Cincinnati Bell 2004 Annual Report Download - page 93

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” which
follows should be read in conjunction with the “Private Securities Litigation Reform Act of 1995 Safe Harbor
Cautionary Statement”, “Risk Factors,” and Consolidated Financial Statements and accompanying Notes to
Consolidated Financial Statements.
Cincinnati Bell Inc. (the “Company”) provides diversified telecommunications services through
businesses in five segments: Local, Wireless, Hardware and Managed Services, Other and Broadband. A
further discussion of these segments and their operating results is discussed in Item 1, “Business”, and in the
individual segment discussions which begin on page 30 of this Report on Form 10-K.
Executive Summary
Cincinnati Bell Inc. is a full-service local provider of data and voice communications services and
equipment and a regional provider of wireless and long distance communications services. The Company
provides telecommunications service on its owned local network with a well-regarded brand name and
reputation for service. The Company operates in five business segments: Local, Wireless, Hardware and
Managed Services, Other and Broadband.
In 2004, the Company’s primary objectives were to: 1) reduce indebtedness, 2) defend the Company’s
core franchise against increasing competition, and 3) add to the Company’s growth businesses. Measurements
of the Company’s performance against these objectives are as follows:
•Reduced total indebtedness by 7%, from $2,287.8 million to $2,141.2 million, primarily with operating
cash flows.
•Defended its core franchise through bundling, adding 52,000 net subscribers to its Custom
Connections
SM
“Super Bundle” which offers local, long distance, wireless, DSL and the Company’s
value-added service package, Complete Connectionst, on a single bill at a price lower than that for
which the customer could buy all of the services individually. The Company finished the year with
123,000 super bundle subscribers, or 73% more than at the end of 2003. In addition, total access lines
declined by 1.6% versus 2003, a full percentage point improvement over the 2.6% annual decline
reported in the prior year as the company experienced little impact from cable telephony competition.
•Increased internet revenues by $11.0 million by adding 31,000 Digital Subscriber Line (DSL)
subscribers, or 26% more than were added in 2003. The Company finished the year with 131,000 DSL
subscribers, or 31% more than at the end of 2003. Penetration of its DSL product increased by 4%, to
14% of total owned facilities access lines.
For 2005, the Company expects to continue execution against the same objectives. In early 2005, as
discussed in Note 23 to the Consolidated Financial Statements, the Company completed the first stage of its
refinancing plan, the primary objective of which is to increase cash flows by providing the flexibility with
regard to the future extinguishment of its 16% Senior Subordinated Discount notes Due 2009 (the “16%
notes”). These notes mature in January 2009 and are callable at 108% of their accreted value in March 2006.
Regarding defense of its core franchise, the Company expects continued growth of its super bundle. To
build on the success of its bundled solutions over the past several years, the Company plans to invest in
enhanced billing and customer care platforms that will further automate operations and enable the Company to
provide better service at lower cost. As a result of this planned investment in customer service, the Company
announced a restructuring plan in the fourth quarter of 2004, continuing through 2006 to better align its cost
structure with the future bundling opportunity. The Company believes this strategy will maintain its reputation
for quality service and reduce annual operating expenses by $20 to $25 million by 2006.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires the Company to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenue and expenses. The Company
continually evaluates its estimates, including, but not limited to, those related to revenue recognition, costs of
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Form 10-K