Frontier Communications 2006 Annual Report Download - page 12

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
including a changing regulatory environment that may affect our competitors and us differently, new services
that may be introduced, changes in consumer preferences, demographic trends, economic conditions and pricing
strategies by competitors. Increasing competition may reduce our revenues and increase our costs as well as
require us to increase our capital expenditures and thereby decrease our cash flow.
Some of our competitors have superior resources, which may place us at a cost and price disadvantage.
Some of our current and potential competitors have market presence, engineering, technical and marketing
capabilities, and financial, personnel and other resources substantially greater than ours. In addition, some of our
competitors can raise capital at a lower cost than we can. Consequently, some competitors may be able to
develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new
or emerging technologies and changes in customer requirements, take advantage of acquisition and other
opportunities more readily and devote greater resources to the marketing and sale of their products and services
than we can. Additionally, the greater brand name recognition of some competitors may require us to price our
services at lower levels in order to retain or obtain customers. Finally, the cost advantages of some competitors
may give them the ability to reduce their prices for an extended period of time if they so choose.
RISKS RELATED TO OUR BUSINESS
Decreases in certain types of our revenues will impact our profitability.
Our Frontier business has been experiencing declining access lines, switched access minutes of use, long
distance prices and related revenues because of economic conditions, increasing competition, changing consumer
behavior (such as wireless displacement of wireline use, email use, instant messaging and increasing use of
VOIP), technology changes and regulatory constraints. These factors are likely to cause our local network
service, switched network access, long distance and subsidy revenues to continue to decline, and these factors,
together with our increasing employee costs, and the potential need to increase our capital spending, may cause
our cash generated by operations to decrease.
We may be unable to grow our revenue and cash flow despite the initiatives we have implemented.
We must produce adequate cash flow that, when combined with funds available under our revolving credit
facility, will be sufficient to service our debt, fund our capital expenditures, pay our taxes and maintain our
current dividend policy. We expect that our cash taxes will increase substantially in 2007 as we begin to have
lower amounts of tax operating losses. We have implemented several growth initiatives, including increasing our
marketing promotion/expenditures and launching new products and services with a focus on areas that are
growing or demonstrate meaningful demand such as wireline and wireless high-speed internet. There is no
assurance that these initiatives will result in an improvement in our financial position or our results of operations.
We may complete a significant business combination or other transaction that could increase our shares
outstanding, affect our debt, result in a change in control, or all of the above.
From time to time we evaluate potential acquisitions and other arrangements, such as the Commonwealth
acquisition, that would extend our geographic markets, expand our services, enlarge the capacity of our networks
or increase the types of services provided through our networks. If we complete any acquisition or other
arrangement, we may require additional financing that could result in an increase in our shares outstanding and/
or debt, result in a change in control, or all of the above. There can be no assurance that we will enter into any
transaction.
Our business is sensitive to the creditworthiness of our wholesale customers.
We have substantial business relationships with other telecommunications carriers for whom we provide
service. During the past few years, several of our customers have filed for bankruptcy. While these bankruptcies
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