Frontier Communications 2008 Annual Report Download - page 25

and business customers in the markets we serve and continually evaluate the introduction of new and
complementary products and services, which can also be purchased separately. Customer retention is also
enhanced by offering one, two and three year price protection plans where customers commit to a term in
exchange for predictable pricing and/or promotional offers. Additionally, we are focused on enhancing the
customer experience as we believe exceptional customer service will differentiate us from our competition. Our
commitment to providing exemplary customer service is demonstrated by the expansion of our customer
services hours, shorter scheduling windows for in-home appointments and the implementation of call reminders
and follow-up calls for service appointments. In addition, due to a recent realignment and restructuring of
approximately 70 local area markets, those markets are now operated by local managers with responsibility for
the customer experience, as well as the financial results, in those markets.
We utilize targeted and innovative promotions to sell new customers, including those moving into our
territory, win back previously lost customers, upgrade and up-sell existing customers a variety of service
offerings including High-Speed Internet, video, and enhanced long distance and feature packages in order to
maximize the average revenue per access line (wallet share) paid to Frontier. Depending upon market and
economic conditions, we may offer such promotions to drive sales in the future.
Lastly, we are focused on introducing a number of new products that our customers desire, including
unlimited long distance minutes, bundles of long distance minutes, wireless data, internet portal advertising and
the “Frontier Peace of Mind” product suite. This last category is a suite of products aimed at managing the total
communications and personal computing experience for our customers. The Peace of Mind product and
services are designed to provide value and simplicity to meet our customers’ ever-changing needs. The Peace
of Mind product and services suite includes services such as an in-home, full installation of our high-speed
product, two hour appointment windows for the installation, hard drive back-up services, enhanced help desk
PC support and inside wire maintenance. We offer a portion of our Peace of Mind services, including hard
drive back-up services and enhanced help desk PC support, both to our customers and to other users inside and
outside of our service territories. Although we are optimistic about the opportunities provided by each of these
initiatives, we can provide no assurance about their long-term profitability or impact on revenue.
We believe that the combination of offering multiple products and services to our customers pursuant to
price protection programs, billing them on a single bill, providing superior customer service, and being active
in our local communities will make our customers more loyal to us, and will help us generate new, and retain
existing, customer revenue.
Revenues from data and internet services such as High-Speed Internet continue to increase as a percentage
of our total revenues and revenues from services such as local line and access charges (including federal and
state subsidies) are decreasing as a percentage of our total revenues. Federal and state subsidy revenue was
$119.8 million in 2008, or 5% of our revenues, down from $130.0 million in 2007, or 6% of our revenues. We
expect this trend to continue in 2009. The decreasing revenue from traditional sources, along with the potential
for increasing operating costs, could cause our profitability and our cash generated by operations to decrease.
(a) Liquidity and Capital Resources
As of December 31, 2008, we had cash and cash equivalents aggregating $163.6 million. Our primary
source of funds continued to be cash generated from operations. For the year ended December 31, 2008, we
used cash flow from operations, incremental borrowings and cash on hand to fund all of our investing and
financing activities, including debt repayments and stock repurchases.
We believe our operating cash flows, existing cash balances, and revolving credit facility will be adequate
to finance our working capital requirements, fund capital expenditures, make required debt payments through
2009, pay taxes, pay dividends to our stockholders in accordance with our dividend policy and support our
short-term and long-term operating strategies. However, a number of factors, including but not limited to,
increased cash taxes, losses of access lines, increases in competition, lower subsidy and access revenues and the
impact of the current economic environment are expected to reduce our cash generated by operations. In
addition, although we believe, based on information available to us, that the financial institutions syndicated
under our revolving credit facility would be able to fulfill their commitments to us, given the current economic
environment and the recent severe contraction in the global financial markets, this could change in the future.
24
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES