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Cincinnati Bell Inc. - Communications Services -
Category Directory
201
East Fourth Street
Cincinnati, Ohio 45202
(513) 397-9900
www.cincinnatibell.com
Sales
$1.6
billion
Business Description
Cincinnati Bell Inc. is a full-service local provider of data and voice
communications services and equipment and a regional provider of wireless
and long distance communications services. The Company provides
telecommunications service on its owned local and wireless networks with a
well-regarded brand name and reputation for service. The Company operates in
four business segments: Local, Wireless, Other and Broadband.
Local
The Local segment provides local telephone service, network access, data
transport, high-speed and dial-up Internet access, inter-lata toll,
telecommunications equipment, installation and maintenance and other
ancillary products and services to customers primarily in southwestern Ohio,
northern Kentucky and southeastern Indiana. This market consists of
approximately 2,400 square miles located within approximately a 25-mile
radius of Cincinnati, Ohio. Services are provided through the Company’s CBT
subsidiary, which has operated as the incumbent local exchange carrier (“ILEC”)
in the Greater Cincinnati area for the past 130 years.
The Local segment produced $820.4 million, $833.1 million and $824.7
million, or 53%, 38%, and 37%, of consolidated Company revenue in 2003,
2002, and 2001, respectively. The Local segment produced consolidated
operating income of $296.1 million, $285.3 million and $266.5 million in
2003, 2002 and 2001, respectively.
CBT’s service offerings are generally classified into three major
categories: local service, network access, including DSL transport, and
other services. Local service revenue is primarily from end-user charges for
use of the public switched telephone and data network and for value-added
services such as custom calling features. These services are provided to
business and residential customers and represented 57% of CBT’s revenue in
2003. Network access represented 25% of CBT’s revenue in 2003 and was
generated by service provided to interexchange carriers for access to CBT’s
local communications network, business customers for customized access
arrangements and end user customers for access to long distance networks.
Other services provided the remaining 18% of CBT’s revenue in 2003 and
consisted of the sale and installation of telecommunications equipment,
Internet access, commissions from the sale of broadband services, inside
wire installation and maintenance and other ancillary services.
CBT’s network access revenue includes special access, switched access and
end user common line revenue. CBT’s special access revenue accounted for 47%
of network access revenue in 2003. Special access revenue was $95.5 million,
$97.5 million and $94.3 million in 2003, 2002 and 2001, respectively.
Special access pricing is regulated by the Federal Communications Commission
(“FCC”), which requires annual mandated price reductions equal to inflation,
net of a 6.5% productivity offset. Over the past three years, the FCC
mandated special access pricing decreases of approximately 5% each year.
However, in accordance with Coalition for Affordable Local and Long Distance
Service (“CALLS”), CBT will not be required to lower its special access
rates on July 1, 2004. CBT’s switched access revenue accounted for 20% of
network access revenue in 2003. Switched access revenue was $40.4 million,
$39.0 million and $42.6 million in 2003, 2002 and 2001, respectively. End
user common line (“EUCL”) revenue accounted for 33% of network access
revenue in 2003. EUCL revenue totaled $66.5 million, $67.6 million and $68.4
million in 2003, 2002 and 2001, respectively.
CBT provides voice services over a circuit switch-based network of 47 host
switches and 40 optical remote switch modules serving customers in 56 wire
centers. In addition, CBT has successfully leveraged its embedded network
investment to provide value–added services and product bundling packages,
resulting in additional revenue with minimal incremental costs. All of the
network access lines subscribed to CBT are served by digital switches and
have the integrated services digital network (“ISDN”) and Signaling System 7
capability necessary to support enhanced features such as Caller ID, Call
Waiting and Call Return. The network also includes approximately 3,500 route
miles of fiber-optic cable, with synchronous optical network (“SONET”) rings
linking Cincinnati’s downtown with other area business centers. These SONET
rings offer increased reliability and redundancy to CBT’s major business
customers. CBT has deployed DSL capable electronics in over 252 locations
throughout its territory, allowing it to offer DSL services to over 86% of
its subscriber base. CBT also has an extensive business-oriented data
network, offering native speed Ethernet services over an interlaced
asynchronous transfer mode (“ATM”) – Gigabit Ethernet backbone network.
CBT markets and resells telecommunications equipment to business customers
primarily in its local service area. CBT also provides installation services
and resells maintenance contracts related to this equipment. Equipment
sales, installation and maintenance revenue totaled $46.9 million, $54.4
million and $46.0 million in 2003, 2002 and 2001, respectively.
In order to maintain its network, CBT relies on supplies from certain key
external vendors and a variety of other sources. Since the majority of CBT’s
revenue results from use of the public switched telephone network, its
operations follow no particular seasonal pattern. CBT’s franchise area is
granted under regulatory authority, and is subject to increasing competition
from a variety of companies. CBT is not aware of any regulatory initiative
that would restrict the franchise area in which it is currently able to
operate. A significant portion of revenue is derived from pricing plans that
require regulatory overview and approval. In recent years, these regulated
pricing plans have resulted in decreasing or fixed rates for some services,
partially offset by price increases and enhanced flexibility for other
services.
As of December 31, 2003, approximately 46 companies were certified to offer
telecommunications services in CBT’s local franchise area and had
interconnection agreements with CBT. In November 2003, Time Warner Cable
filed an application with the Public Utilities Commission of Ohio to provide
local and interexchange voice service in several market areas including
Cincinnati and is expected to begin competing for residential and business
customers in mid-2004. In March 2004, the local gas and electric supplier
announced that it would begin offering high-speed Internet access over
electrical lines to customers in CBT’s operating area. CBT seeks to maintain
an advantage over these competitors through its service quality, network
capabilities and reach, innovative products and services, creative marketing
and product bundling, various customer billing alternatives and value
pricing.
CBT had approximately 986,000 network access lines in service on December
31, 2003, a 2.6% and 4.5% reduction in comparison to 1,012,000 and 1,032,000
access lines in service at December 31, 2002 and 2001, respectively.
Approximately 69% of CBT’s network access lines serve residential customers
and 31% serve business customers. Despite the decline in access lines, the
Company has been able to nearly offset the effect of these losses on revenue
by increasing DSL penetration. As of December 31, 2003, CBT had
approximately 100,000 ZoomTown DSL subscribers, a 33% and 64% increase in
comparison to 75,000 and 61,000 subscribers at December 31, 2002 and 2001,
respectively. As of December 31, 2003, DSL service was available to
approximately 86% of the network access lines served by the Company, which
the company refers to as addressable access lines. Of the addressable access
lines, the Company’s consumer penetration was 14.9% at the end of 2003, an
increase of four percentage points from 10.9% at the end of 2002. Business
penetration of addressable lines has grown to 6.5% at end of 2003, up more
than one percentage point from 5.3% penetration at the end of 2002. On a
combined basis, subscribership of nearly 100,000 represents 12.6%
penetration of addressable lines, compared to 9.3% penetration at the end of
2002.
In March 2004, the Company upgraded its DSL network to provide higher speed
internet access – up to four times faster than the existing DSL network and
which is comparable to speeds provided by other high-speed internet
competitors.
Wireless
The Wireless segment includes the operations of Cincinnati Bell Wireless LLC
(“CBW”), a joint venture with AT&T Wireless Services (“AWE”), in which the
Company owns 80.1% and AWE owns the remaining 19.9%. The Wireless segment
provides advanced digital, voice and data communications services on its own
regional wireless network in Greater Cincinnati and Dayton, Ohio and on the
AWE national wireless network. CBW offers digital wireless service to
postpaid customers, who pay a monthly access fee and usage fees in arrears.
Prepaid customers purchase minutes or text messages, in advance, at a fixed
price. The segment also sells related telecommunications equipment.
CBW’s digital wireless network operates on 30 MHz of wireless spectrum, of
which CBW owns a license for 20MHz in Cincinnati and Dayton, and leases
10MHz licensed to the Company in Cincinnati and 10MHz licensed to AWE in
Dayton. Its network consists of switching, messaging and radio base station
equipment attached to 287 tower and rooftop structures, which CBW owns or
leases from other providers. The network employs both Time Division Multiple
Access (“TDMA”) and Global System for Mobile Communications and General
Packet Radio Service (“GSM/GPRS”) technology. TDMA provides both voice and
short message service (“SMS”) data services. In October 2003, CBW deployed
the GSM/GPRS technology, which provides, in addition to voice communication
and SMS, enhanced wireless data communication services, such as mobile web
browsing, internet access, email and picture messaging. The GSM/GPRS is EDGE
compatible, requiring only software upgrades to deliver higher data rates
and capacity. As handsets of one technology cannot generally be used on the
network of the other technology, CBW plans to operate both technologies
simultaneously until its TDMA customer base naturally churns or migrates to
GSM/GPRS service. Based on current estimates, the Company expects that it
will operate its TDMA network at least through 2006.
CBW’s operating territory includes a licensed population (“licensed pops”)
of approximately 3.4 million. As of December 31, 2003, CBW served
approximately 474,000 subscribers, of which 312,000 were postpaid
subscribers and 162,000 were prepaid, i-wirelessSM subscribers, representing
a licensed pop penetration of 13.9%. In May of 1998 CBW became the fifth
wireless carrier to enter the Cincinnati and Dayton market. CBW estimates
its market share totaled approximately 26% as of December 31, 2003, based on
a total wireless industry penetration rate of 54%. Postpaid declined by 700
subscribers during 2003. CBW maintained an average monthly churn rate of
1.8%, 1.7% and 1.6% for postpaid customers in 2003, 2002 and 2001,
respectively and an average monthly churn rate of 4.9%, 4.7% and 3.3% for
prepaid customers in 2003, 2002 and 2001, respectively. Wireless local
number portability (“WLNP”), which was mandated by the FCC and became
effective November 24, 2003, has had an immaterial impact on CBW.
In 2003 and 2002, services generated approximately 95% of the Wireless
segment’s revenue whereas equipment sales generated the remaining 5%. This
composition of revenue compares to approximately 94% and 6%, respectively,
in 2001. In total, the Wireless segment contributed $259.5, $267.2 and
$254.4, or 17%, 12% and 11% of consolidated revenue in 2003, 2002 and 2001,
respectively. The Wireless segment produced $60.2 million, $69.1 million and
$37.7 million in operating income in 2003, 2002 and 2001, respectively.
Postpaid subscribers generate approximately 78% of total service revenue
through a variety of rate plans, which typically include a fixed or
unlimited number of minutes for a flat monthly rate, with additional minutes
for fixed number of minute plans being charged at a per-minute-of-use rate.
Prepaid i-wirelessSM subscribers generate 15% of service revenue whereas
subscribers of other telecommunications providers, mainly AWE, generate the
remaining 7% of service revenue. CBW incurs significant roaming expenses
when its own wireless subscribers use their handsets on the networks of
other wireless providers. CBW’s roaming expense of $33.2 million, $35.4
million and $34.4 million exceeded its roaming revenue of $16.6 million,
$17.5 million and $15.5 million in 2003, 2002 and 2001, respectively.
Sales of handsets and accessories take place primarily at CBW’s retail
locations, which consist of stores and kiosks in high-traffic shopping malls
and commercial buildings in the Greater Cincinnati and Dayton, Ohio areas.
Sales also take place in the retail stores of major electronic retailers
pursuant to agency agreements. CBW sells handsets and accessories from a
variety of vendors. CBW maintains a supply of equipment and does not
envision any shortages that would compromise its ability to add customers.
Unlike service revenue (which is a function of wireless handset usage),
equipment sales are seasonal in nature, as customers often purchase handsets
and accessories as gifts during the holiday season in the Company’s fourth
quarter. In order to attract customers, CBW typically sells handsets for
less than direct cost, a common practice in the wireless industry.
As the wireless venture is jointly owned with AWE, income or losses
generated by the Wireless segment are shared between the Company and AWE in
accordance with respective ownership percentages of 80.1% for the Company
and 19.9% for AWE. As a result, 19.9% of the net income or loss of the
Wireless segment is reflected as minority interest expense or income in the
Company’s Consolidated Statements of Operations and Comprehensive Income
(Loss). Refer to Note 10 of the Notes to Consolidated Financial Statements
for a detailed discussion of AWE’s minority interest in this venture.
Other
The Other segment combines the operations of CBAD and Public. CBAD markets
and sells voice long distance service to residential and business customers
in the Greater Cincinnati and Dayton, Ohio areas, while Public provides
public payphone services in a thirteen state area in the midwestern and
southern United States. The Other segment produced revenue of $81.1 million,
$82.8 million and $79.0 million, in 2003, 2002 and 2001, respectively. The
Other segment revenue constituted approximately 5%, 4% and 4% of
consolidated revenue in 2003, 2002 and 2001, respectively. The Other segment
produced operating income of $6.5 million and $1.7 million in 2003 and 2002,
respectively, and an operating loss of $3.7 million in 2001.
Cincinnati Bell Any Distance
CBAD primarily resells long distance services to businesses and residential
customers in the Greater Cincinnati and Dayton, Ohio areas. At December 31,
2003, CBAD had approximately 539,000 subscribers in comparison to 555,000
and 550,000 long distance subscribers at December 31, 2002 and 2001,
respectively. With regard to Local segment access lines for which a long
distance carrier is chosen, CBAD’s market share within the greater
Cincinnati area increased in 2003, with residential and business market
share growing to approximately 71% and 45%, respectively, from 69% and 43%,
respectively, at the end of 2002. Of CBT’s 986,000 access lines in the
greater Cincinnati area, approximately 407,000 residential access lines and
118,000 business access lines subscribed to “Any Distance” as of December
31, 2003. In 2003, CBAD produced $68.2 million in revenue for the Other
segment, representing approximately 4% of consolidated revenue compared to
$68.8 million and 3% of consolidated revenue in 2002 and $63.6 million and
3% of consolidated revenue in 2001.
Cincinnati Bell Public Communications Inc.
Public provides public payphone services to customers in a regional area
consisting of thirteen states. Public had approximately 8,100, 7,700 and
9,200 stations in service and generated approximately $12.8 million, $13.7
million and $15.4 million in revenue in 2003, 2002 and 2001, respectively,
or less than 1% of consolidated revenue in each year. The revenue decrease
is a result of reduced calls per line caused by continued penetration of
wireless communications and a targeted reduction in unprofitable lines.
Broadband
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