Frontier Communications 2008 Annual Report Download - page 38

OPERATING EXPENSES
NETWORK ACCESS EXPENSES
($ in thousands) Amount $ Change % Change Amount Acquisitions
Frontier (excluding
CTE and GVN) $ Change % Change Amount
2008 2007 2006
Network access . . . . ......... $222,013 $(6,229) -3% $228,242 $35,781 $192,461 $21,214 12% $171,247
Network access
Consolidated network access expenses for 2008 decreased $6.2 million, or 3%, to $222.0 million as
compared to 2007 primarily due to decreasing rates resulting from more efficient circuit routing for our long
distance and data products. Excluding the additional network access expenses attributable to the CTE and GVN
acquisitions for 2008 and 2007, network access expenses decreased $15.1 million, or 8%, in 2008 as compared
to 2007. Excluding the additional network access expenses attributable to the CTE and GVN acquisitions of
$35.8 million in 2007, network access expenses for 2007 increased $21.2 million, or 12%, as compared to
2006, primarily due to increasing rates and usage related to our long distance product and our data backbone.
In the fourth quarter of 2008, we expensed $4.2 million of promotional costs for Master Card gift cards
issued to new High-Speed Internet customers entering into a two-year price protection plan and to existing
customers who purchased additional services under a two-year price protection plan. In the first quarter of
2008, we expensed $2.6 million for a flat screen television promotion. Additionally, in the fourth quarters of
2007 and 2006, we expensed $11.4 million and $9.7 million, respectively, of promotional costs associated with
fourth quarter High-Speed Internet promotions that subsidized the cost of a new personal computer or a new
digital camera in 2007, and a new personal computer in 2006, provided to customers entering into a multi-year
commitment for certain bundled services.
As we continue to increase our sales of data products such as High-Speed Internet and expand the
availability of our unlimited long distance calling plans, our network access expense may increase in the future.
A decline in expenses associated with access line losses, has offset some of the increase.
OTHER OPERATING EXPENSES
($ in thousands) Amount $ Change % Change Amount Acquisitions
Frontier (excluding
CTE and GVN) $ Change % Change Amount
2008 2007 2006
Wage and benefit expenses. . $383,887 $ 2,561 1% $381,326 $ 28,907 $352,419 $ (6,408) -2% $358,827
Severance and early
retirement costs . ......... 7,598 (6,276) -45% 13,874 — 13,874 6,681 93% 7,193
Stock based compensation. . . 7,788 (1,234) -14% 9,022 — 9,022 (1,318) -13% 10,340
All other operating expenses . 411,475 7,196 2% 404,279 72,086(1) 332,193 (24,590) -7% 356,783
$810,748 $ 2,247 0% $808,501 $100,993 $707,508 $(25,635) -3% $733,143
(1) Includes $33.0 million of common corporate costs allocated to CTE operations during 2007.
Consolidated other operating expenses for 2008 increased $2.2 million, to $810.7 million as compared to
2007, primarily the result of our CTE and GVN acquisitions which was largely offset by synergies and cost
reductions relating to the legacy Frontier operations.
Wage and benefit expenses
Wage and benefit expenses for 2008 increased $2.6 million, or 1%, to $383.9 million as compared to
2007. Wage and benefit expenses attributable to the CTE and GVN acquisitions increased $10.2 million, or
35%, in 2008 versus 2007, primarily due to the pension curtailment gain of $14.4 million recognized in 2007,
as discussed below. These additional costs were offset by a decrease of $7.6 million primarily due to headcount
reductions and associated decreases in compensation and benefit costs attributable to the integration of the back
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES