Windstream 2007 Annual Report Download - page 96

regulations that govern the universal service support amounts for acquired properties and the PUC order approving the
Valor acquisition of the Verizon (GTE) properties, the Company believes its universal service receipts in question are
in compliance with all applicable regulatory requirements, that it has not been over-compensated and that no refund or
penalty is owed. The Company plans to defend its position in hopes of eliminating or reducing the assessment, but at
this time cannot predict the outcome of the proceeding. A liability of $7.3 million was established during the third
quarter of 2007 through a reduction of switched access and USF revenues to reserve for this matter (See Note 13).
Windstream’s participation in state USF programs is discussed further below under “State Regulation”.
During 2007, Windstream received federal USF support of approximately $99.4 million, and state USF support of
approximately $127.0 million. Of these amounts, approximately $9.0 million and $96.0 million, respectively, were
received in the former Valor markets. During 2006, Windstream received federal USF support of approximately
$95.0 million, and state USF support of approximately $85.0 million. Of these amounts, approximately $5.0 million
and $50.0 million, respectively, were received in the former Valor markets following the merger on July 17th. During
2008, Windstream expects to receive federal USF support of approximately $75.0 million, and state USF support of
approximately $135.0 million. Declines in federal USF support are expected due to continued increases in the national
average cost per loop and continued focus on controlling operating costs.
The remaining decreases in switched access revenues in 2007 and 2006, respectively, are due primarily to the overall
decline in access lines discussed above and declining minutes of use. Partially offsetting these decreases is a
$13.3 million increase in revenue that is the result of a settlement agreement reached with another carrier during the
second quarter of 2007 to resolve historical traffic disputes.
Miscellaneous Revenues
Miscellaneous revenues primarily consist of charges for service fees, rentals, billing and collections services, and
commissions earned from activations of digital satellite television service. The following table reflects the primary
drivers of year-over-year changes in miscellaneous revenues:
Miscellaneous
Twelve months ended
December 31, 2007
Twelve months ended
December 31, 2006
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to Valor acquisition $ 8.1 $ 8.3
Due to CTC acquisition 2.0 -
Due to network management services performed for Alltel 10.3 7.8
Due to increases in digital television revenues 6.9 9.5
Due to increases in late fees 6.7 1.3
Other (3.6) (6.3)
Total miscellaneous $ 30.4 21% $ 20.6 16%
Windstream earned $18.2 million and $11.3 million in digital television revenues in 2007 and 2006, respectively, while
increasing its digital satellite television customer base to over 195,000 customers. Other increases in miscellaneous
revenues in 2007 are primarily related to the acquisitions of Valor and CTC and the provision of network management
services to Alltel. During the third quarter of 2006, Windstream began providing certain network management services
to Alltel pursuant to multi-year contracts. A significant portion of these revenues are expected to decline during 2008
as Alltel transitions to their own network services. Partially offsetting these year-over-year increases were declines in
service fees and charges for customer premise equipment rentals.
Directory Publishing Rights
Directory publishing rights revenues decreased $5.5 million, or 9 percent, in 2007 and increased $3.8 million, or
7 percent, in 2006. The decrease in 2007 was primarily due to the split off of the Company’s directory publishing
business completed on November 30, 2007. Following the split off, the Company’s wireline subsidiaries other than
CTC will no longer earn royalty revenues on advertisements in their directories pursuant to the publishing agreement
discussed above in “Strategic Transactions” (See also Note 3). The publishing agreement did not cover CTC’s
directory publishing rights, and those revenues will continue to be recognized in future periods. The increase in
directory publishing revenues in 2006 was primarily due to the change in the number and mix of directories published
during that period.
Product Sales
Product sales represent equipment sales to customers, including sales of high-speed Internet modems and customer
premise equipment. Product sales increased $15.1 million, or 34 percent, in 2007 and $2.6 million, or 6 percent, in
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