FairPoint Communications 2005 Annual Report Download - page 38

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The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Annual Report. The
following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our
business, actions of regulatory authorities and competitors and other factors which could cause actual results to differ materially from the results referred to in
the forward-looking statements, see “Item 1A.—Risk Factors.”
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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 288,899 access line equivalents in
service as of December 31, 2005.
We were incorporated in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural markets. Since 1993, we
have acquired 32 such businesses, 28 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 companies qualify as rural local
exchange carriers under 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 voice competition from
cable providers. We may already have VoIP competition but there is no way to identify or measure it. While most of our markets are served by wireless service
providers, their impact on our business has been limited. We periodically negotiate interconnection agreements with other telecommunications providers which
could ultimately result in increased competition in those markets.
Access lines are an important element of our business. Historically, rural telephone companies have experienced consistent growth in access lines because
of positive demographic trends, insulated rural local economies and little competition. Recently, however, many rural telephone companies have experienced a
loss of access lines due to challenging economic conditions, increased competition and the introduction of DSL services (resulting in customers canceling
second lines in favor of DSL). We have not been immune to these conditions. We have been able to mitigate our access line loss somewhat through bundling
services, retention programs, continued community involvement and a variety of other focused programs.
Despite our net loss of voice access lines, we have generated growth in our revenues each year since 2001. We have accomplished this by providing our
customers with services not previously available in most of our markets, such as enhanced voice services and data services, including digital subscriber line
services, and through acquisitions.
During 2005, 17 of our operating companies were converted to a single outsourced billing platform. On October 7, 2005, we learned that the billing
service bureau used by us for these 17 operating companies had contracted to sell the software underlying our billing system and agreed not to add any future
customers to its service bureau platform. In addition to the short term difficulties we experienced during
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