Cincinnati Bell 2006 Annual Report Download - page 137

2006 Compared to 2005
Revenue
Service revenue increased by $20.9 million in 2006 as compared to 2005. This increase is primarily
attributed to the following:
•Postpaid service revenue increased $22.1 million primarily due to more subscribers and a $9.4 million
increase in data revenue from $11.4 million in 2005 to $20.8 million in 2006. Postpaid subscribers
increased 16% from 315,100 subscribers at December 31, 2005 to 366,000 at December 31, 2006.
Average monthly churn for the year was 1.6% in 2006 compared to 2.2% in 2005. The improved churn
rate and increased number of subscribers were due to the introduction of more attractive rate plans in late
2005 and the improved wireless network;
•Prepaid service revenue increased $0.7 million compared to last year as the effect of higher ARPU of
$1.09 was offset by a lower number of subscribers. As of December 31, 2006, prepaid subscribers totaled
approximately 162,000 compared to 180,500 subscribers at December 31, 2005; and
•Postpaid roaming and other revenue decreased $1.9 million due to a decrease in minutes of use and in
roaming revenue per minute. As a result of the merger between Cingular and AT&T Wireless Services
Inc., CBW continues to lose roaming revenue as Cingular customers are not using CBW’s network.
Equipment revenue for 2006 increased $3.6 million compared to 2005 due to the increase in subscriber
additions and the migration to the GSM network. The Company subsidizes the price of handset sales to promote
acquisitions and retention of subscribers and, during the first half of 2006, to accelerate the migration to its GSM
network.
Costs and Expenses
Cost of services and products consists largely of network operation costs, roaming expense (which are costs
incurred for subscribers to use their handsets in the territories of other wireless service providers),
interconnection expenses with other telecommunications providers, and cost of handsets and accessories sold.
The increase in costs of $16.8 million compared to 2005 was due to a $9.2 million increase in network expense,
resulting from increased voice minutes and data services usage, and a $5.2 million increase for handset and
accessory costs due to higher activations and the migration of subscribers from the TDMA network to the GSM
network. The remaining cost increases resulted from higher operating taxes and customer service costs related to
increased subscribers.
Selling, general and administrative expenses include certain customer acquisition expenses, such as
advertising, distribution and promotional expenses. These expenses increased $6.5 million in 2006 as compared
to 2005. The increase was primarily due to increased commissions and other payroll related costs of $5.3 million
from the higher number of subscriber activations and increased bad debt expense.
Depreciation expense decreased $32.5 million in 2006 versus 2005 primarily from the accelerated
depreciation expense in 2005 on the TDMA assets.
Amortization expense in 2006 resulted from the allocation of the purchase price to certain intangibles
associated with the purchase of the CBW minority interest from Cingular. See Note 5 to the Consolidated
Financial Statements.
The Company incurred charges of $42.3 million in 2005 to write down the recorded value of its TDMA
network assets. A portion of the TDMA assets were taken out of service in 2005 in order to optimize the
remaining spectrum associated with TDMA assets. This resulted in a charge of $23.7 million. Additionally, an
asset impairment charge of $18.6 million was incurred to write down to fair value the remaining TDMA assets in
use. Due to the rapid migration of TDMA subscribers to the Company’s GSM network and lower ARPU
associated with the remaining TDMA customers, the remaining future cash flows associated with the TDMA
assets could no longer support the recorded value of the TDMA assets, resulting in the impairment charge.
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