Cincinnati Bell 2004 Annual Report Download - page 105

Data revenue consists of data transport, high-speed Internet access (including DSL), dial-up Internet
access, digital trunking and Local Area Network (“LAN”) interconnection services. Revenue in 2004 was
$203.9 million, representing a $7.6 million, or 4%, increase compared to 2003. Internet-based revenue, high-
speed DSL and dial-up access increased $11.0 million in 2004 primarily driven by a 31,000 increase in DSL
subscribers, which were 131,000 at December 31, 2004. As of December 31, 2004, 89% of CBT’s access lines
in its incumbent local exchange operating territory were loop-enabled for DSL transport with a penetration of
approximately 16.7% of total access lines, up from 12.6% at December 31, 2003. Other high speed/high
capacity data services such as transport, digital trunking, LAN and customized services revenue decreased
$2.5 million in 2004 as a result of both competitive pressures and regulatory-mandated price decreases for
wholesale services sold to other telecommunications providers.
The Company believes that its rate of access line loss would have been greater and its increase in DSL
subscribers would have been less without the success of its “Super Bundle”, Custom Connections
SM
. The
Company added 52,000 new, Super Bundle subscribers in 2004, to reach a total of 123,000, a 73% increase
compared to December 31, 2003. At December 31, 2004, 20% of CBT’s primary residential, ILEC access
lines were in a Super Bundle. Also, as a result of its success, the Local segment in-territory revenue per
consumer household (local revenue divided by average primary access lines) increased by $0.9, 2%, to $47.49
in 2004 compared to $46.61 in 2003.
Other services revenue of $38.0 million during 2004 decreased $3.6 million compared to 2003, primarily
as a result of a decrease in wiring revenue.
Costs and Expenses
Cost of services and products decreased $12.0 million, or 5%, to $220.2 million in 2004 compared to
2003. The decrease was primarily due to a decline in operating taxes of approximately $7.4 million, of which
$6.8 million relates to a change in Ohio law. CBT is no longer subject to franchise taxes based on gross
receipts, but instead is subject to state and local income tax and is included in the combined Ohio state
income tax return with other Cincinnati Bell operating companies. Additionally, cost of goods sold and
material costs declined $1.6 million during 2004 related to lower material costs associated with the decrease
in wiring revenue compared to 2003.
SG&A expenses increased 5%, or $6.0 million, to $134.8 million in 2004. This increase was due to an
additional $4.2 million of advertising and promotional expense related to a 25% increase in DSL gross
additions and a 26,000 gross addition in Dayton local customer additions.
Total labor and related expense decreased $2.5 million, or 1%, as compared to 2003 primarily as a result
of a $2.4 million curtailment charge in 2003 related to the sale of substantially all of the broadband assets.
A 2% reduction in CBT’s headcount also helped to keep labor costs otherwise relatively flat.
Depreciation expense of $117.2 million decreased $8.5 million, or 7%, in 2004 compared to 2003, due to
a decrease in depreciable assets and reduced capital spending.
Restructuring charges during 2004 of $10.4 million were $5.9 million higher than 2003. For further
description and purpose of these restructuring charges, please refer to Note 5 of the Notes to Consolidated
Financial Statements.
Operating Income
As a result of the above, operating income decreased $3.6 million, or 1%, to $279.1 million and
operating margin remained nearly flat in 2004 compared to 2003.
2003 Compared to 2002
Revenue
Voice revenue, which includes local service, switched access, information services and value-added
services revenues, of $536.6 million during 2003 decreased 2%, or $12.1 million, in comparison to the prior
year. Voice revenue decreased primarily due to an $8.3 million decrease in local services revenue where
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Form 10-K