FairPoint Communications 2004 Annual Report Download - page 13

Our fiber optic transport system is primarily a synchronous optical network capable of supporting increasing customer demand for high
bandwidth transport services. This system supports advanced services including Asynchronous Transfer Mode, Frame Relay and/or Internet
Protocol Transport, facilitating delivery of advanced services as demand warrants.
In our rural local exchange carrier markets, digital subscriber line-enabled integrated access technology is being deployed to provide
significant broadband capacity to our customers. As of December 31, 2004, we had invested approximately $25.7 million in digital subscriber
line technology and had deployed this technology in 123 of our 143 exchanges. Approximately 93% of our exchanges are capable of
providing broadband services through cable modem, wireless broadband and/or digital subscriber line technology.
Rapid and significant changes in technology are expected in the communications industry. Our future success will depend, in part, on
our ability to anticipate and adapt to technological changes. We believe that our network architecture will enable us to efficiently respond to
these technological changes.
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We believe that the Telecommunications Act and other recent actions taken by the Federal Communications Commission and state
regulatory authorities promote competition in the provision of communications services; however, many of the competitive threats now
confronting larger regulated telephone companies do not currently exist in the rural local exchange carrier marketplace. Our rural local
exchange carriers historically have experienced little wireline competition as the incumbent carrier in their markets because the demographic
characteristics of rural communications markets generally will not support the high cost of operations and significant capital investment
required for new wireline entrants to offer competitive services. For instance, the per minute cost of operating both telephone switches and
interoffice facilities is higher in rural areas, as rural local exchange carriers typically have fewer, more geographically dispersed customers
and lower calling volumes. Also, the distance from the telephone switch to the customer is typically longer in rural areas, which results in
increased distribution facilities costs. These relatively high costs tend to discourage other wireline competitors from entering territories
serviced by our rural local exchange carriers.
Wireless Competition
In most of our rural markets, we face competition from wireless technology. We do not expect this technology to represent a significant
competitive threat to us in the near term, but as technology and economies of scale improve, we may experience increased competition from
wireless carriers. In addition, the Federal Communications Commission's requirement that telephone companies offer wireline-to-wireless
number portability may increase the competition we face from wireless carriers.
Wireline and Satellite Competition
We also face competition from new market entrants that provide close substitutes for the traditional telephone services we provide, such
as cable television, satellite communications and electric utility companies. Cable television companies are entering the communications
market by upgrading their networks with fiber optics and installing facilities to provide fully interactive transmission of broadband, voice, video
and data communications. Electric utilities have existing assets and access to low cost capital that could allow them to enter a market rapidly
and accelerate network development. While we have limited competition for voice services from cable providers and electric utilities for basic
voice services, we cannot guarantee that we will not face increased competition from such providers in the future.
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