Windstream 2009 Annual Report Download - page 117

Business Trends
The following is a discussion of trends affecting Windstream’s operations.
•Access line losses: Wireline voice and switched access revenues are expected to continue to be adversely impacted
by future declines in access lines due to competition in the telecommunications industry from cable television
providers, wireless communications providers, and providers using other emerging technologies. As of
December 31, 2009, all of the Company’s access lines had wireless competition and approximately 64 percent of
the Company’s access lines had fixed line voice competition, which represented an increase in fixed line
competition of approximately 4 percent from December 31, 2008. After removing the impact of residential lines
acquired from D&E and Lexcom of 82,000 and 15,000, respectively, residential lines decreased 87,000, or 4.5
percent during 2009, primarily due to the effects of competition. After removing the impact of business lines
acquired from D&E and Lexcom of 63,000 and 7,000, respectively, business lines decreased 48,000, or 5.3
percent during 2009, primarily due to weakness in the general economic environment, competitive pressures, and
the migration of services to larger circuits with enhanced functionality representing lost access lines but not a lost
customer relationship. We believe weakness in the economic environment has caused some businesses to close or
reduce staff, which has had a corresponding impact on the demand for business access lines. Continued weakness
in the general economic environment may contribute to further acceleration of line losses.
•Product bundles: To combat competitive pressures, the Company continues to emphasize its bundled products and
services. Our residential customers can bundle local phone, high-speed Internet, long distance and video services.
These bundles provide customers with one convenient location to obtain all their communications and entertainment
needs, a convenient billing solution and bundle discounts. Operating trends for access lines and high-speed Internet
customers were favorably impacted during the second half of the year by the Company’s latest bundle promotion,
which offers a price for life guarantee and package discount on its local phone, unlimited national calling and high-
speed Internet bundle. In addition, during the second quarter of 2009, we began offering bundle discounts to
businesses that choose to bundle their phone, high-speed Internet and long distance services with Windstream. We
believe that product bundles positively impact our customer retention, and the associated discounts provide our
customers the best value for their communications and entertainment needs. In an effort to further develop enhanced
services and bundled product offerings, the Company will continue to invest in its network to offer faster speeds in
its high-speed Internet offerings. As of December 31, 2009, the Company could deliver speeds of 3Mb to
approximately 96 percent of its addressable lines. Additionally, speeds of 6Mb and 12Mb are available to
approximately 65 percent and 34 percent of its high-speed Internet addressable lines, respectively.
•High-speed Internet: Growth in high-speed Internet sales, together with the continued migration to higher speeds,
are expected to continue to offset some of the revenue declines from the unfavorable access line trends discussed
above. After removing the impact of high-speed Internet customers acquired from D&E and Lexcom of 45,000
and 9,000, respectively, the Company added approximately 98,900 high-speed Internet customers during 2009,
representing an approximate increase in high-speed Internet customers of 10.1 percent. As of December 31, 2009,
Windstream provided high-speed Internet service to approximately 37.4 percent of total access lines in service,
and 55.1 percent of primary residential access lines in service. As of December 31, 2009, approximately
75 percent of total access lines had high-speed Internet competition, primarily from cable service providers, which
is relatively unchanged from December 31, 2008. We expect the pace of high-speed Internet customer growth to
slow as the number of households without high-speed Internet service continues to shrink. Competitive
expansions, primarily from cable facilities, into our service areas are expected to slow in 2010, but we could
experience some increased competition from high-speed Internet offerings from wireless competitors.
•Business data and special access: Wireline revenues and sales are expected to be favorably impacted by growth in
next generation data services provided to business customers. During 2009, revenues from next generation
services such as VPN and VLS grew 21.9 percent to approximately $45.9 million, excluding the impact of D&E
and Lexcom. Likewise, due to continued trends toward increasing data traffic, we expect growth in special access
revenues from the provisioning of circuits to wireless and other carriers. However, weakness in the general
economic environment may have the effect of suppressing near term growth in these revenues.
•Operational efficiencies: We continue to evaluate our operating structure to identify opportunities for increased
operational efficiency and effectiveness. Among other things, this involves evaluating opportunities for task
automation, network efficiency and the balancing of our workforce based on the current needs of our customers.
As a result of these efforts, the Company successfully reduced its cost of services by approximately $80.0 million
in 2009, excluding the impact of D&E and Lexcom and pension expense (see “Cost of Services”). As part of this
continuing effort, the Company announced a work force reduction in the third quarter of 2009. In conjunction
therewith, we recognized restructuring charges of approximately $9.3 million. The Company expects to realize
annual savings approximating $20.0 million from this workforce reduction.
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