Windstream 2008 Annual Report Download - page 65

Windstream Corporation
Form 10-K, Part I
Item 1A. Risk Factors
technologies impacting our wireline business could require us to make significant additional capital investment in order
to compete with other service providers that may enjoy network advantages that will enable them to provide services
more efficiently or at a lower cost. Alternatively, we may not be able to obtain timely access to new technology on
satisfactory terms or incorporate new technology into our systems in a cost effective manner, or at all. If we cannot
develop new services and products to keep pace with technological advances, or if such services and products are not
widely embraced by our customers, our results of operations could be adversely impacted.
We provide services to our customers over access lines, and if we continue to lose access lines like we have
historically, our revenues, earnings and cash flows from operations could be adversely affected.
Our business generates revenue by delivering voice and data services over access lines. We have experienced net
access line loss over the past few years. During 2008, the number of access lines we served declined by approximately
5.2 percent due to a number of factors, including increased competition and wireless and high-speed Internet
substitution. We expect to continue to experience net access line loss in our markets. Our inability to retain access lines
could adversely affect our revenues, earnings and cash flow from operations.
We are subject to various forms of regulation from the Federal Communications Commission (“FCC”) and state
regulatory commissions in the 16 states in which we operate, which limits our pricing flexibility for regulated voice
and high-speed Internet products, subjects us to service quality, service reporting and other obligations, and exposes
us to the reduction of revenue from changes to the universal service fund or the inter-carrier compensation system.
As a provider of wireline communication services, we have operating authority from each of the 16 states in which we
conduct local service operations, and we are subject to various forms of regulation from the regulatory commissions in
each of these 16 states as well as from the FCC. State regulatory commissions have jurisdiction over local and
intrastate services including, to some extent, the rates that we charge customers and other telecommunications
companies, and service quality standards. The FCC has primary jurisdiction over interstate services including the rates
that we charge other telecommunications companies that use our network and other issues related to interstate service.
These regulations restrict our ability to adjust rates to reflect market conditions and affect our ability to compete and
respond to changing industry conditions.
Future revenues, costs, and capital investment in our wireline business could be adversely affected by material changes
to these regulations, including, but not limited to, changes in rules governing inter-carrier compensation, state and
federal USF support, UNE and UNE-P pricing and requirements, and VoIP regulation. Federal and state
communications laws may be amended in the future, and other laws may affect our business. In addition, certain laws
and regulations applicable to us and our competitors may be, and have been, challenged in the courts and could be
changed at any time. We cannot predict future developments or changes to the regulatory environment or the impact
such developments or changes would have.
In addition, these regulations could create significant compliance costs for us. Delays in obtaining certifications and
regulatory approvals could cause us to incur substantial legal and administrative expenses, and conditions imposed in
connection with such approvals could adversely affect the rates that we are able to charge our customers. Our business
also may be affected by legislation and regulation imposing new or greater obligations related to assisting law
enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact
our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act require
communications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized
electronic surveillance. Our compliance costs could increase if future legislation, regulations or orders continue to
increase our obligations.
Changes to regulations could materially reduce the Company’s revenues from inter-carrier compensation.
The Company’s local exchange subsidiaries currently receive compensation from other telecommunications providers,
including long distance companies, for origination and termination of interexchange traffic through network access
charges that are established in accordance with state and federal laws. In 2008 the Company recognized $315.9 million
in inter-carrier compensation, an 3.0 percent reduction from 2007 levels. This reduction in inter-carrier compensation
revenue is primarily the result of decreases in minutes of use associated with wireless and cable voice competition and
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