Windstream 2010 Annual Report Download - page 109

Wholesale Service Revenues
Wholesale service revenues include voice and data services sold on a wholesale basis to other carriers and usage
sensitive charges to long distance companies and other local exchange carriers for access to the Company’s network in
connection with the completion of interstate and intrastate long distance calls, as well as reciprocal compensation
received from wireless and other local connecting carriers for the use of our facilities. Universal service fund (“USF”)
revenues and other surcharges which subsidize the cost of providing wireline services are also included in wholesale
service revenues. Revenues from these sources are expected to decline due to unfavorable trends in consumer, business
and wholesale voice lines.
The following table reflects the primary drivers of year-over-year changes in wholesale service revenues:
Twelve Months Ended
December 31, 2010
Twelve Months Ended
December 31, 2009
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to acquired businesses $ 94.4 $ 5.8
Due to changes in federal USF revenues (a) 6.2 (14.4)
Due to changes in state USF revenues (b) 4.7 (11.6)
Due to decreases in voice and miscellaneous revenues (c) (9.2) (15.7)
Due to decreases in switched access revenues (d) (36.3) (44.4)
Total changes in wholesale revenues $ 59.8 11% $ (80.3) (12)%
(a) Increases in federal USF revenues are primarily due to an increase in the USF contribution factor from 12.3
percent to 12.9 percent for the years ended December 31, 2009 and 2010, respectively, resulting in an increase of
$6.2 million in 2010. This increase resulted in a proportionate increase in federal USF expense included in cost of
services below. Decreases in federal USF revenues in 2009 were primarily due to the elimination of contribution
requirements for high-speed Internet services and the decrease in USF support revenues effective with the
conversion to price-cap on July 1, 2008.
(b) Increases in state USF revenues in 2010 are primarily due to an increase in costs recoverable under the program.
Decreases in state USF revenues in 2009 were attributable to the decline in access lines and eligible recoverable
costs in that period.
(c) Decreases in wholesale voice and miscellaneous revenues are primarily due to the decline in payphone and UNE
voice lines and declines in directory advertising revenue.
(d) Decreases in switched access revenues are primarily due to continued declines in voice lines and the phased
reduction of interstate access rates for the Company’s subsidiaries that converted to price cap regulation and have
not reached the Federal Communications Commission’s (“FCC”) prescribed target rate. These subsidiaries will
continue reducing their interstate rates from their current average rate per minute of $0.0090 to achieve the
prescribed rate of $0.0065 per minute. Additional declines in 2010 switched access revenues are due to a network
efficiency project which maximizes the use of the Company’s own network for transporting long-distance traffic
in order to decrease our interconnection expense, which has reduced switched access revenues earned from the
underlying long-distance carriers.
Product Sales
Product sales include data and communications equipment sold to business customers as well as high-speed Internet
modems, home networking equipment, computers and other equipment sold to consumers. The following table reflects
the primary drivers of year-over-year changes in product sales:
Twelve Months Ended
December 31, 2010
Twelve Months Ended
December 31, 2009
(Millions)
Increase
(Decrease) %
Increase
(Decrease) %
Due to acquired businesses $ 7.6 $ 0.1
Due to disposal of the out-of-territory product distribution
operations (38.5) (37.7)
Due to increases in consumer product sales - 3.6
Due to changes in contractor sales (a) 2.2 (11.5)
Due to decreases in business product sales (b) (6.0) (13.3)
Total decreases in product sales $ (34.7) (28)% $ (58.8) (32)%
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