FairPoint Communications 2004 Annual Report Download - page 5

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We are a leading provider of communications services in rural communities, offering an array of services, including local and long
distance voice, data, Internet and broadband product offerings. We are one of the largest telephone companies in the United States focused on
serving rural communities, and we are the 17th largest local telephone company, in each case based on number of access lines. We operate
in 17 states with approximately 271,150 access line equivalents (including voice access lines and digital subscriber lines) in service as of
December 31, 2004.
We were incorporated in February 1991 for the purpose of operating and acquiring incumbent telephone companies in rural markets. We
have acquired 30 such businesses, 26 of which we continue to own and operate. Many of our telephone companies have served their
respective communities for over 75 years. The majority of the rural communities we serve have fewer than 2,500 access lines. All of our
telephone company subsidiaries qualify as rural local exchange carriers under the Telecommunications Act of 1996, or the
Telecommunications Act.
Rural local exchange carriers generally are characterized by stable operating results and strong cash flow margins and operate in
supportive regulatory environments. In particular, existing state and federal regulations permit us to charge rates that enable us to recover our
operating costs, plus a reasonable rate of return on our invested capital (as determined by relevant regulatory authorities). Competition is
typically limited because rural local exchange carriers primarily serve sparsely populated rural communities with predominantly residential
customers, and the cost of operations and capital investment requirements for new entrants is high. As a result, in our markets, we have
experienced virtually no wireline competition and limited competition from cable providers. While most of our markets are served by wireless
service providers, their impact on our business has been limited.
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We believe we are distinguished by the following competitive strengths:
• . We have the leading market position in the rural
communities we serve, with limited competition. Demand for telephone services from our residential and local business
customers has historically been very stable despite changing economic conditions. As a result, we have experienced a
relatively stable access line count during the last two years compared to regional bell operating companies. Additionally, our
telephone companies operate in generally supportive regulatory environments. These factors have permitted us to generate
consistent cash flows and strong margins.
•. We currently operate 26 rural local exchange carriers in 17 states, clustered in four
regions, enabling us to capitalize on economies of scale and operating efficiencies. Our geographic diversity significantly
enhances our cash flow stability by limiting our exposure to competition, local economic downturns and state regulatory
changes. In addition, we believe that we have achieved significant scale efficiencies by centralizing many functions, such as
sales and marketing, network planning, accounting and customer service.
•. Our advanced network infrastructure enables us to provide a wide array of
communications services. Our network consists of central office hosts and remote sites all with digital switches (primarily
manufactured by Nortel and Siemens) and operating with current software. As of December 31, 2004, we maintained over
25,000 miles of copper plant and approximately 3,300 miles of fiber optic plant in order to service our 271,150 access line
equivalents in service. As a result of our historic capital investments, our network infrastructure requires predictable capital
expenditures and allows us to implement certain broadband enabled services with minimal incremental cost. As of
December 31, 2004, approximately 93% of our exchanges were capable of providing broadband services.
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