There is a
statement at the bottom right of the slide, cable companies of the households in
our territory offer voice to about 70% of our homes. So the level of competition
is pretty robust. It grew quite smartly in '07 and '08 and slowed down in '09.
We don't see that increasing that much in the next number of quarters at
all.
A
couple things that are important about us are these four items up on the slide
which I am going to cover on our customer experience, our network. We are all
about execution and we have to talk about the balance sheet that has been
something we have been focusing on and the transaction itself does some things
to our balance sheet I want to cover.
This slide has a
lot on it and it's very important because it really is we are about. We focus a
lot on the customer; try to do things different for the customer. We try to
organize ourselves with local managers in every market and those managers
provide input, extensive and very extensive on pricing philosophy, promotions,
incentives, distribution channels so that we make our decisions about products
and services differently by market.
We
are not a mass market play. Our pricing is different by market, our promotions
can be different by market, and our distribution channels can be different by
market. And that is dictated a what the local manager and others think is
appropriate for that community.
It
could be door-to-door in one community and 100 miles away it could all be
outbound telemarketing or direct mail. It might be local newspapers. It might
just be community events. It's very different by market.
We
focus on the customer -- getting to our appointment windows and a lot of other
hand-holding aspects to leverage local presence differentiating ourselves from
our competition. Offer an array of single, double, and triple plays so voice,
data, and video in different types of bundles. Also offer a number of activities
and issues around the broadband experience -- offsite data storage, remote
[routing], 24-hour PC assistance.
On
the right-hand side we have been very aggressive on the marketing side of our
business, innovative programs for marketing, aspirational gifts. You may have
heard we have given away Dell PCs, Dell netbooks, a number of different
promotions. Sometimes for a quarter, pull it back, do a lot of other different
things to stimulate the market and to get gross adds and get market
share.
The network -- a
standard local exchange network. You have got central office, you have outside
plant. The numbers up here are based on loop lengths; about 41% of the homes
could get 20 Meg. We haven't equipped the network for it, but the network is
built that way. And you will see in the next slide that where we are is on
broadband speeds 91% of the households in our territory can get at least 1.5
meg, 67% can get 3 meg, and we are essentially moving up that channel and
increasing that experience.
The net ads on high
speeds continue to grow, market share continues to grow. High speed is a
critical product in this industry and one we need to continue to enhance and
broaden our reach and our speeds.
The business is a
very stable business from a free cash flow standpoint. Revenues essentially
pretty stable. Revenues on the residential side slightly decline. Business has
been growing. This past couple quarters has been flat as we have been downsizing
employees; some businesses are decreasing their voice equivalence with
ourselves.
We
are putting a very big emphasis at the end of this year and into next year very
well poised on the business side of this, putting a lot more resources and focus
on the business side. Our company has never really sold CPE equipment. We do it
essentially in about one state and we do it very, very well. And we are
increasing our sales force capabilities to be able to sell CPE to businesses,
both enterprise, medium, small and soho because it really is a way to get into
the door and really continue to improve the penetration and market
share.
Comparing us to the
rest of the industry, EBITDA margins per employee or EBITDA margins themselves
are best in class. (inaudible) losses are improving sequentially and continue
to, we think, perform very well. We think we manage this business very
well.
We
are very much focused on execution, focused on the revenue side, creative
marketing. Focused very tightly on our expenses and very tightly on our
CapEx.
Balance sheet wise
we are preparing for the Verizon transaction. We had a maturity that was due in
2011, over $800 million. We never like to wait until the end and very close to
refinancing to have to do so. So with David's leadership we have been out in the
market twice this year in April, $600 million offering, and then again in
September for another $600 million offering, open market repurchases, a tender
offer, and have reduced that tower to under $300 million.
It's about $70
million of public debt and about $210 million of term loan, so we feel very
comfortable of our ability to refine the 2011. 2012 is certainly quite
manageable so the next big tower is 2013, and we will be dealing with that we
think after the Verizon deal closes.
We
have a $250 million revolver. Our philosophy is that revolver is for rainy day
purposes only. It is not used for operating purposes. We have a policy we will
have a minimum of $100 million of cash in the bank to be able to care for
things. Leverage today is 3.9 times and you will see with the transaction we
significantly delever with the Verizon transaction.
Let me sort of get
into this. I am going to hit some high points on this. I think the most critical
point on this slide here is the second major bold point that is on the slide --
increases our financial and operational flexibility. Those couple words are
extremely important to our business.
We
were looking for acquisitions where we could continue to delever. We were
looking for transformational transactions that would make sense for our
business, and the Verizon transaction does that. And the delevering aspect of
the transaction and the lowering of the dividend that we are putting in place at
closing is very important for us to improve the balance sheet
strength.
The size of company
we are, the competitiveness of the industry we felt it was very important to put
ourselves in a position to have investment-grade statistics. Hopefully, after we
deliver results for several quarters we will get the favorable rating from the
rating agencies, but we think we are going put ourselves in a good position for
that.
Transaction itself
on the slide. We have to raise a little over $3 billion; that cash essentially
goes to Verizon. The equity value -- the middle column there, three lines down
on SpinCo -- the $5.247 billion is a firm number and it will be given in shares
based on the 30-day average price for our stock prior to close. This slide shows
you its $7.75. Here is the number of shares. Our stock price is higher than that
so there is less shares to be issued.
You can see we are
essentially putting less than two times debt on SpinCo. That essentially enables
us on a combined basis to delever so one side you are 3.8, 3.9. You are putting
on 1.8 or 1.7 and essentially delevering in the process.
This slide has
using 2008 data Frontier, SpinCo, and the full amount of synergies as if they
were in place in '08. You can see that it does significantly delever the
business. You can see 2.6 times before synergies, 2.2 after, and you see the
payout ratio declines significantly.
As
I have this slide up here also want to mention that Verizon filed an 8-K
yesterday. For those of you who maybe listened to our earnings call for the
third quarter, we did disclose in third quarter the operating results for the
SpinCo -- access line losses, data net adds, video net adds. We are not able at
that time to disclose financial results. We needed Verizon's
permission.
They filed an 8-K
yesterday presenting third-quarter P&L statement and nine months ended
P&L statement for the SpinCo properties. I encourage you to look at the 8-K.
It essentially shows after you back out a pension one-time payment EBITDA margin
is about 44.5% and I will state from an expectations standpoint that the
financial results for the third quarter and year to date are very much in line
with that what our expectations were.
Revenue was
slightly down sequentially. EBITDA is just slightly down sequentially. They are
in line with our expectations so we feel very good about that and are working to
stay in touch with Verizon making sure they continue to do normal course and
marketing in their properties around the country.
Transaction
overview; hopefully many of you are familiar with this. The only items I will
point out in the middle of the slide, Maggie Wilderotter, our current Chairman
and CEO, will continue to be Chairman and CEO to our management team. Verizon
will be able to delegate three Board members, independent Board members, to the
12-member Board. We will be reducing our dividend to $0.75 at
closing.
Synergies; this has
both a revenue upside and a cost savings aspect to this transaction. The revenue
upside that I will show you in a second is very significant. It's a very good
opportunity for us both on access lines, improving their line losses, increasing
broadband availability, and getting penetration -- video penetration, LD
penetration -- really has a very good opportunity for us.
Cost savings are
quite significant and will happen over a couple of years.
Required approvals;
we are in the midst right now of a regulatory approval process. It's very
significant. We have three approvals done -- South Carolina, Nevada, and
California are done. Arizona Commission had a hearing; we are waiting for the
order in the next couple of weeks.
We
have five states that are in process -- West Virginia, Ohio, Illinois, Oregon,
and Washington. All the hearings for those states are this month and next month.
We are in the midst of understanding all their conditions.
Everything has been
put on the table; some things we have expected. All the commissions and staff
and interveners are putting on the table things you would expect them to do and
the commissions are all doing their fiduciary responsibility as appropriate in
the circumstances, so we think we will be able to get to the process. We are
expecting things will be done by the end of first quarter. Closing is still
estimated for Q2.
Rationale; I think
hopefully all of you know about it. Really we have a set of qualitative and
quantitative criteria which we think we have met with this transaction. We are
very excited about it and as we have learned more and more about the properties
looking at the outside plant, the central offices, spending even more time on
activities we feel comfortable with our due diligence. We feel comfortable
with the development of our planning.
The issues about
why this transaction is different from others. The main issue is on systems and
we are spending a lot of time on systems. I think it's important for you to
understand that there are 14 states that we are acquiring here. Only one of
those do we have to convert systems by closing, that is West Virginia. And we
are spending a lot of time moving all of their systems on to our platform of
systems.
We
are buying more hardware. We are making some enhancements to our systems, but
it's a transaction not dissimilar from ones we have done in the past. It's a
little bit larger in West Virginia than Commonwealth, a little bit more complex,
but one that we feel very comfortable in doing and spending a lot of time
getting it done.
The other 13 states
really is an issue that they are going to be set up on the same systems they are
on today. Verizon essentially is taking an instance of 16 states operating on a
platform and they are putting 13 states on the same platform in a different data
center, if you would, running on the same version that the other three remaining
states are doing.
So
all of the employees, call-center people, technicians, what they are doing today
they will be doing in January and in February and March even while that instance
is set up on a separate data center. And then when we close there is going to be
no change.
So
for the employees and the customers, both retail and wholesale, what they do
today they will do tomorrow, next month in the same system, same process, same
screen, same ordering tickets, and the way there do their job. So the impact to
customers should be minimal and that is something Verizon is going through right
now to have that all done.
Snapshot just gives
you an idea of the size of the business. Pro forma over $6 billion in revenue,
over $3 billion in EBITDA. West Virginia, Indiana will be our two largest states
and this slide sort of shows you our existing states and where the SpinCo states
overlap. You can see there is only a couple of new states for us where we have
not had any previous interaction with any of the regulatory
commissions.
Washington and
South Carolina are two of the three new states. South Carolina order is already
done. North Carolina is not necessary. Washington is the only new state we are
interacting with right now.
Size and scale;
just to gives you a perspective where we are to others on '08 data. It is a
revenue opportunity as I mentioned earlier and it also has expense synergies
that are very significant. The revenue opportunities here are very
significant.
This off (technical
difficulty) data. The line losses for these properties are about 11.5%. We are
about 6.5%. We think we can drive them to a 200 to 300 basis point
improvement.
Broadband
availability is 62.5%. We are going to invest in all of these properties and
increase that and that will enable us to increase the broadband HSI penetration.
LD penetration is based on bundling and marketing; we think we can get there.
And video penetration we think we can do the same.
Very exciting
transaction for us. Very focused on the customer, very focused on business as
usual in our business right now through all this process of regulatory approval.
We are very excited about the transaction and feel very comfortable about the
position it puts us in.
So
I will stop at that point and leave it open to questions. Hopefully, I have
addressed some that may have been on your mind but obviously be open for others
as well.
Q U E S T I O N S A N D A N S W E R S
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
Great. Thanks very
much, Don. I am going to start off with a couple and then we will open it up to
the audience.
On
the SpinCo financials, I saw the 8-K that came out I believe yesterday and once
you -- there was a charge in there for those of you who haven't had a chance to
look at it, so there is a pension settlement loss I believe that really you
should add back, in my believe, to look at EBITDA. The third-quarter EBITDA that
is shown in that 8-K annualizes to almost $1.8 billion, so close to the $1.9
billion 2008 number that was shown at the time of the transaction.
But in terms of
those financials, do you believe that that accurately represents the asset that
you are purchasing? Or is there some kind of cost allocation in there that
Verizon is doing that is not traveling, those costs aren't traveling with the
asset or are there some costs that should be allocated that are
not?
Don Shassian - Frontier Communications - EVP &
CFO
The financial
statements do have some cost allocations in them today the way Verizon does it.
What we have done is there are costs that are specific in the field which we
have identified in due diligence. We have also gotten estimated preliminary
listings of employees that are coming over. It continues to change month after
month as they continue to refine the business and we are able to identify what
those salaries are -- the wages, the bonuses, the benefits.
We
are able to determine by function how much of those people relate to the
allocation of functions that are coming over and the relationship we have been
able to do gives us comfort that it's pretty much in the ballpark and we feel
there is a pretty good correlation for that.
Some things will
change at closing. For instance, we will be paying them $94 million based on the
merger agreement to manage the systems for the 13 states. That is the only
significant charge that we will be paying Verizon that is not in those
financials. It's sort of built into the allocation but it will look a little bit
different.
So
in our financials post-close it will be our employee, our non-wage costs, and
will have an outsource arrangement to Verizon for managing those systems of
about $94 million. We feel pretty good about those financials and representation
they have given us as to how they will stand.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
And how long is
that outsourcing relationship on the IT?
Don Shassian - Frontier Communications - EVP &
CFO
It
can go on for a number of years. It will certainly be in our best interest to
get it on to our systems to get to consolidated systems as soon as possible. Our
view is that we think we can get the synergies accomplished by the end of 2012.
That would say that to be able to make that happen we have got to get all of
those systems converted by that period of time.
We
have not laid out any plans for the conversions yet. We are really focused on
West Virginia and we probably won't lay out those plans or develop them until we
get a hold of the property itself.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
Okay. And then,
secondly, still on the topic of the SpinCo performance in the metrics that you
gave during the earnings call there was sort of I would say a sequential trend
to the negative both on the line loss and on the FiOS net adds and DSL net
adds. So how much insight do you have into what is going on in those
properties? Are there particular geographies that are underperforming relative
to expectations?
Don Shassian - Frontier Communications - EVP &
CFO
Good question.
First of all, I will say there was a softness increased access line losses, a
decrease in net adds in data and video sequentially. The numbers that they put
out at the end of the quarter, however, macro -- number of lines, number of
high-speed customers, number of TV customers -- didn't meet where we thought
they were going to be.
And actually
because they performed a little bit better in the first quarter than we
anticipated. Notwithstanding that, yes, you are right. There was a sequential, a
little bit of softness.
As
we have looked at it they are continuing to do their marketing programs. There
are certain markets though where competitors have been taking advantage of the
situation saying that Verizon is leaving and therefore come back to whoever we
are, the cable company.
It's difficult for
Verizon to do an advertising campaign to talk for us and likewise we can't go
into the marketplace and advertise because we don't have regulatory approvals
yet. And that is sort of punching a regulator in the chest which you don't want
to do. You don't want to be presumptuous you are going to get an approval, so we
are silent in many of these markets.
So
there is some competitive forays that are going on in some of these markets,
specifically in Oregon and Washington. The best that we have been able to tell
Verizon is continuing to put the marketing activities in place and doing things
they can do but they are not being extra aggressive as they would be doing
otherwise. So I think the softness is coming from some competitive
forays.
Also, the state of
Indiana will tell you that Verizon's numbers for video penetration in the state
of Indiana for FiOS is very, very, very good. I think it's reaching potentially
a saturation point. So I think a combination of those two is where the softness
is coming from a little bit sequentially.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
And then I will ask
one more before I open it up. On the regulatory front you expressed some
confidence that things are moving, but from our perspective we see headlines and
filings. There is a lot of objections at least in the public domain so the
consumer advocates aren't happy, the Attorney Generals aren't happy, the unions
aren't happy.
What is really the
situation behind the scenes? What are the asks and what is the nature or of the
kind of momentum on the negotiations that gives you confidence that you are
going to get the approvals required?
Don Shassian - Frontier Communications - EVP &
CFO
This process --
every state has their own process and many interveners use the court of public
opinion to extract and use levers to extract concessions. That is what happens
in these processes.
So
if you do research on us you will see that there are a number of organizations
that have got some negative activities, comments out there about the
transaction. And if you peel them back they are usually not saying what they
want, but they are asking for something essentially. You really can't do too
much in the court of public opinion to fight against it.
The activities
coming -- being pushed are quite normal. I think every one of the commission
staff that we are interacting with are doing their job, which is making sure
they meet the rules and obligations and the fiduciary responsibility for that
state. And it just follows the normal course.
The type of
activities that they have put on the table are obviously concerned about the
service. What are the service standards that are in place for both retail and
wholesale, are we going to honor those? What are the penalties for those? Some
people talk about local rate increases, wanting to say you can't do certain
local rate increases.
Some folks will
talk about high speed being available as a stand-alone product that can be
available. Some may want to talk about broadband availability although it's not
a state jurisdictional issue. It's a federal jurisdictional issue so they may
want to talk about.
There has been some
talk about some of the systems issues as a result of the FairPoint transaction
and so we talk about how to give people comfort about how Verizon is replicating
the systems, how we have comfort they are going to be done. It's those types of
items that they are putting topics on the table that we are working
through.
All of which we
just have to wait till all the issues are on the table and you have to make sure
all the conditions that people want you to know about and to the extent you can
get a resolution before the hearings then you try to drive to resolution if all
the parties want to do so. If not, you go to the hearings and you get everything
on the record and you leave it to the commission or the administrative law judge
to take it through the process.
But every one of
the commissions I think has been approaching this reasonably. The issues and
activities they are putting on the table are things that we sort of anticipated,
many of which we don't agree with but we are working through it.
I
think one of the key messages I will leave for this audience is a key aspect for
us, and David as our Treasurer, is operational and financial flexibility. So
making sure that there is no restrictions on our ability to move cash between
subsidiaries from sub up is very, very important to us in keeping that
flexible.
You may have seen
there has been some people talking about sort of activity and we are trying to
focus -- very, very focused on making sure that there are no restrictions. And
if there are any restrictions, the metrics for such are so outlandish and so
high it really is not going to have a significant impact. But it's something
that we do have to work through.
And the process is
just fluid. Months of December and January are the big months for us on
regulatory. All the five open states have hearings this month and next month and
it is very warm, very hot. We are getting into a lot of the issues which is the
important time to get this closed. But we have to -- we feel very comparable we
are going to get there.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
I
just will ask for one more because it's important and it's tied to the
regulatory.
So
you have said many times that you would like to and plan to try to pre-fund at
least part of the financing of the debt financing and there is a little over $3
billion, I believe, that needs to be raised to close the transaction. Do you
believe you need to wait until you get all of the states regulatory approvals
before you do this transaction?
Just to clarify,
per your prior comments on earnings calls the plan is to raise the money at
SpinCo, correct? And then the funds would be put into some kind of escrow until
the actual close of the transaction?
Don Shassian - Frontier Communications - EVP &
CFO
Yes, that has been
our thought process is to raise them, put them in escrow, the interest available
to the bondholders. If for some very, very, very, very, very remote chance this
transaction didn't close the cash would go back to the bondholders. We would
like to pre-fund. We do want to get it in advance and we would like to be able
to demonstrate to all of our stakeholders we can raise the funds since we don't
have commitment letters on the transaction.
So
the question do all regulatory approvals have to be done, no. We don't think
that is the case. We certainly have to work with Verizon and get their input on
this, but I do think for anybody who is going to invest we need to make sure
that there is a clear line of sight as to what the regulatory conditions are
going to be.
So
we feel comfortable we are going to get there and that conditions are not ones
that bondholders are going to be overly concerned about. We will want to go
forward, but we do have to work with Verizon also to make sure they are
comfortable with it.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
Okay. I am going to
open it up to the audience.
Unidentified
Audience Member
Good morning. What
are your pro forma pension liabilities look like post Verizon?
Don Shassian - Frontier Communications - EVP &
CFO
I
will pass to David on the number, but the macros say that we get a fully-funded
pension plan on PBO basis, projected benefit obligation basis, as of the day of
closing. And the assets are liquid assets, there is no alternative investment.
So for all active employees only whatever the PBO is for those active employees
at closing we get a fully-funded pension plan.
The total dollar
amount of liability, David, do you recall?
David Whitehouse - Frontier Communications - SVP &
Treasurer
It's still being
calculated but it's in the zip code of $5 billion I would say.
Don Shassian - Frontier Communications - EVP &
CFO
But being fully
funded there is no incremental significant cash contributions there in the near
term as a result of a fully funded plan.
David Whitehouse - Frontier Communications - SVP &
Treasurer
And as it relates
to our legacy Frontier plan we don't expect to make any cash contributions until
2011 at this point. On a pro forma basis that could change because as you merge
the plans together it may alter the funding necessary to our existing
plan.
But that all will
be evaluated as we get -- we are just getting a lot of the census data related
to the employees coming over for our actuarial firm to do that
analysis.
Don Shassian - Frontier Communications - EVP &
CFO
Does that
help?
Unidentified
Audience Member
I
was wondering if you could just kind of follow up a little bit on the SpinCo
properties kind of in two things. If you could give us an update on Rochester
and what your cable competition is doing there, any change? And in the SpinCo
properties are there any material locations like Rochester in there and who
would be your competitors in those markets?
Don Shassian - Frontier Communications - EVP &
CFO
The second part of
the question Comcast we have an overlap in the SpinCo properties. About a third
of the properties are Comcast properties so that is really the primary. Our
business as usual one-third of our properties are Time Warner.
Rochester is Time
Warner. The competition there has been pretty consistent on a retail basis. It's
not irrational pricing. They continue to hit us with a promotion and we swing
back and hit them with a promotion, and we continue to differentiate ourselves
based on the service side.
The one thing that
has changed the cable companies for a number of quarters now have been talking
about getting into the small business segment. We have not been seeing that at
all. We did see that last quarter.
We
saw the Time Warner and Comcast were putting more feet on the street and started
to go after the small business segment. I wouldn't say they have been extremely
successful but we are definitely seeing them more and I am hearing about them
more.
So
that is the one major change that I think that I would say that I have seen in
Rochester. Not too many other markets to date, but I think we will continue to
see that as they continue to want to increase that market share
there.
Unidentified
Audience Member
Could you talk
about universal service funds and your expectations for how it might
change?
Don Shassian - Frontier Communications - EVP &
CFO
This is going to be
a very fluid process. We don't think we are going to see something from the FCC
until 2010 obviously. It will be a notice of proposed rule making, whether the
implementation is 2011 or 2012 we will see how that plays.
I
think that the USF and intercarrier comp will be combined. I think phantom
traffic will be a part of that mix and that you may see a proposal that is going
to lower intrastate rates to a lower level. I think you are going to see an
alternative recovery mechanism that is going to enable that phase-in of reduced
access charges to be offset by another increase.
I
think you are going to probably see all VoIP traffic having to pay access
charges; they don't pay it today. I think you are going to have phantom traffic
have very strict rules that anybody who is going to transfer traffic is going to
get billed.
And I think you are
going to see potential USF altered as you hear the discussion I think the
administration is very focused on broadband deployment. USF may take a different
twist where those funds are available based on broadband being deployed, which
can make some economic sense in this country.
The RLECS have done
a very good job of deploying broadband in this country; some of the larger
players in this industry have not gotten there. As the administration wants to
get broadband more universally deployed there may need to be some sort of
funding mechanism for some of the larger players specifically to make that
happen.
But I think that is
all going to be bundled together and I think every one of those pieces is going
to have to play a part because some of those pools are going to need to increase
to enable funding. And I think VoIP traffic, paying for VoIP traffic is going to
be important and phantom traffic contributing as well is going to be very
important. I think that is where it's going to play in.
Ana Goshko - Bank of America-Merrill Lynch -
Analyst
We
are out of time. Don and David and Greg, thank you very much for being with us
today.
Don Shassian - Frontier Communications - EVP &
CFO
Thank
you.
Forward-Looking
Language
This
presentation contains forward-looking statements that are made pursuant to the
safe harbor provisions of The Private Securities Litigation Reform Act of
1995. These statements are made on the basis of management’s views
and assumptions regarding future events and business
performance. Words such as “believe,” “anticipate,” “expect” and
similar expressions are intended to identify forward-looking
statements. Forward-looking statements (including oral
representations) involve risks and uncertainties that may cause actual results
to differ materially from any future results, performance or achievements
expressed or implied by such statements. These risks and
uncertainties are based on a number of factors, including but not limited
to: Our ability to complete the acquisition of access lines from
Verizon; the failure to obtain, delays in obtaining or adverse conditions
contained in any required regulatory approvals for the Verizon transaction; the
failure to receive the IRS ruling approving the tax-free status of the Verizon
transaction; the ability to successfully integrate the Verizon operations into
Frontier’s existing operations; the effects of increased expenses due to
activities related to the Verizon transaction; the ability to migrate Verizon’s
West Virginia operations from Verizon owned and operated systems and processes
to Frontier owned and operated systems and processes successfully; the risk that
the growth opportunities and cost synergies from the Verizon transaction may not
be fully realized or may take longer to realize than expected; the sufficiency
of the assets to be acquired from Verizon to enable us to operate the acquired
business; disruption from the Verizon transaction making it more difficult to
maintain relationships with customers, employees or suppliers; the effects of
greater than anticipated competition requiring new pricing, marketing strategies
or new product or service offerings and the risk that we will not respond on a
timely or profitable basis; reductions in the number of our access lines and
High-Speed Internet subscribers; our ability to sell enhanced and data services
in order to offset ongoing declines in revenue from local services, switched
access services and subsidies; the effects of ongoing changes in the regulation
of the communications industry as a result of federal and state legislation and
regulation; the effects of competition from cable, wireless and other wireline
carriers (through voice over internet protocol (VOIP) or otherwise); our ability
to adjust successfully to changes in the communications industry and to
implement strategies for improving growth; adverse changes in the credit markets
or in the ratings given to our debt securities by nationally accredited ratings
organizations, which could limit or restrict the availability, or increase the
cost, of financing; reductions in switched access revenues as a result of
regulation, competition and/or technology substitutions; the effects of changes
in both general and local economic conditions on the markets we serve, which can
impact demand for our products and services, customer purchasing decisions,
collectability of revenue and required levels of capital expenditures related to
new construction of residences and businesses; our ability to effectively manage
service quality; our ability to successfully introduce new product offerings,
including our ability to offer bundled service packages on terms that are both
profitable to us and attractive to our customers; changes in accounting policies
or practices adopted voluntarily or as required by generally accepted accounting
principles or regulators; our ability to effectively manage our operations,
operating expenses and capital expenditures, to pay dividends and to repay,
reduce or refinance our debt; the effects of bankruptcies and home foreclosures,
which could result in increased bad debts; the effects of technological changes
and competition on our capital expenditures and product and service offerings,
including the lack of assurance that our ongoing network improvements will be
sufficient to meet or exceed the capabilities and quality of competing networks;
the effects of increased medical, retiree and pension expenses and related
funding requirements; changes in income tax rates, tax laws, regulations or
rulings, and/or federal or state tax assessments; the effects of state
regulatory cash management policies on our ability to transfer cash among our
subsidiaries and to the parent company; our ability to successfully renegotiate
union contracts expiring in 2009 and thereafter; declines in the value of our
pension plan assets, which could require us to make contributions to the pension
plan beginning no earlier than 2010; our ability to pay dividends in respect of
our common shares, which may be affected by our cash flow from operations,
amount of capital expenditures, debt service requirements, cash paid for income
taxes and our liquidity; the effects of any unfavorable outcome with respect to
any of our current or future legal, governmental or regulatory proceedings,
audits or disputes; the possible impact of adverse changes in political or other
external factors over which we have no control; and the effects of hurricanes,
ice storms or other severe weather. These and other uncertainties
related to our business are described in greater detail in our filings with the
Securities and Exchange Commission, including our reports on Forms 10-K and
10-Q, and the foregoing information should be read in conjunction with these
filings. We undertake no obligation to publicly update or revise any
forward-looking statements or to make any other forward-looking statement,
whether as a result of new information, future events or otherwise unless
required to do so by securities laws.
Additional
Information and Where to Find It
This
filing is not a substitute for the definitive prospectus/proxy statement
included in the Registration Statement on Form S-4 that Frontier filed, and the
SEC has declared effective, in connection with the proposed transactions
described in the definitive prospectus/proxy statement. INVESTORS ARE URGED TO
READ THE DEFINITIVE PROSPECTUS/PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT
INFORMATION, INCLUDING DETAILED RISK FACTORS. The definitive prospectus/proxy
statement and other documents filed or to be filed by Frontier with the SEC are
or will be available free of charge at the SEC’s website, www.sec.gov, or by
directing a request when such a filing is made to Frontier, 3 High Ridge Park,
Stamford, CT 06905-1390, Attention: Investor Relations.
This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such
jurisdiction.
Frontier’s
stockholders approved the proposed transactions on October 27, 2009, and no
other vote of the stockholders of Frontier or Verizon is required in connection
with the proposed transactions.