EarthLink (ELNK)

Business Strategy and Risks

Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on operational efficiency, retaining our existing tenured customers and seeking opportunities for growth.

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Business Strategy and Risks

In response to declining revenues, changes in our industry and changes in consumer behavior, we completed a comprehensive review of our core access services during the latter half of 2007. We also reviewed each of our prior growth initiatives to evaluate whether these initiatives were complementary to our long-term strategy and allowed us to maximize shareholder value. As a result of these reviews, we implemented a restructuring plan (“the 2007 Plan”) to reduce operating costs and improve the efficiency of our organization. Under the 2007 Plan, we significantly reduced employees, closed or consolidated certain facilities, discontinued certain projects and reduced sales and marketing efforts. For our core access services, we reduced the back-office cost structure and reduced sales and marketing efforts aimed at customers that had high acquisition costs and early life churn. For our IP-based voice and business services, we significantly reduced the cost structure. For our municipal wireless broadband operations, we concluded that the operations were no longer consistent with our strategic direction and have finalized plans to divest our municipal wireless broadband assets. Finally, we discontinued further investments in HELIO, our joint venture with SK Telecom Co., Ltd. (“SK Telecom”).

Our current business focus is the following:

·                  Operational Efficiency. We are focused on improving the cost structure of our business and aligning our cost structure with trends in our revenue, without impacting the quality of services we provide. In addition to implementing our corporate restructuring plan which reduced back-office support costs and subscriber acquisition costs, we are focused on delivering our services more cost effectively by reducing and more efficiently handling the number of calls to contact centers, managing cost effective outsourcing opportunities and streamlining our internal processes and operations.  We are also focused on reducing communications costs by increasing the efficiency of our networks and entering into more favorable agreements with telecommunications providers.

·                  Customer Retention. We are focused on retaining our existing tenured customers. We continue to focus on offering reasonably priced access with high-quality customer service and technical support. We believe focusing on the customer relationship will increase loyalty and reduce churn.  We also believe that these tenured customers provide cost benefits, including reduced call center support costs and reduced bad debt expense.

·                  Opportunities for growth.  In response to changes in our business, we have significantly reduced our sales and marketing spending. However, we are focused on continuing to add customers that generate an acceptable rate of return and increasing the number of subscribers we add through partnerships and acquisitions from other ISPs.  We will evaluate potential strategic transactions that could complement our business. We are also focused on adding customers organically by growing our services to business customers through New Edge, our wholly-owned subsidiary. We believe this is a potential growth market and we will continue to differentiate ourselves by providing customers with choices for our business services.

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Business Strategy and Risks

In response to declining revenues, changes in our industry and changes in consumer behavior, we completed a comprehensive review of our core access services during the latter half of 2007. We also reviewed each of our prior growth initiatives to evaluate whether these initiatives were complementary to our long-term strategy and allowed us to maximize shareholder value. As a result of these reviews, we implemented a restructuring plan (“the 2007 Plan”) to reduce operating costs and improve the efficiency of our organization. Under the 2007 Plan, we significantly reduced employees, closed or consolidated certain facilities, discontinued certain projects and reduced sales and marketing efforts. For our core access services, we reduced the back-office cost structure and reduced sales and marketing efforts aimed at customers that had high acquisition costs and early life churn. For our IP-based voice and business services, we significantly reduced the cost structure. For our municipal wireless broadband operations, we concluded that the operations were no longer consistent with our strategic direction and we have committed to a plan to divest our municipal wireless broadband assets. Finally, we decided to discontinue further investments in HELIO, our joint venture with SK Telecom Co., Ltd. (“SK Telecom”), and entered into amended and restated joint venture agreements with SK Telecom to eliminate any future requirement to invest in HELIO.

Our current business focus is the following:

·                 

Business Strategy and Risks

        During 2006 and the beginning half of 2007, we were investing in various growth initiatives with the objective of generating a return on our investments. These growth initiatives included VoIP services, municipal wireless broadband services and business services. We were also making investments in HELIO,

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our joint venture with SK Telecom. In response to declining revenues, changes in our industry and changes in consumer behavior, we completed a comprehensive review of our core access services. We also reviewed each of our growth initiatives to evaluate whether these initiatives were complementary to our long-term strategy and allowed us to maximize shareholder value. As a result of these reviews, we implemented the 2007 Plan to reduce operating costs and improve the efficiency of our organization. Under the 2007 Plan, we significantly reduced employees, closed or consolidated certain facilities, discontinued certain projects and reduced sales and marketing efforts. For our core access services, we reduced the back-office cost structure and reduced sales and marketing efforts aimed at customers that have high acquisition costs and early life churn. For our IP-based voice and business services, we significantly reduced the cost structure. For our municipal wireless broadband operations, we concluded that the operations were no longer consistent with our strategic direction and we have committed to a plan to sell our municipal wireless broadband assets. Finally, we decided to discontinue further investments in HELIO and entered into amended and restated joint venture agreements with SK Telecom.

        Our current business focus is the following:

•

Operational Efficiency.  We are focused on improving the cost structure of our business and aligning our cost structure with trends in our revenue, without impacting the quality of services we provide. In addition to implementing our corporate restructuring plan which reduced back-office support costs and subscriber acquisition costs, we are focused on delivering our services more cost effectively, reducing and more efficiently handling the number of calls to contact centers, managing cost effective outsourcing opportunities and streamlining our internal processes and operations.



•

Customer Retention.  We are focused on retaining our existing tenured customers. We continue to focus on offering reasonably priced access with high-quality customer service and technical support. We believe focusing on the customer relationship will increase loyalty and reduce churn.



•

Opportunities for growth.  In response to changes in our business, we have significantly reduced our sales and marketing spending. However, we are focused on continuing to add customers that generate an acceptable rate of return and increasing the number of subscribers we add through partnerships and acquisitions from other ISPs. We will evaluate potential strategic transactions that could complement our business. We are also focused on adding customers organically by growing our services to business customers through New Edge, our wholly-owned subsidiary. We believe this is a growth market and we will continue to differentiate ourselves by providing customers with choices for our business services.

        The primary challenges we face in executing our business strategy are responding to competition, reducing churn, maintaining profitability in our access services and purchasing cost-effective wholesale access. The factors we believe are instrumental to the achievement of our goals and targets, including the factors identified above, may be subject to competitive, regulatory and other events and circumstances that are beyond our control. Further, we can provide no assurance that we will be successful in achieving any or all of the factors identified above, that the achievement or existence of such factors will favorably impact profitability, or that other factors will not arise that would adversely affect future profitability.

Business Strategy and Risks

        During 2006 and the beginning half of 2007, we were investing in various growth initiatives with the objective of generating a return on our investments. These
growth initiatives included VoIP services, municipal wireless broadband services and business services. We were also making investments in HELIO,

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our
joint venture with SK Telecom. In response to declining revenues, changes in our industry and changes in consumer behavior, we completed a comprehensive review of our core access services. We also
reviewed each of our growth initiatives to evaluate whether these initiatives were complementary to our long-term strategy and allowed us to maximize shareholder value. As a result of
these reviews, we implemented the 2007 Plan to reduce operating costs and improve the efficiency of our organization. Under the 2007 Plan, we significantly reduced employees, closed or consolidated
certain facilities, discontinued certain projects and reduced sales and marketing efforts. For our core access services, we reduced the back-office cost structure and reduced sales and
marketing efforts aimed at customers that have high acquisition costs and early life churn. For our IP-based voice and business services, we significantly reduced the cost structure. For
our municipal wireless broadband operations, we concluded that the operations were no longer consistent with our strategic direction and we have committed to a plan to sell our municipal wireless
broadband assets. Finally, we decided to discontinue further investments in HELIO and entered into amended and restated joint venture agreements with SK Telecom.

        Our
current business focus is the following:

•

Operational Efficiency.  We are focused on improving the cost structure of our business and aligning our cost
structure with trends in our revenue, without impacting the quality of services we provide. In addition to implementing our corporate restructuring plan which reduced back-office support
costs and subscriber acquisition costs, we are focused on delivering our services more cost effectively, reducing and more efficiently handling the number of calls to contact centers, managing cost
effective outsourcing opportunities and streamlining our internal processes and operations.




•

Customer Retention.  We are focused on retaining our existing tenured customers. We continue to focus on offering
reasonably priced access with high-quality customer service and technical support. We believe focusing on the customer relationship will increase loyalty and reduce churn.




•

Opportunities for growth.  In response to changes in our business, we have significantly reduced our sales and
marketing spending. However, we are focused on continuing to add customers that generate an acceptable rate of return and increasing the number of subscribers we add through partnerships and
acquisitions from other ISPs. We will evaluate potential strategic transactions that could complement our business. We are also focused on adding customers organically by growing our services to
business customers through New Edge, our wholly-owned subsidiary. We believe this is a growth market and we will continue to differentiate ourselves by providing customers with choices for our
business services.

        The
primary challenges we face in executing our business strategy are responding to competition, reducing churn, maintaining profitability in our access services and purchasing
cost-effective wholesale access. The factors we believe are instrumental to the achievement of our goals and targets, including the factors identified above, may be subject to competitive,
regulatory and other events and circumstances that are beyond our control. Further, we can provide no assurance that we will be successful in achieving any or all of the factors identified above, that
the achievement or existence of such factors will favorably impact profitability, or that other factors will not arise that would adversely affect future profitability.

Business Strategy and Risks

Our recent business strategy has been to generate profits from our existing core access services and to reinvest the cash generated from these services into various growth initiatives with the objective of generating a return on our investments. These growth initiatives include VoIP services, municipal wireless broadband services and business services. VoIP and municipal wireless broadband services are still in their early stages and continue to experience operational and competitive challenges. Our ability to succeed in providing these new services will depend on whether we have a competitively-priced offering, improve the quality of these services and develop a reasonable cost structure to ensure an acceptable return on our investment.

In response to declining revenues, changes in our industry and changes in consumer behavior, we have just completed a comprehensive review of our core access services. We have also reviewed each of our growth initiatives to evaluate whether these initiatives are complementary to our long-term strategy and allow us to maximize shareholder value. As a result of these reviews, we implemented a corporate restructuring plan (“the Plan”) to reduce operating costs and improve the efficiency of our organization. Under the Plan, we will significantly reduce employees, close or consolidate certain facilities, discontinue certain projects and reduce sales and marketing efforts. For our core access services, we plan to reduce the back-office cost structure and reduce sales and marketing efforts aimed at customers that have high acquisition costs and early life churn. For our growth initiatives, we have significantly reduced the cost structure. Additionally, for our IP-based voice and municipal wireless initiatives we do not expect to expand our existing footprint to additional markets at this time. We continue to evaluate all of our growth initiatives.

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Business Strategy and Risks

For the past several quarters, management has been focused on expanding our presence in growth markets, including VoIP services, municipal wireless broadband services and business services. VoIP and municipal wireless broadband services are still in their early stages and continue to experience operational and competitive challenges as we expand and improve our capabilities. Our ability to succeed in providing these new services will depend on whether we have a competitively-priced offering, improve the quality of these services and develop a reasonable cost structure to ensure an acceptable return on our investment. We are currently in the process of evaluating each of our growth initiatives in order to ensure these initiatives are complementary to our long-term strategy and would allow us to maximize shareholder value. Our evaluation of these growth initiatives could result in a substantial change to some or all of these growth initiatives.

Our recent business strategy has been to generate profits from our existing core access services and to reinvest the cash generated from these services into various growth initiatives with the objective of generating a return on our investments.

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As we reassess our business strategy, we believe the most important factors for us to be successful are the following:

·                  identifying opportunities to improve the cost structure of our business without impacting the quality of services we provide;

·                  maximizing the return on our subscriber acquisition costs by balancing aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to reduce and leverage operating costs;

·                  renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at competitive and improved wholesale broadband access prices and, in the event there are adverse changes in the retail pricing environment for broadband access services, at wholesale broadband access prices that decrease sufficiently to at least coincide with declines in retail prices;

·                  monitoring the operations of our current growth initiatives, as well as our HELIO joint venture, to maximize the value to our shareholders and mitigate the risk of our investments;

·                  exploring, identifying and investing in additional growth opportunities and successfully implementing strategies to deliver these services cost effectively;

·                  differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences, including bundling our various communications services; and

·                  exploring and evaluating potential strategic transactions that we believe may complement our current and future business activities, and successfully integrating any new acquisitions and investments into our business.

The primary challenges we face in executing our business strategy are maintaining profitability in our existing services, successfully implementing new products and services, competition and purchasing cost-effective wholesale broadband access.

Business Strategy and Risks

Our business strategy is to generate profits from our existing core access services and to reinvest the cash generated from these services in our various growth initiatives with the objective of generating revenue growth and earnings growth in future periods; to continue to expand our presence in growth markets, such as VoIP services, municipal wireless broadband services and business services; to support our HELIO joint venture with SK Telecom; and to market high quality, differentiated products and services.

We believe the most important factors for us to execute our business strategy are the following:

·                  continuing to identify opportunities to improve the cost structure of our business without impacting the quality of services we provide;

·                  maximizing the return on our subscriber acquisition costs by balancing aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to reduce and leverage operating costs;

·                  continuing the growth of our PeoplePC-branded, value-priced narrowband access and our broadband service offerings in spite of competition from current and new competitors;

·                  renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at competitive and improved wholesale broadband access prices and, in the event there are adverse changes in the retail pricing environment for broadband access services, at wholesale broadband access prices that decrease sufficiently to at least coincide with declines in retail prices;

·                  successfully entering into arrangements with municipalities to build out and operate municipal wireless broadband networks and successfully constructing, upgrading and maintaining our municipal wireless networks;

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·                  obtaining a sufficient number of customers to generate the returns anticipated on our investments to construct and deploy municipal wireless broadband networks;

·                  growing our subscriber base for our IP-based voice and wireless broadband services to generate revenues and profits;

·                  exploring, identifying and investing in additional growth opportunities and successfully implementing strategies to deliver these services cost effectively;

·                  differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences, including bundling our various communications services; and

·                  exploring and evaluating potential strategic transactions that we believe may complement our current and future business activities, and successfully integrating any new acquisitions and investments into our business.

The primary challenges we face in executing our business strategy are maintaining profitability in our existing services, successfully implementing new products and services, competition and purchasing cost-effective wholesale broadband access.

Business Strategy and Risks

Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on broadband and value-priced narrowband access to generate organic subscriber growth; become a total communications provider by expanding into new markets, such as VoIP services, municipal Wi-Fi services and wireless voice and data services; market high quality, differentiated products and services; and improve or maintain operating margins on our existing service offerings to fund growth. We believe the most important factors for us to execute our business strategy are the following:

·                  Exploring, identifying and investing in growth opportunities, such as VoIP services and municipal Wi-Fi services, and successfully implementing strategies to add customers and deliver these services cost effectively

·                  Managing the rate of decline of our traditional, premium-priced narrowband access subscriber base and revenues and balancing aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to manage operating costs

·                  Continuing the growth of our PeoplePC-branded, value-priced narrowband access and our broadband service offerings in spite of competition from current and new competitors

·                  Differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences

·                  Continuing to identify opportunities to improve the cost structure of our business without impacting the quality of services we provide

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·                  Renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at competitive and improved wholesale broadband access prices and, in the event there are adverse changes in the retail pricing environment for broadband access services, at wholesale broadband access prices that decrease sufficiently to at least coincide with declines in retail prices

·                  Exploring and evaluating potential strategic transactions that we believe may complement our current and future business activities and successfully integrating any new acquisitions and investments into our business

The primary challenges we face in executing our business strategy are successfully developing and implementing new products and services on a timely basis, competition, purchasing cost-effective wholesale broadband access, and maintaining profitability in our Internet access services.

Business Strategy and Risks

Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on broadband and value-priced narrowband access to generate organic subscriber growth; become a total communications provider by expanding into new markets, such as VoIP services, alternative broadband services and wireless voice and data services; market high quality, differentiated products and services; and improve or maintain operating margins on our existing service offerings to fund growth. We believe the most important factors for us to execute our business strategy are the following:

·                  Exploring, identifying and investing in growth opportunities, such as VoIP services and alternative broadband access services, and successfully implementing strategies to deliver these services cost effectively

·                  Managing the rate of decline of our traditional, premium-priced narrowband access subscriber base and revenues and balancing aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to manage operating costs

·                  Continuing the growth of our PeoplePC-branded, value-priced narrowband access and our broadband service offerings in spite of competition from current and new competitors

·                  Differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences

·                  Continuing to identify opportunities to improve the cost structure of our business without impacting the quality of services we provide

·                  Renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at competitive and improved wholesale broadband access prices and, in the event there are adverse changes in the retail pricing environment for broadband access services, at wholesale broadband access prices that decrease sufficiently to at least coincide with declines in retail prices

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·                  Exploring and evaluating potential strategic transactions that we believe may complement our current and future business activities and successfully integrating any new acquisitions and investments into our business

The primary challenges we face in executing our business strategy are successfully developing and implementing new products and services on a timely basis, competition, purchasing cost-effective wholesale broadband access, and maintaining profitability in our Internet access services.

Business Strategy and Risks

Our business strategy is to sustain and build upon our strong position in the U.S. Internet access market by focusing on growth opportunities such as broadband and value-priced narrowband access to generate organic subscriber growth; expanding into new growth markets, such as VoIP services, alternative broadband services and wireless voice and data services; marketing high quality, differentiated products and services; and improving or maintaining operating margins on our existing service offerings to fund growth. We believe the most important factors for us to execute our business strategy are the following:

·       Exploring, identifying and investing in growth opportunities, such as VoIP services and alternative broadband access services, and successfully implementing strategies to deliver these services cost effectively

·       Differentiating our products and services to enable us to deliver high quality services that improve customers’ Internet experiences

·       Managing the rate of decline of our traditional, premium-priced narrowband access subscriber base and revenues and balancing aggressive promotional pricing with the number of subscribers we are able to add and/or retain while continuing to reduce and leverage operating costs

·       Continuing the growth of our PeoplePC-branded, value-priced narrowband access and our broadband service offerings in spite of competition from current and new competitors

16

·       Continuing to identify opportunities to improve the cost structure of our business without impacting the quality of services we provide

·       Renewing, extending or otherwise entering into wholesale broadband access agreements with telecommunications providers at competitive and improved wholesale broadband access prices and, in the event there are adverse changes in the retail pricing environment for broadband access services, at wholesale broadband access prices that decrease sufficiently to at least coincide with declines in retail prices

·       Exploring and evaluating potential strategic transactions that we believe may complement our current and future business activities and successfully integrating any new acquisitions and investments into our business

The primary challenges we face in executing our business strategy are successfully developing new products and services, competition, purchasing cost-effective wholesale broadband access, and maintaining profitability in our existing services.