FairPoint Communications 2007 Annual Report Download - page 51

Table of Contents
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” in this Annual Report.
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We are a leading provider of communications services in rural and small urban 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 and small urban communities, and we are the 12th largest local telephone company in the
United States, in each case based on number of access lines as of December 31, 2007. We operate in 18 states with 305,777 access line
equivalents (including voice access lines and high speed data lines, or HSD, which include DSL, wireless broadband and cable modems)
in service as of December 31, 2007.
We were incorporated in February 1991 for the purpose of acquiring and operating local exchange carriers in rural markets. Since
1993, we have acquired 35 such businesses, 30 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 communities we serve have fewer than 2,500 access lines. Most of our
telephone companies qualify as rural local exchange carriers under the 1996 Act.
Rural local exchange carriers have historically been characterized by stable operating results and strong cash flow margins and
operate in supportive regulatory environments. While our historical results indicate a higher level of growth than non-rural local exchange
carriers, this increased growth was principally generated through acquisitions. Excluding revenue from acquisitions, our total revenues
grew 0.9% from 2004 to 2007. Existing state and federal regulations permit rural local exchange carriers to charge rates that enable
recovery of their operating costs, plus a reasonable rate of return on their invested capital (as determined by relevant regulatory
authorities). Historically, 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. However, in our markets, we have experienced some voice competition from cable providers and competitive local exchange carriers.
We also are subject to competition from wireless and other technologies. If competition were to increase, local calling services, data and
internet services and the originating and terminating access revenues we receive may be reduced. 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 substituting DSL for a second line). We have not been immune to these conditions
but 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.
Our board of directors has adopted a dividend policy that reflects our judgment that our stockholders would be better served if we
distributed a substantial portion of the cash generated by our business in excess of operating needs, interest and principal payments on
our indebtedness, dividends on future senior classes of our capital stock, if any, capital expenditures, taxes and future reserves, if any,
as regular quarterly dividend payments to the holders of our common stock, rather than retained and used for other purposes. However,
our board of directors may, in its discretion, amend or repeal the dividend policy to decrease the level of dividends provided for or
discontinue entirely the payment of dividends. As a condition to the approval of the transactions by state regulatory authorities, we have
agreed that we will be subject to reductions in the dividend rate and certain other restrictions on the payment of dividends following the
transactions. See “Item 1. Business — Recent Developments — Regulatory Conditions,” “Item 1. Business — Regulatory
Environment — State Regulation — Regulatory Conditions to the Merger” and “Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities — Dividend Policy and
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