Cincinnati Bell 2004 Annual Report Download - page 80

additional minutes for fixed number of minute plans being charged at a per-minute-of-use rate. Prepaid
i-wireless
SM
subscribers generated 15% of revenue and subscribers of other wireless carriers roaming on
CBW’s network generated 5% of total 2004 revenue.
Sales of handsets and accessories generated the remaining 8% of segment revenue. These sales occur
primarily at CBW’s retail locations, which consist of stores and kiosks in high-traffic shopping malls and
commercial buildings in the Greater Cincinnati and Dayton, Ohio areas. Sales also take place in the retail
stores of major electronic and other retailers pursuant to agency agreements. CBW sells handsets and
accessories from a variety of vendors, maintains a supply of equipment and does not envision any shortages
that would compromise its ability to service existing or to add new customers. Unlike service revenue (which
is a function of wireless handset usage), equipment sales are seasonal in nature, as customers often purchase
handsets and accessories as gifts during the holiday season in the Company’s fourth quarter. In order to attract
customers, CBW typically sells handsets for less than direct cost, a common practice in the wireless industry.
In response to Cingular’s acquisition of AWE (the “Merger”), which Cingular announced on February 17,
2004 and then consummated on October 26, 2004, the Company entered into an agreement (the “Agreement”)
with Cingular on August 4, 2004 and subsequently amended it on February 14, 2005. The Agreement modifies
CBW’s operating agreement between the Company and AWE, whereby the Company has agreed to waive
AWE’s prohibition against competing with CBW and Cingular has agreed to forego certain minority rights
including membership on CBW’s governing member committee. In the Agreement, both parties have agreed to
new reciprocal roaming agreements, to the disposition of certain TDMA assets which CBW and AWE had
jointly used, and put/call obligations for the sale/purchase of CBW.
The Company has a right to purchase Cingular’s 19.9% interest in CBW at a price of $85.0 million if
purchased at any time prior to January 31, 2006, plus interest at an annual rate of 5%, compounded monthly,
from the date of the Agreement. Thereafter, the Company may purchase the minority interest for $83.0
million, beginning on January 31, 2006 plus interest at an annual rate of 5%, compounded monthly, thereafter.
In addition, at any time beginning on January 31, 2006 (or earlier, if the member committee calls for
additional capital contributions not previously approved by AWE or Cingular), Cingular has a right to require
the Company to purchase its interest in CBW at the purchase price of $83.0 million, plus interest at an annual
rate of 5%, compounded monthly, from January 31, 2006.
As the wireless venture is jointly owned with Cingular, income or losses generated by the Wireless
segment are shared between the Company and Cingular in accordance with respective ownership percentages
of 80.1% and 19.9%. As a result, 19.9% of the net income or loss of the Wireless segment is reflected as
minority interest expense or income in the Company’s Consolidated Statements of Operations and
Comprehensive Income (Loss). Refer to Note 9 of the Notes to Consolidated Financial Statements for a
detailed discussion of Cingular’s minority interest in this venture.
Hardware and Managed Services
The Hardware and Managed Services segment provides data center collocation, IT consulting services,
telecommunications and computer equipment in addition to their related installation and maintenance. The
Hardware and Managed Services is comprised of the operations within Cincinnati Bell Technology Solutions
(“CBTS”). The segment produced revenue of $134.7 million, $162.8 million and $215.4 million in 2004, 2003
and 2002, respectively. The Hardware and Managed Services segment revenue constituted approximately 11%
of consolidated revenue in 2004 and 2003, and 10% of consolidated revenue in 2002. The Hardware and
Managed Services segment produced operating income of $12.7 million and $17.5 million in 2004 and 2003,
respectively, and an operating loss of $9.4 million in 2002.
In March 2004, CBTS sold certain operating assets, which were generally residing outside of the
Company’s operating area for approximately $3.2 million in cash. During the second quarter of 2004, CBTS
paid $1.3 million to the buyer of the assets in working capital adjustments related to the sale.
Other
The Other segment combines the operations of CBAD, CBCP and Public. CBAD and CBCP market and
sell voice long distance service and surveillance hardware and monitoring services to residential and business
customers in the Company’s operating area, while Public provides public payphone services in a four state area
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