FairPoint Communications 2007 Annual Report Download - page 4

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Table of Contents
 

  
 

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, video and 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 12th largest local telephone
company in the United States, in each case based on number of access lines as of December 31, 2007. We operate in 18 states with
305,777 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, 2007.
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, 30 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 existing telephone companies qualify as rural local exchange carriers under the Telecommunications Act of
1996, or the 1996 Act.
Rural local exchange carriers have historically been characterized by stable operating results and strong cash flow margins and
operate in supportive regulatory environments. While our historical results indicate a higher level of growth than non-rural local exchange
carriers, this increased growth was principally generated through acquisitions. Excluding revenue from acquisitions, our total revenues
grew 0.9% from 2004 to 2007. In particular, existing state and federal regulations permit rural local exchange carriers to charge rates that
enable recovery of their operating costs, plus a reasonable rate of return on their invested capital (as determined by relevant regulatory
authorities). Historically, 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. However, in our markets, we have experienced some voice competition from cable providers and competitive local exchange carriers.
We also are subject to competition from wireless and other technologies. If competition were to increase, local calling services, data and
internet services and the originating and terminating access revenues we receive may be reduced. 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.


On January 15, 2007, we entered into an Agreement and Plan of Merger with Verizon Communications Inc., or Verizon, and
Northern New England Spinco Inc., a subsidiary of Verizon, or Spinco, as amended by Amendment No. 1 to Agreement and Plan of
Merger, dated as of April 20, 2007, Amendment No. 2 to Agreement and Plan of Merger, dated as of June 28, 2007, Amendment No. 3 to
Agreement and Plan of Merger, dated as of July 3, 2007, Amendment No. 4 to Agreement and Plan of Merger, dated as of
2