Frontier Communications 2007 Annual Report Download - page 36

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
with a carrier resulting in a favorable impact on our revenue of $38.7 million (a one-time event), partially offset
by the impact of a decline in minutes of use related to access line losses. Access service revenue includes subsidy
payments we receive from federal and state agencies. Subsidy revenue of $124.7 million decreased $39.9 million,
primarily due to lower receipts under the Federal High Cost Fund program resulting from our reduced cost
structure and an increase in the program’s National Average Cost Per Local Loop (NACPL), along with
reductions in Universal Service Fund (USF) surcharges due to the elimination of high-speed internet units from
the USF calculation.
Access services revenue for the year ended December 31, 2006 decreased $3.4 million, or 1%, as compared
with the prior year. Switched access revenue decreased $13.9 million to $263.4 million. Approximately $24.0
million of the switched access decline was attributable to a decline in minutes of use related to access line losses.
This decline was offset by approximately $9.3 million of disputed carrier activity resolved in the Company’s
favor during the fourth quarter of 2006. Subsidy revenue increased $10.5 million to $164.6 million in 2006,
primarily due to increased receipts from the Federal High Cost Fund due to higher costs in the base year, as well
as increased receipts from state high cost funds.
Increases in the number of Competitive Eligible Telecommunications Companies (including wireless
companies) receiving federal subsidies, among other factors, may lead to further increases in the NACPL,
thereby resulting in decreases in our federal subsidy revenue in the future. The FCC and state regulators are
currently considering a number of proposals for changing the manner in which eligibility for federal subsidies is
determined as well as the amounts of such subsidies. The FCC is also reviewing the mechanism by which
subsidies are funded. Additionally, the FCC has an open proceeding to address reform to access charges and
other intercarrier compensation. We cannot predict when or how these matters will be decided nor the effect on
our subsidy or access revenues. Future reductions in our subsidy and access revenues will directly affect our
profitability and cash flows as those regulatory revenues do not have associated variable expenses.
Long Distance Services
Long distance services revenue for the year ended December 31, 2007 increased $27.3 million, or 18%, to
$180.5 million as compared to the prior year. Excluding the additional long distance services revenue due to the
CTE and GVN acquisitions of $27.1 million, long distance services revenue for the year ended December 31,
2007 was relatively unchanged as compared with the prior year, despite an increase of 13% in our long distance
minutes of use. Long distance services revenue for the year ended December 31, 2006 decreased $16.2 million,
or 10% from 2005, primarily due to a decline in the average rate per minute. Our long distance minutes of use
increased during 2006. During 2007, we actively marketed a package of unlimited long distance minutes with our
digital phone and state unlimited bundled service offerings. The sale of our digital phone and state unlimited
products, and its associated unlimited minutes, has resulted in an increase in long distance customers, and the
minutes used by those customers. This has lowered our overall average rate per minute billed. Our long distance
minutes of use increased during 2007 and 2006, as compared to the prior years and, as noted below in network
access expenses, has increased our cost of services provided.
Our long distance services revenues have remained relatively unchanged, but may decrease in the future due
to lower rates and/or minutes of use. Competing services such as wireless, VOIP and cable telephony are
resulting in a loss of customers, minutes of use and further declines in the rates we charge our customers.
Directory Services
Directory services revenue for the year ended December 31, 2007 increased $0.4 million to $114.6 million
as compared to the prior year. Excluding the additional directory services revenue due to the CTE and GVN
acquisitions of $1.3 million, directory services revenue for the year ended December 31, 2007 decreased $0.8
million, or 1%, as compared with the prior year with slightly lower revenues from yellow pages advertising,
mainly in Rochester, New York.
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