FairPoint Communications 2006 Annual Report Download - page 4

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We are a leading provider of communications services in rural and small urban communities, offering an array of services, including local and long
distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on serving rural and
small urban communities, and we are the 14th largest local telephone company in the United States, in each case based on number of access lines. We operate
in 18 states with 311,150 access line equivalents (including voice access lines and high speed data lines, which include digital subscriber lines, or DSL,
wireless broadband and cable modem) in service as of December 31, 2006.
We were incorporated in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural and small urban markets.
We have acquired 35 such businesses, 31 of which we continue to own and operate. Many of our telephone companies have served their respective
communities for over 75 years. The majority of the communities we serve have fewer than 2,500 access lines. Most of our telephone companies qualify as
rural local exchange carriers under the Telecommunications Act of 1996, or the Telecommunications Act.
Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in supportive regulatory
environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our operating costs, plus a reasonable rate
of return on our invested capital (as determined by relevant regulatory authorities). Competition is typically limited because rural local exchange carriers
primarily serve sparsely populated rural communities with predominantly residential customers, and the cost of operations and capital investment
requirements for new entrants is high. As a result, in our markets, while we have experienced some voice competition from cable providers, it has been limited
and we have experienced limited wireline competition. We also are subject to competition from wireless and various other technologies which may increase in
the future. If competition were to increase, the originating and terminating access revenues we receive may be reduced as a result of wireless, voice over internet
protocol, or VoIP, or other new technology utilization. We periodically negotiate interconnection agreements with other telecommunications providers which
could ultimately result in increased competition in those markets.
Access lines are an important element of our business. Historically, rural telephone companies have experienced consistent growth in access lines because
of positive demographic trends, insulated rural local economies and little competition. Recently, however, many rural telephone companies have experienced a
loss of access lines due to challenging economic conditions, increased competition and the introduction of DSL services (resulting in customers canceling
second lines in favor of DSL). We have not been immune to these conditions. We have been able to mitigate our access line loss somewhat through bundling
services, retention programs, continued community involvement and a variety of other focused programs.
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On January 15, 2007, we entered into an Agreement and Plan of Merger, referred to herein as the Merger Agreement, with Verizon Communications Inc.,
or Verizon, and Northern New England Spinco Inc., or Spinco, a newly formed wholly-owned subsidiary of Verizon that will own Verizon’s local exchange
and certain related business activities in Maine, New Hampshire and Vermont following the contribution by Verizon (directly or through one or more
subsidiaries) of assets to Spinco and the assumption by Spinco of certain related liabilities. Following the contribution of such assets and liabilities to Spinco,
and subject to the approval of the transaction by our stockholders and the satisfaction of other closing conditions,
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