Windstream 2007 Annual Report Download - page 61

Windstream Corporation
Form 10-K, Part I
Item 1. Business
Additionally, if we seek to acquire control of other local exchange carriers, Windstream could be required to obtain the
approval of PSCs in the states where the target companies have operations, and such approvals could be conditioned on
Windstream agreeing to restrictions on its operations to which it would not otherwise be subject. Examples of
conditions of approval include restrictions on the amount of Windstream’s indebtedness, its dividend practice, or
requirements to meet specific service levels or technology deployments.
PRODUCT DISTRIBUTION
Windstream’s product distribution subsidiary, Windstream Supply LLC (“Windstream Supply”), is a nationwide
provider of telecommunications equipment and logistics services to Windstream affiliates and contractors, as well as to
non-affiliated customers. In 2007, 2006 and 2005, 65 percent, 58 percent and 57 percent, respectively, of Windstream
Supply’s sales were to affiliated companies. Non-affiliated customers include other local exchange carriers and
communications providers, voice and data resellers, colleges and universities, governments, retail and industrial
companies. Windstream Supply operates four warehouses across the United States which house a wide variety of
products used to support voice, high-speed data and video applications. Windstream Supply offers a large variety of
telecommunications-related products for sale. Certain of these products are inventoried including switch modules,
wired and wireless voice and data transport equipment, outside plant products and pole-line hardware, high-speed
Internet modems, in-building wiring and jacks, VoIP telephone systems and local area networking products.
Windstream Supply experiences substantial competition throughout its non-affiliate customer base from other
distribution companies and from direct sales by manufacturers. Competition is based primarily on quality of service,
product availability and price. To differentiate its offerings, Windstream Supply also offers other services to its
customers including expert technical assistance, product configuration, specialized logistics services and a web tool
used by customers to place orders and track order status. Windstream periodically evaluates its product and service
offerings to meet customer expectations and to position Windstream Supply in the market as a quality, customer-
focused distributor. In 2007, Windstream Supply recognized revenues of $118.0 million from external customers,
realized a segment loss of $1.4 million, and held total assets of $35.7 million at December 31, 2007.
OTHER OPERATIONS
In 2007, Windstream’s other operations, consisting of its wireless and directory publishing businesses, recognized
revenues from external customers of $123.4 million, and achieved segment income of $7.6 million, and held total
assets of $108.1 million at December 31, 2007.
On November 30, 2007, Windstream completed the split off of its directory publishing business as discussed above in
“Material Dispositions Completed During the Last Five Years”. Effective with the completion of the split off of its
directory publishing business, the Company’s publishing services have ceased.
Following the sale of certain assets and related liabilities, including selected customer contracts and internally
developed software, to Convergys Information Management Group, Inc. in December 2003, and the loss of one of its
remaining unaffiliated wireline services customers in 2004, Windstream’s telecommunications information services
operations consisted solely of providing data processing and outsourcing services to Valor. Immediately after the
consummation of the merger with Valor in 2006, the Company ceased providing these services.
Following the acquisition of CTC, the Company began selling wireless services and products, including service
packages, long distance, features, and handsets and accessories through six company-owned retail outlets and 10
indirect retail outlets in North Carolina. In 2001, CTC entered into a Joint Operating Agreement (“JOA”) with Cingular
and paid approximately $23.0 million to Cingular to partition its area of the Cingular digital network. Under the JOA,
the Company purchases pre-defined services such as switching from Cingular, which now operates as AT&T Mobility
(“AT&T”), and its products and services are co-branded with AT&T. The Company remains subject to certain
conditions including technology, branding, and service offering requirements, but it does have the ability to customize
pricing plans. Additionally, the JOA with AT&T allows the Company to benefit from their nationally recognized brand
and nationwide network, provides access to favorable purchasing discounts for cell site electronics, handsets and
equipment, and enables the Company to participate in shared market advertising. The JOA may at times require the
Company to implement technical changes in its network in order to make the network consistent with AT&T’s
technical standards.
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