We provide, both directly and through wholesale and sales agency relationships,
a suite of communications services, consisting of local and long distance voice
and data services, high-speed Internet access, wireless and satellite video services
to consumer and business customers in our local service territories in 18 states.
We also provide access to our local network and other wholesale communications
services for other carriers, communications equipment for business markets and
other communications-related services. Through our Logistics segment, we provide
wholesale product distribution, logistics and configuration services.
We have a significant presence in Florida, North Carolina, Nevada and Ohio
(these four states represent nearly two-thirds of all of our access lines).
The remaining states (in order of number of access lines) are: Virginia, Pennsylvania,
Texas, Indiana, Missouri, Tennessee, New Jersey, Minnesota, Kansas, South Carolina,
Washington, Oregon, Nebraska and Wyoming. We are the 'carrier of last resort'
and receive funding under universal service programs in certain of our local
service territories.
We have service territories in 18 states and they include a broad range of
geographies from the most metropolitan markets, such as Las Vegas, Nevada, to
rural markets, such as Gun Barrel City, Texas. The customer base, marketing
reach, competitors, network infrastructure and economics of the business vary
widely among the geographies. Our access lines are split about evenly between
metropolitan and rural markets.
Metropolitan markets allow for efficient advertising reach and utilization
of personnel, particularly the technician field force. They also enjoy more
widely available high-speed Internet coverage and speeds, higher concentrations
of business and wholesale customers and good wireless coverage. However, metro
locations already have strong competitors, such as cable and wireless companies
and also competitive local exchange carriers, or CLECs, and are most likely
to attract new entrants, driving prices down.
Our rural territories include smaller towns and less densely populated areas.
The towns tend to have some wireless, cable and even CLEC competition, but the
surrounding areas are generally only served by our network. We provide high-speed
Internet capabilities in many of the small town markets we serve.
Competition
There is widespread competition among communications services providers. The
traditional dividing lines between local, long distance, wireless, video and
Internet services are increasingly becoming blurred. Through mergers, joint
ventures and various service expansion strategies, major providers are striving
to provide integrated services in many of the markets we serve. This trend is
also reflected in changes in the regulatory environment that have encouraged
competition and the offering of integrated services. We expect competition to
intensify as a result of the entrance of new competitors and the rapid development
of new technologies, products and services.
Competition may adversely impact our revenues and profits in several ways,
including:
' The loss of customers and market share;
' The possibility of customers shifting to less profitable services;
' Forcing us to lower prices or increase capital or marketing expenses to
remain competitive; and
' Increasing our need to incur additional costs in order to diversify our
product or service offerings
As an ILEC, we increasingly face competition from alternate communication systems
constructed by facilities-based providers, including CLECs, cable operators
that offer Voice over Internet Protocol, or VoIP, service, long distance carriers,
large customers, alternative access vendors, cities and local governments, rural
over-builders and other entities. Some of these systems, which have become more
prevalent as a result of the Telecom Act and recent technological developments,
are capable of originating or terminating calls without use of the ILECs' networks
or switching services. Other providers, including non-facilities based VoIP
carriers, make use of the high-speed Internet access services that we provide
to our customers and may displace the local, long distance, calling features
and switched access revenues that we formerly obtained from conventional forms
of voice services. We anticipate that all these trends will continue and will
lead to increased competition with our services.
Much of the local competition that arose after the passage of the Telecom Act
took the form of the resale of ILEC services or the use of ILECs' UNEs, either
as a total package of service capabilities (generally referred to as the unbundled
network element platform, or UNE-P), or in combination with facilities owned
by the CLEC. We have traditionally been less subject to these forms of competition
than larger ILECs serving more urban areas, and recent regulatory decisions
have relieved ILECs of the obligation to make UNE-P available to competitors.
See 'Legislative and Regulatory Developments.' However, we continue to offer
UNE-P services to CLECs operating in our territory in accordance with our commercial
agreements and our interconnection agreements. Additionally, we are facing increasing
competition from cable operators who offer VoIP services in competition with
the local and long distance voice services we provide our customers. Deployment
of VoIP services by cable operators increased significantly in recent years
and will continue to increase for the foreseeable future. We intend to actively
monitor these developments, to observe the effect of emerging competitive trends
in larger markets and to develop appropriate competitive responses.
Furthermore, wireless communications services increasingly constitute a significant
source of competition for local communications services, especially as wireless
carriers expand, improve their network coverage and continue to lower their
prices. As a result, some customers have chosen to completely forego use of
traditional wireline phone service and instead rely solely on wireless services.
We anticipate that the trend toward using wireless services will continue, particularly
if wireless service rates continue to decline and the quality of wireless services
improves.
Many of our current and potential competitors have market presence, engineering,
technical and marketing capabilities as well as financial, personnel and other
resources that are more abundant than ours. In addition, some of our competitors
can conduct operations or raise capital at a lower cost than we can and are
subject to less regulation, taxes or fees. Consequently, some competitors may
be able to charge lower prices for their products and services, develop and
expand their communications and network infrastructures more quickly, adapt
more swiftly to new or emerging technologies and changes in customer requirements
and devote greater resources to the marketing and sale of their products and
services than we can.
Despite the various challenges facing our business, our numerous strengths
such as our established customer relationships, existing network architecture,
extensive product and service expertise and wide array of bundled offerings,
are helping us in our efforts to reduce access line losses and grow our customer
base. We intend to continue challenging the competition with:
' Innovative bundled offerings that not only respond to but anticipate our
customers' changing needs;
' New product offerings, such as continued roll-out of high-speed Internet
access;
' Effective customer care and simplified billing; and
' Attractive and simplified pricing.
