Frontier Communications 2009 Annual Report Download - page 19

Frontier expects competition to intensify as a result of the entrance of new competitors, penetration of
existing competitors into new markets, changing consumer behavior and the development of new technologies,
products and services that can be used in substitution for the Company’s products and services. Frontier cannot
predict which of the many possible future technologies, products or services will be important in order to
maintain the Company’s competitive position or what expenditures will be required to develop and provide
these technologies, products or services. The Company’s ability to compete successfully will depend on the
success and cost of capital expenditure investments in the Frontier and Spinco territories as well as the cost of
marketing efforts and on the Company’s ability to anticipate and respond to various competitive factors
affecting the industry, including a changing regulatory environment that may affect the Company and its
competitors differently, new services that may be introduced (including wireless broadband offerings), changes
in consumer preferences, demographic trends, economic conditions and pricing strategies by competitors.
Increasing competition may reduce the Company’s revenues and increase the Company’s marketing and other
costs as well as require the Company to increase its capital expenditures and thereby decrease its cash flow.
Some of the Company’s future competitors will have superior resources, which may place the Company
at a cost and price disadvantage.
Some of the companies that will be competitors of the Company will have market presence, engineering,
technical and marketing capabilities and financial, personnel and other resources substantially greater than
those of the Company. In addition, some of these future competitors will be able to raise capital at a lower cost
than the Company. Consequently, some of these competitors may be able to develop and expand their
communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies
and changes in customer requirements, take advantage of acquisition and other opportunities more readily and
devote greater resources to the marketing and sale of their products and services than the Company.
Additionally, the greater brand name recognition of some future competitors may require the Company to price
its services at lower levels in order to retain or obtain customers. Finally, the cost advantages of some of these
competitors may give them the ability to reduce their prices for an extended period of time if they so choose.
The Company may be unable to grow its revenues and cash flows despite the initiatives Frontier has
implemented and intends to continue after the merger.
The Company must produce adequate revenues and cash flows that, when combined with funds available
under Frontier’s revolving credit facility, will be sufficient to service the Company’s debt, fund its capital
expenditures, pay its taxes, fund its pension and other employee benefit obligations and pay dividends pursuant
to its dividend policy. Frontier has identified some potential areas of opportunity and has implemented and will
continue to implement several growth initiatives, including increasing marketing promotions and related
expenditures and launching new products and services with a focus on areas that are growing or demonstrate
meaningful demand such as wireline and wireless HSI, satellite video products and the “Frontier Peace of
Mind” suite of products, including computer technical support. Frontier cannot assure you that management
will choose the best initiatives to pursue, that their approaches to these opportunities will be successful or that
these initiatives will improve the Company’s financial position or its results of operations.
Weak economic conditions may decrease demand for the Company’s services.
The Company could be sensitive to the ongoing recession if current economic conditions or their effects
continue. Downturns in the economy and competition in the Company’s markets could cause some of the
Company’s customers to reduce or eliminate their purchases of the Company’s basic and enhanced services,
HSI and video services and make it difficult for the Company to obtain new customers. In addition, if current
economic conditions continue, they could cause the Company’s customers to delay or discontinue payment for
its services.
Disruption in the Company’s networks, infrastructure and information technology may cause the
Company to lose customers and incur additional expenses.
To attract and retain customers, the Company will need to provide customers with reliable service. Some
of the risks to the Company’s networks, infrastructure and information technology include physical damage,
security breaches, capacity limitations, power surges or outages, software defects and disruptions beyond its
control, such as natural disasters and acts of terrorism. From time to time in the ordinary course of business, the
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES