Windstream 2011 Annual Report Download - page 111

F-3
Wireless backhaul: As wireless data usage grows, wireless carriers need additional bandwidth on the wireline network to
accommodate the additional wireless traffic. We have made significant success-based capital investments to provide backhaul
services to wireless carriers. These investments include building out fiber to new wireless towers and replacing copper facilities
with fiber facilities to wireless towers we already serve. We expect to make significant success-based capital investments in
2012 to offer additional wireless backhaul services to wireless carriers.
Consumer high-speed Internet: New customer additions are slowing as the high-speed Internet market becomes heavily
penetrated. However, we believe growing customer demand for faster speeds and value-added services, such as online security
and back-up, will drive growth in consumer high-speed Internet revenues. As of December 31, 2011, we could deliver speeds of
3 Megabits per second ("Mbps") to approximately 97 percent of our addressable lines, and speeds of 6 Mbps, 12 Mbps and 24
Mbps are available to approximately 71 percent, 44 percent and 6 percent of our addressable lines, respectively.
Consumer access line losses: Voice and switched access revenues will continue to be adversely impacted by future declines in
access lines due to competition from cable television companies, wireless carriers and providers using other emerging
technologies. To combat competitive pressures, we continue to emphasize our bundled products and services. Our consumers
can bundle voice, high-speed Internet and video services, providing one convenient billing solution and bundle discounts. We
believe that product bundles positively impact customer retention, and the associated discounts provide our customers the best
value for their communications and entertainment needs. As of December 31, 2011, all of our access lines had wireless
competition and approximately 70 percent of our access lines had fixed-line voice competition, which represents an increase in
fixed-line competition from 68 percent at December 31, 2010. Consumer lines decreased 81,000, or 4.0 percent during 2011,
primarily due to the effects of competition.
Synergies and operational efficiencies: We continually strive to identify opportunities for operational efficiencies, in the context
of both our acquired businesses and legacy operations. During the year ended December 31, 2011, we recognized
approximately $70.0 million in synergies from our acquisitions completed during 2010, primarily related to workforce and
network efficiencies. In addition to acquisition-related synergies, we also evaluate our legacy operations for operational
efficiency. During 2010, we announced a workforce reduction which resulted in annual pretax savings of approximately $20.0
million. We expect to continue to evaluate our operations for these opportunities.
ACQUISITIONS AND DISPOSITIONS
Recent transactions and their value to our business are discussed below. For financial details of each acquisition, refer to Note 3
of the financial statements.
Strategic Acquisitions
PAETEC - On November 30, 2011, we completed the acquisition of PAETEC, a communications carrier focused on business
customers. The PAETEC transaction enhances our capabilities in strategic growth areas, including IP-based communications
services, cloud computing and managed services. It significantly advances our strategy to drive top-line revenue growth by
expanding our focus on business and fiber services.
The PAETEC transaction:
• adds an attractive base of medium- to large-sized business customers;
• expands our existing business service offerings;
• provides opportunities for approximately $100.0 million in pre-tax operating cost and $10.0 million in capital
synergies;
• creates a nationwide fiber network, adding 36,700 fiber miles; and
• adds seven data centers.
The PAETEC acquisition advances our strategy to shift our revenue mix towards strategic growth areas, including business and
fiber transport services. With the addition of PAETEC, we expect approximately 69 percent of our 2012 revenues to be
generated by business and consumer broadband revenues.
Q-Comm - On December 2, 2010, we completed the acquisition of Q-Comm Corporation ("Q-Comm"). The transaction
included Q-Comm's wholly-owned subsidiaries Kentucky Data Link, Inc. (“KDL”), a regional fiber services provider with
30,000 fiber miles, and Norlight, Inc. (“Norlight”), a communications services provider with approximately 5,500 business
customers. This transaction significantly increased the scale of our fiber network, adding 30,000 fiber miles, allowing us to
reach more business customers and compete for more wireless backhaul contracts. KDL's fiber network also allows for
significant operating synergies, allowing us to carry more traffic on our own network and avoid incremental spend to other