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EarthLink Inc. posted third quarter numbers that would make any other provider shudder, but in fact the numbers indicate the struggling ISP is seeing signs of improvement – while revenue continued to free fall, subscriber losses did slow, and churn showed signs of leveling.

For the quarter, EarthLink lost another 13,000 broadband subscribers, up from 11,000 lost in the second quarter but a significant improvement from the 55,000 lost in the third quarter 2008.

At the close of the quarter, EarthLink held on to 832,000 broadband customers.

It also lost 127,000 narrowband customers, down somewhat from the 131,000 it lost in the second quarter and sharply down from the 210,000 lost in the third quarter last year. At the end of the quarter, it claimed a little more than 1.3 million narrowband customers.

The churn rate also showed signs of stabilizing. At 3.6%, it was flat compared to the second quarter and down from 4.2% in the prior third quarter.

Customer average revenue per user also improved sequentially to $20.87 from $20.75 in the second quarter, but it still trailed the $21 ARPU posted in the third quarter last year.

But despite these signs of some improvement in customer metrics, EarthLink continued to see revenue levels drop. The ISP pulled in $174.5 million in revenue for the quarter, down significantly from the $185.6 million it posted in the second quarter and well behind the $230.8 million it pulled in during the third quarter 2008.

On the expense side, there was a fairly substantial spike in capital expenditures, a metric EarthLink has not consistently reported in the past. It spent $5.6 million on improvements, up from $1.9 million in the second quarter. EarthLink gave no explanation for the spending increase.

Net income also fell to $29.9 million from $31.5 million in the second quarter and almost half the $54.7 million level in the third quarter a year ago.

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