow gross customer additions and maintain a consistent churn rate, which has allowed us
to maintain net customer additions despite the impact of churn on a fast growing customer base. We expect price
competition to grow more intense in the industry which could result in increased customer churn or reductions of
customer acquisition rates either of which could result in slower growth rates or in certain cases, our ability to
maintain growth.
Our revenue is primarily realized in U.S. dollars and a major portion of our operating expenses are paid in
Canadian dollars. Fluctuations in the exchange rate between the U.S. dollar and the Canadian dollar may have a material
effect on our business, financial condition and results from operations. In particular, we may be adversely affected by a
significant weakening of the U.S. dollar against the Canadian dollar on a quarterly and an annual basis. Our policy with
respect to foreign currency exposure is to manage our financial exposure to certain foreign exchange fluctuations with the
objective of neutralizing some or all of the impact of foreign currency exchange movements by entering into foreign
exchange forward contracts to mitigate the exchange risk on a portion of our Canadian dollar exposure. We may not
always enter into such forward contracts and such contracts may not always be available and economical for us.
Additionally, the forward rates established by the contracts may be less advantageous than the market rate upon
settlement.
Net Revenues
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