FairPoint Communications 2006 Annual Report Download - page 45

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existing operations declined $0.3 million. The national average cost per loop in relation to our average cost per loop has increased and, as a result, our receipts
from the USF have declined. We expect this trend to continue as we anticipate the national average cost per loop will likely continue to increase in relation to our
average cost per loop.
Interstate access revenues decreased $2.9 million to $72.4 million in 2006 compared to 2005. Acquired operations added $2.8
million in interstate access revenues in 2006. Interstate access revenues from our existing operations decreased $5.7 million. In 2006, we recognized certain
negative interstate revenue settlement adjustments related to prior years in the amount of $0.8 million. In addition, in 2005, we recognized certain positive
interstate revenue settlement adjustments related to prior years which accounted for approximately $4.3 million of interstate access revenue. Excluding these
prior year adjustments and acquired operations, interstate access revenue would have declined $0.6 million in 2006.
 Intrastate access revenues decreased $2.7 million to $37.4 million in 2006 compared to 2005. Acquired operations added $1.3
million in intrastate access revenues in 2006. Intrastate access revenues from our existing operations decreased $4.0 million. Intrastate access revenues
declined primarily due to a decrease in access rates and a decrease in minutes of use compared to 2005. The rate decrease is primarily due to intrastate rate
reductions implemented in Maine in the second quarter of 2005. Intrastate access revenues are expected to continue to decline.
 Long distance services revenues increased $2.7 million to $23.5 million in 2006 compared to 2005. Of this increase, $0.3
million was attributable to acquired companies and $2.4 million was attributable to our existing operations. This increase was primarily a result of
promotional efforts and bundled product offerings with unlimited long distance designed to generate more revenue.
 Data and Internet services revenues increased $4.1 million to $28.2 million in 2006 compared to 2005. Of this increase,
$1.1 million was attributable to acquired companies and $3.0 million was attributable to our existing operations. The increase from existing operations is due
primarily to increases in HSD customers as we continue to aggressively market our HSD services. Our HSD subscriber customer base as of December 31,
2006 increased to 59,444 subscribers compared to 45,365 subscribers as of December 31, 2005, a 31% increase during this period.
 Other services revenues increased $3.2 million to $20.8 million in 2006 compared to 2005. Of this increase, $1.5 million was
attributable to acquired companies and $1.7 million was attributable to our existing operations. This increase is principally due to an increase in directory
revenues in 2006.
Operating Expenses
 Operating expenses increased $12.0 million to $155.5
million in 2006 compared to 2005. Of the increase, $5.9 million is related to our existing operations and $6.1 million is related to expenses of the acquired
operations. The increase from existing operations is principally due to $2.4 million in transaction expenses related to the Merger, an increase in compensation
and benefit expenses of $1.6 million, an increase in expenses related to data and long distance services of $1.4 million, an increase in billing expenses of $1.2
million, an increase in audit and tax fees of $0.7 million and an increase in operating taxes of $0.6 million. These increases were partially offset by a decrease
in bad debt expense of $1.5 million and a decrease in consulting expenses of $2.2 million.
Included in operating expenses are non-cash stock based compensation expenses associated with the award of restricted stock and restricted units. Stock
based compensation expenses totaled $2.9 million and $2.4 million for the twelve months ended December 31, 2006 and 2005, respectively.
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