Frontier Communications 2013 Annual Report Download - page 47

the Company’s broadband subscribers increased by 23,400, or 1%, since December 31, 2011. Nonswitched
access revenue increased $1.3 million to $959.8 million in 2012, as compared with 2011.
Other
Other revenue for 2013 decreased $58.2 million, or 16%, to $298.8 million, as compared with 2012,
primarily due to lower wireless revenue associated with the sale of our interest in the Mohave partnership on
April 1, 2013, lower directory services revenue and the reduction in customers for FiOS video service, partially
offset by lower bad debt expenses.
Other revenue for 2012 increased $54.1 million, or 18%, to $357.0 million, as compared with 2011. Other
revenue for 2012 increased, as compared to 2011, primarily due to higher service activation fees from new
customers, lower bad debt expenses that are charged against revenue and higher wireless revenue, partially
offset by the reduction in customers for FiOS video service and lower directory services revenue.
Switched Access and Subsidy
Switched access and subsidy revenue for 2013 decreased $55.2 million, or 9%, to $551.6 million, as
compared with 2012. Switched access revenue decreased $47.7 million, or 17%, to $234.5 million, as compared
to 2012, primarily due to the impact of a decline in minutes of use related to access line losses and the
displacement of minutes of use by wireless, email and other communications services combined with a
reduction due to the impact of the lower rates enacted by the FCC’s intercarrier compensation reform in July
2013. These decreases in switched access revenues were partially offset by the impact of disputes with carriers
and lower customer credits. Switched access and subsidy revenue includes subsidy payments we receive from
federal and state agencies, including surcharges billed to customers that are remitted to universal service
administrators. Subsidy revenue decreased $7.5 million, or 2%, to $317.1 million, primarily due to the lower
contribution factor for end user USF in 2013.
Switched access and subsidy revenue for 2012 decreased $42.8 million, or 7%, to $606.9 million, as
compared with 2011. Switched access revenue for 2012 of $282.3 million, decreased $58.9 million, or 17%, as
compared to 2011, primarily due to the impact of a decline in minutes of use related to access line losses and
the displacement of minutes of use by wireless, email and other communications services combined with a
reduction due to the second half impact of the lower rates enacted by the first phase of the FCC’s intercarrier
compensation reform. Subsidy revenue, including surcharges billed to customers of $119.7 million for 2012, of
$324.6 million, increased $16.1 million, or 5%, as compared with 2011, primarily due to an increase in the
customer surcharge revenue to support the Federal Universal Service Fund and increased recovery from the
Federal Fund due to the implementation of the Order during the second half of 2012.
Federal and state subsidies and surcharges (which are billed to customers and remitted to universal service
administrators) for the Company were $167.2 million, $32.4 million and $117.5 million, respectively, and
$317.1 million in total, or 7% of our revenues, for 2013. The federal and state subsidy revenue for 2013
represents 4% of our consolidated revenues. Total federal and state subsidies and surcharges were $324.6
million, or 6% of our revenues, for 2012 and $308.5 million, or 6% of our revenues, for 2011.
On November 18, 2011, the FCC adopted the Order to reform Federal Universal Service High-Cost Fund
and Intercarrier Compensation. The Order changed how federal subsidies are calculated and disbursed, with
these changes being phased-in beginning in July 2012. These changes transition the Federal Universal Service
High-Cost Fund, which supports voice services in high-cost areas, to the CAF, which supports broadband
deployment in high-cost areas. CAF Phase I, implemented in 2012, provided for ongoing USF support for price
cap carriers capped at the 2011 amount. In addition, the FCC in the first round of CAF Phase I made available
for price cap ILECs an additional $300 million in incremental high-cost broadband support to be used for
broadband deployment to unserved areas. In 2012 and early 2013, we received $71.9 million in CAF Phase I
funds. The $71.9 million in the first round of CAF Phase I support is expected to enable an incremental 92,877
households for broadband service and was accounted for as Contributions in Aid of Construction. We are
required to spend the CAF Phase I funds on and enable these 92,877 households no later than July 24, 2015.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES