Frontier Communications 2008 Annual Report Download - page 24

•The effects of state regulatory cash management policies on our ability to transfer cash among our
subsidiaries and to the parent company;
•Our ability to successfully renegotiate union contracts expiring in 2009 and thereafter;
•Our ability to pay a $1.00 per common share dividend annually, which may be affected by our cash
flow from operations, amount of capital expenditures, debt service requirements, cash paid for income
taxes (which will increase in 2009) and our liquidity;
•The effects of significantly increased cash taxes in 2009 and thereafter;
•The effects of any unfavorable outcome with respect to any of our current or future legal, governmental
or regulatory proceedings, audits or disputes;
•The possible impact of adverse changes in political or other external factors over which we have no
control; and
•The effects of hurricanes, ice storms and other severe weather.
Any of the foregoing events, or other events, could cause financial information to vary from
management’s forward-looking statements included in this report. You should consider these important
factors, as well as the risks set forth under Item 1A. “Risk Factors” above, in evaluating any statement in this
report on Form 10-K or otherwise made by us or on our behalf. The following information is unaudited and
should be read in conjunction with the consolidated financial statements and related notes included in this
report. We have no obligation to update or revise these forward-looking statements.
Overview
We are a full-service communications provider and one of the largest exchange telephone carriers in the
country. On July 31, 2006, we sold our competitive local exchange carrier (CLEC), Electric Lightwave, LLC
(ELI). We accounted for ELI as a discontinued operation in our consolidated statements of operations. On
March 8, 2007, we completed the acquisition of Commonwealth Telephone Enterprises, Inc. (Commonwealth
or CTE), which included a small CLEC component. This acquisition expanded our presence in Pennsylvania
and strengthened our position as a leading full-service communications provider to rural markets. On October
31, 2007, we completed the acquisition of Global Valley Networks, Inc. and GVN Services (together GVN),
which expanded our presence in California and also strengthened our rural position. As of December 31, 2008,
we operated in 24 states with approximately 5,700 employees.
Competition in the telecommunications industry is intense and increasing. We experience competition
from many telecommunications service providers, including cable operators offering VOIP products, wireless
carriers, long distance providers, competitive local exchange carriers, internet providers and other wireline
carriers. We believe that as of December 31, 2008, approximately 65% of the households in our territories had
VOIP as an available service option from cable operators. We also believe that competition will continue to
intensify in 2009 and may result in reduced revenues. Our business experienced a decline in access lines and
switched access minutes in 2007 and 2008, primarily as a result of competition and business downsizing. We
also experienced a reduction in revenue in 2008 as compared to 2007.
The recent severe contraction in the global financial markets and ongoing recession may be impacting
consumer behavior to reduce household expenditures by not purchasing our services and/or by discontinuing
some or all of our services. These trends are likely to continue and may result in a challenging revenue
environment. These factors could also result in increased delinquencies and bankruptcies and, therefore, affect
our ability to collect money owed to us by residential and business customers.
We employ a number of strategies to combat the competitive pressures and changes to consumer behavior
noted above. Our strategies are focused in the following areas: customer retention, upgrading and up-selling
services to our existing customer base, new customer growth, win backs, new product deployment, and
operating expense and capital expenditure reductions.
We hope to achieve our customer retention goals by bundling services around the local access line and
providing exemplary customer service. Bundled services include High-Speed Internet, unlimited long distance
calling, enhanced telephone features and video offerings. We tailor these services to the needs of our residential
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES