Frontier Communications 2007 Annual Report Download - page 13

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
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, Federal and state subsidies 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 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, which increased significantly in 2007, will continue to
increase in 2008 and 2009 due to our expectations of continued profitability and the effects of fully utilizing our
federal net operating loss carryforwards and Alternative Minimum Tax (AMT) tax credit carryforwards that were
generated in prior years. 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, the DISH satellite television
product and our Peace of Mind computer technical support. 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
and GVN acquisitions, 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 carrier customers have filed for bankruptcy. While these
bankruptcies have not had a material adverse effect on our business to date, future bankruptcies in our industry
could result in our loss of significant customers, more price competition and uncollectible accounts receivable.
As a result, our revenues and results of operations could be materially and adversely affected.
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