Cincinnati Bell 2006 Annual Report Download - page 138

2005 Compared to 2004
Revenue
Service revenue decreased by $27.2 million in 2005 as compared to 2004. This decrease is primarily
attributed to the following:
•$22.4 million decrease in postpaid subscriber service revenue due to lower ARPU. The Company’s
postpaid ARPU decreased by $6.26 compared to 2004 due to lower priced GSM rate plans and bundling
plans, slightly offset by an increase in data revenues. The increase in subscribers from 306,300 at
December 31, 2004 to 315,100 at December 31, 2005 is the result of the Company’s efforts to recover
subscribers that were lost as a result of network quality problems encountered in 2004 at the early stages
of the Company’s network migration from TDMA to GSM. The Company has resolved the difficulties
encountered in 2004, and fourth quarter net activations (gross activations less deactivations) of 14,700 in
2005 compared favorably to a loss of net subscribers of 1,800 in the same period of 2004. Average churn
for the year was approximately 2.2%. However, churn declined over the course of the year from 2.8% in
the fourth quarter of 2004 to 1.8% in the fourth quarter of 2005. This was due to the resolution of the
aforementioned network problems and the introduction of more attractive rate plans;
•$1.7 million increase in prepaid service revenues primarily due to an increase in average subscribers. As
of December 31, 2005, prepaid subscribers totaled approximately 180,500, compared to 174,700 at
December 31, 2004. Prepaid ARPU was flat compared to 2004, as higher data ARPU offset lower voice
ARPU. Average monthly prepaid customer churn increased from 6.1% in 2004 to 6.5% in 2005 primarily
as a result of increased competition; and
•$9.4 million decrease in roaming revenue due to a decrease in minutes of use as a result of the merger
between Cingular and AT&T Wireless Services Inc. CBW has lost substantial roaming revenue as
Cingular customers are now using Cingular’s network versus CBW’s network. As part of CBW’s
agreement with Cingular, a substantial portion of this lost roaming revenue is offset by a rate reduction on
the cost of roaming minutes purchased from Cingular. For 2005, roaming expense decreased $8.9 million
compared to 2004.
Equipment revenue increased by $3.0 million as the Company sold 41,000 more handsets during 2005 as
compared to 2004 as 26,000 more TDMA customers migrated to the Company’s GSM network.
Costs and Expenses
The decrease in costs of services of $3.9 million compared to 2004 was due to lower roaming expense of
$8.9 million resulting from the renegotiation of rates with Cingular noted above, partially offset by $1.9 million
of higher handset and accessory costs related to the equipment revenue increase and $2.5 million of higher
operating taxes.
Selling, general and administrative expenses were flat as compared to 2004. Increases in advertising and
promotional expenses of $2.9 million were offset by decreased fees for outsourced services as a result of better
negotiated rates and lower legal claim costs for the roaming litigation incurred in 2004.
In 2005, the Company further revised its estimate of the remaining useful lives of certain of the TDMA
assets, resulting in additional depreciation. The depreciation increase for 2005 versus 2004 results from the
accelerated depreciation on TDMA assets as well as on certain GSM assets that were replaced in late 2005 as part
of the Company’s continued initiative to improve GSM network quality.
Amortization expense in 2004 was a result of accelerated amortization related to the change in estimated
economic useful life of certain roaming and trade name agreements as a result of the merger between Cingular
and AT&T Wireless Services in 2004.
As discussed above, the Company incurred charges of $42.3 million in 2005 to write down the recorded
value of its TDMA network assets. Asset impairment charges in 2004 were recorded to write-down certain
TDMA assets taken out of service and certain intangible assets.
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