Frontier Communications 2008 Annual Report Download - page 5

basis and the service is billed on a minutes-of-use basis. Access charges are based on access rates filed with the
Federal Communications Commission (FCC) for interstate services and with the respective state regulatory
agency for intrastate services. In addition, subsidies received from state and federal universal service funds
based on the high cost of providing telephone service to certain rural areas are a part of our access services
revenue.
Revenue is recognized when services are provided to customers or when products are delivered to
customers. Monthly recurring access service fees are billed in advance. The unearned portion of this revenue is
initially deferred as a component of other liabilities on our balance sheet and recognized as revenue over the
period that the services are provided.
Local services. We provide basic telephone wireline services to residential and business customers in our
service areas. Our service areas are largely residential and are generally less densely populated than the primary
service areas of the largest incumbent local exchange carriers. We also provide enhanced services to our
customers by offering a number of calling features, including call forwarding, conference calling, caller
identification, voicemail and call waiting. All of these local services are billed monthly in advance. The
unearned portion of this revenue is initially deferred as a component of other liabilities on our balance sheet
and recognized as revenue over the period that the services are provided. We also offer packages of
communications services. These packages permit customers to bundle their basic telephone line service with
their choice of enhanced, long distance, television and internet services for a monthly fee and/or usage fee
depending on the plan.
We intend to continue our efforts to increase the penetration of our enhanced services. We believe that
increased sales of such services will produce revenue with higher operating margins due to the relatively low
marginal operating costs necessary to offer such services. We believe that our ability to integrate these services
with other services will provide us with the opportunity to capture an increased percentage of our customers’
communications expenditures (wallet share).
Long distance services. We offer long distance services in our territories to our customers. We believe that
many customers prefer the convenience of obtaining their long distance service through their local telephone
company and receiving a single bill. Long distance network service to and from points outside of our operating
territories is provided by interconnection with the facilities of interexchange carriers (IXCs). Our long distance
services are billed either as unlimited/fixed number of minutes in advance or on a per minute-of-use basis, in
which case it is billed in arrears. The earned but unbilled portion of these fees are recognized as revenue and
accrued in accounts receivable in the period that the services are provided.
Data and internet services. We offer data services including internet access (via high-speed or dial up
internet access), frame relay, Metro ethernet and asynchronous transfer mode (ATM) switching services. We
offer other data transmission services to other carriers and high-volume commercial customers with dedicated
high-capacity circuits ranging from DS-1’s to Gig E. Such services are generally offered on a contract basis and
the service is billed on a fixed monthly recurring charge basis. Data and internet services are typically billed
monthly in advance. The unearned portion of these fees are initially deferred as a component of other liabilities
on our balance sheet and recognized as revenue over the period that the services are provided.
Directory services. Directory services involves the provision of white and yellow page directories for
residential and business listings. We provide this service through two third-party contractors. In a majority of
our markets, the contractor is paid a percentage of revenues from the sale of advertising in these directories and
in the remaining markets, we receive a flat fee. Our directory service also includes “Frontier Pages,” an
internet-based directory service which generates advertising revenue. We recognize the revenue from these
services over the life of the related white or yellow pages book, which is typically one calendar year.
Television services. We offer a television product in partnership with DISH Network. We provide access
to all-digital television channels featuring movies, sports, news, music and high-definition TV programming.
We offer packages of 100, 200 or 250 channels and include high-definition channels, premium channels, family
channels and ethnic channels. We also provide access to local channels. We are in an “agency” relationship
with DISH. We bill the customer for the monthly services and remit those billings to DISH without recognizing
any revenue. We in turn receive from DISH and recognize as revenue activation fees, other residual fees and
nominal management, billing and collection fees.
4
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES