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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7784
CENTURYTEL, INC.
(Exact name of Registrant as specified in its charter)
Louisiana 72-0651161
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
100 CenturyTel Drive, Monroe, Louisiana 71203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (318) 388-9000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 New York Stock Exchange
Berlin Stock Exchange
Preference Share Purchase Rights New York Stock Exchange
Berlin Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 2001, the aggregate market value of voting stock held by
non-affiliates (affiliates being for these purposes only directors, executive
officers and holders of more than five percent of the Company's outstanding
voting securities) was $4.0 billion. As of February 28, 2001, there were
140,974,996 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement prepared in connection with the
2001 annual meeting of shareholders are incorporated in Part III of this Report.
PART I
Item 1. Business
General. CenturyTel, Inc. ("CenturyTel") is a regional integrated
communications company engaged primarily in providing local exchange telephone
services and wireless communications services. For the year ended December 31,
2000, local exchange telephone operations and wireless operations provided 68%
and 24%, respectively, of the consolidated revenues of CenturyTel and its
subsidiaries (the "Company"). All of the Company's operations are conducted
within the continental United States.
At December 31, 2000, the Company's local exchange telephone subsidiaries
operated over 1.8 million telephone access lines, primarily in rural, suburban
and small urban areas in 21 states, with the largest customer bases located in
Wisconsin, Arkansas, Washington, Missouri, Michigan, Louisiana and Colorado.
According to published sources, the Company is the eighth largest local exchange
telephone company in the United States based on the number of access lines
served. For more information, see "Telephone Operations."
At December 31, 2000, the Company's majority-owned and operated cellular
systems (i) served approximately 751,000 customers in 19 Metropolitan
Statistical Areas ("MSAs") and 22 Rural Service Areas ("RSAs") in Michigan,
Louisiana, Arkansas, Mississippi, Wisconsin and Texas and (ii) had access to
approximately 7.6 million cellular pops (the estimated population of licensed
cellular telephone markets multiplied by the Company's proportionate equity
interest in the licensed operators thereof). At December 31, 2000, the Company
also owned minority equity interests in 10 MSAs and 16 RSAs, representing
approximately 1.9 million cellular pops. According to data derived from
published sources, the Company is the eighth largest cellular telephone company
in the United States based on the Company's 9.5 million aggregate pops. For more
information, see "Wireless Operations."
The Company also provides long distance, Internet access, competitive
local exchange carrier, broadband data, security monitoring, and other
communications and business information services in certain local and regional
markets. For more information, see "Other Operations."
Recent acquisitions and dispositions. On July 31, 2000 and September 29,
2000, affiliates of the Company acquired over 490,000 telephone access lines and
related assets from Verizon Communications, Inc. (successor to GTE Corporation)
("Verizon") in four separate transactions for approximately $1.5 billion in
cash. Under these transactions:
o On July 31, 2000, the Company purchased approximately 231,000 telephone
access lines and related local exchange assets comprising 106 exchanges
throughout Arkansas for approximately $842 million in cash.
o On July 31, 2000, Spectra Communications Group, LLC ("Spectra")
purchased approximately 127,000 telephone access lines and related local
exchange assets comprising 107 exchanges throughout Missouri for
approximately $297 million cash. As of December 31, 2000, the Company
owned 57.1% of Spectra, which was organized to acquire and operate these
Missouri properties. At closing, the Company made a preferred equity
investment in Spectra of approximately $55 million and financed
substantially all of the remainder of the purchase price.
o On September 29, 2000, the Company purchased approximately 70,500
telephone access lines and related local exchange assets comprising 42
exchanges throughout Wisconsin for approximately $197 million in cash.
o On September 29, 2000, Telephone USA of Wisconsin, LLC ("TelUSA")
purchased approximately 62,900 telephone access lines and related local
exchange assets comprising 35 exchanges throughout Wisconsin for
approximately $172 million in cash. The Company owns 89% of TelUSA,
which was organized to acquire and own these Wisconsin properties. At
closing, the Company made an equity investment in TelUSA of
approximately $37.8 million and financed substantially all of the
remainder of the purchase price.
In August 2000, the Company acquired the assets of CSW Net, Inc., a
regional Internet service provider that offers dial-up and dedicated Internet
access, and web site and domain hosting to more than 14,000 customers in 28
communities in Arkansas.
In November 1999, the Company acquired the assets of DigiSys, Inc., an
Internet service provider in Kalispell, Montana. DigiSys provides Internet
services to more than 8,600 customers in Montana and operates MontanaWeb, one of
the largest online business directories in the state.
In October 1999, the Company acquired the non-wireline cellular license to
serve Mississippi RSA #5, which covers 160,000 pops. Mississippi RSA #5
encompasses the Vicksburg and Greenville markets as well as portions of
Interstate Highway 20 between Jackson, Mississippi and Monroe, Louisiana.
On December 1, 1998, the Company acquired the assets of certain of
Ameritech's telephone operations and related telephone directories in 19
telephone exchanges covering 21 communities in northern and central Wisconsin
for approximately $221 million cash. The operations acquired by the Company
include the telephone property and equipment that serves nearly 69,000
customers, or approximately 86,000 access lines, as well as nine related
telephone directories.
In June 1999 the Company sold all of the operations of its Brownsville and
McAllen, Texas, cellular systems to Western Wireless Corporation for
approximately $96 million cash. The Company received a proportionate share of
the sale proceeds of approximately $45 million after-tax.
In May 1998, the Company sold the undersea cable operations acquired in
the December 1, 1997 Pacific Telecom, Inc. ("PTI") acquisition for approximately
$61.8 million cash. In May 1999, the Company sold substantially all of its
Alaska telephone and wireless operations that it had acquired from PTI for
approximately $300 million after-tax. In February 2000, the Company sold its
interest in Alaska RSA #1 which completed the Company's divestiture of its
Alaska operations.
In November 2000, the Company entered into a definitive agreement with
Leap Wireless International, Inc. to sell 30 PCS (Personal Communications
Service) operating licenses for an aggregate of $205 million. The transaction is
expected to close late in the first quarter of 2001, subject to (i) approval of
the Federal Communications Commission and (ii) certain other closing conditions.
Approximately $119 million of the purchase price will be delivered at closing.
The remaining $86 million will be payable in the form of a promissory note
bearing 10% interest per annum. $74 million will be payable within nine months
after the issuance of the note with the remainder payable in 2002 upon maturity
of the note.
The Company continually evaluates the possibility of acquiring additional
telecommunications assets in exchange for cash, securities or both, and at any
given time may be engaged in discussions or negotiations regarding additional
acquisitions. The Company generally does not announce its acquisitions until it
has entered into a preliminary or definitive agreement. Over the past few years,
the number and size of communications properties on the market has increased
substantially. Although the Company's primary focus will continue to be on
acquiring telephone and wireless interests that are proximate to its properties
or that serve a customer base large enough for the Company to operate
efficiently, other communications interests may also be acquired and these
acquisitions could have a material impact upon the Company.
Other. As of December 31, 2000, the Company had approximately 6,860
employees, approximately 1,270 of whom were members of 17 different bargaining
units represented by the International Brotherhood of Electrical Workers, the
Communications Workers of America, or the NTS Employee Committee. Relations with
employees continue to be generally good.
CenturyTel was incorporated under Louisiana law in 1968 to serve as a
holding company for several telephone companies acquired over the previous 15 to
20 years. CenturyTel's principal executive offices are located at 100 CenturyTel
Drive, Monroe, Louisiana 71203 and its telephone number is (318) 388-9000.
TELEPHONE OPERATIONS
According to published sources, the Company is the eighth largest local
exchange telephone company in the United States, based on the more than 1.8
million access lines it served at December 31, 2000. All of the Company's access
lines are digitally switched. Through its operating telephone subsidiaries, the
Company provides services to predominately rural, suburban and small urban
markets in 21 states. The table below sets forth certain information with
respect to the Company's access lines as of December 31, 2000 and 1999.
December 31, 2000 December 31, 1999
- --------------------------------------------------------------------------------
Number of Percent of Number of Percent of
State access lines access lines access lines access lines
- --------------------------------------------------------------------------------
Wisconsin 498,234 (1) 28% 358,768 28%
Arkansas 278,155 15 45,675 4
Washington 189,341 11 183,759 14
Missouri 129,944 (2) 7 - -
Michigan 114,325 6 112,468 9
Louisiana 103,091 6 100,967 8
Colorado 95,509 5 91,446 7
Ohio 85,308 5 83,287 7
Oregon 79,663 5 78,210 6
Montana 65,966 4 63,867 5
Texas 51,387 3 48,144 4
Minnesota 30,910 2 30,583 2
Tennessee 27,781 2 26,917 2
Mississippi 23,435 1 21,844 2
New Mexico 6,295 - 6,354 1
Idaho 6,197 - 6,040 1
Indiana 5,425 - 5,266 -
Wyoming 5,108 - 4,841 -
Iowa 2,048 - 1,997 -
Arizona 1,920 - 1,936 -
Nevada 523 - 498 -
- --------------------------------------------------------------------------------
1,800,565 100% 1,272,867 100%
================================================================================
(1) Approximately 61,750 of these lines are owned and operated by CenturyTel's
89%-owned affiliate.
(2) These lines are owned and operated by CenturyTel's majority-owned
affiliate, of which CenturyTel owned 57.1% at December 31, 2000 and 75.7%
as of the date of this Report.
As indicated in the following table, the Company has experienced growth in
its telephone operations over the past several years, a substantial portion of
which was attributable to the July and September 2000 acquisitions of telephone
properties from Verizon, the December 1997 acquisition of PTI, the acquisitions
of other telephone properties and the expansion of services. A portion of the
Company's access line growth was offset by the May 1999 sale of the Company's
Alaska telephone operations.
Year ended or as of December 31,
- -----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
Access lines 1,800,565 1,272,867 1,346,567 1,203,650 503,562
% Residential 76% 75 74 74 77
% Business 24% 25 26 26 23
Operating revenues $ 1,253,969 1,126,112 1,077,343 526,428 450,082
Capital expenditures $ 275,523 233,512 233,190 115,854 110,147
- -----------------------------------------------------------------------------------------------
Future growth in telephone operations is expected to be derived from (i)
acquiring additional telephone properties, (ii) providing service to new
customers, (iii) increasing network usage and (iv) providing additional services
made possible by advances in technology, improvements in the Company's
infrastructure and changes in regulation. For information on developing
competitive trends, see "-Regulation and Competition."
Services
The Company's local exchange telephone subsidiaries derive revenue from
providing (i) local telephone services, (ii) network access services and (iii)
other related services. The following table reflects the percentage of telephone
operating revenues derived from these respective services:
2000 1999 1998
- --------------------------------------------------------------------------------
Local service 32.6% 31.4 30.8
Network access 58.0 58.1 58.4
Other 9.4 10.5 10.8
- --------------------------------------------------------------------------------
100.0% 100.0 100.0
================================================================================
Local service. Local service revenues are derived from the provision of
local exchange telephone services in the Company's service areas. Internal
access line growth during 2000, 1999 and 1998 was 2.8%, 4.8% and 4.7%,
respectively. The decrease in internal access line growth during 2000 was
partially due to disconnecting service to customers for non-payment and the
replacement of lines with high-speed data circuits.
The installation of digital switches, high-speed data circuits and related
software has been an important component of the Company's growth strategy
because it allows the Company to offer enhanced voice services (such as call
forwarding, conference calling, caller identification, selective call ringing
and call waiting) and data services and to thereby increase utilization of
existing access lines. In 2000 the Company continued to expand its list of
premium services (such as voice mail) offered in certain service areas and
aggressively marketed these services.
Network access. Network access revenues primarily relate to services
provided by the Company to long distance carriers, wireless carriers and other
customers in connection with the use of the Company's facilities to originate
and terminate interstate and intrastate long distance telephone calls. The
Company's access charges are based on tariffed access rates filed with the
Federal Communications Commission ("FCC") for interstate services and with the
respective state regulatory agency for intrastate services. Certain of the
Company's interstate network access revenues are based on access charges
prescribed by the FCC; the remainder of such revenues are derived under revenue
sharing arrangements with other local exchange carriers ("LECs") administered by
the National Exchange Carrier Association ("NECA"), a quasi-governmental
non-profit organization formed by the FCC in 1983 for such purposes.
Certain of the Company's intrastate network access revenues are derived
through access charges billed by the Company to intrastate long distance
carriers and other LEC customers. Such intrastate network access charges are
based on access tariffs, which are subject to state regulatory commission
approval. Additionally, certain of the Company's intrastate network access
revenues, along with intrastate and intra-LATA (Local Access and Transport
Areas) long distance revenues, are derived through revenue sharing arrangements
with other LECs.
The Company is installing fiber optic cable in certain of its high traffic
routes and provides alternative routing of telephone service over fiber optic
cable networks in several strategic operating areas. At December 31, 2000, the
Company's telephone subsidiaries had over 10,000 miles of fiber optic cable in
use.
Other. Other revenues include revenues related to (i) leasing, selling,
installing, maintaining and repairing customer premise telecommunications
equipment and wiring, (ii) providing billing and collection services for long
distance companies and (iii) participating in the publication of local
directories.
Certain large communications companies for which the Company currently
provides billing and collection services continue to indicate their desire to
reduce their billing and collection expenses, which has resulted and may
continue to result in future reductions of the Company's billing and collection
revenues.
For further information on the regulation of the Company's revenues, see
"-Regulation and Competition."
Federal Financing Programs
Certain of the Company's telephone subsidiaries receive long-term
financing from the Rural Utilities Service ("RUS") or the Rural Telephone Bank
("RTB"). The RUS has made long-term loans to telephone companies since 1949 for
the purpose of improving telephone service in rural areas. The RUS continues to
make new loans at interest rates that range from 5% to 7% based on borrower
qualifications and the cost of funds to the United States government. The RTB,
established in 1971, makes long-term loans at interest rates based on its
average cost of funds as determined by statutory formula (such rates ranged from
6.01% to 6.05% for the RTB's fiscal year ended September 30, 2000), and in some
cases makes loans concurrently with RUS loans. Much of the Company's telephone
plant is pledged or mortgaged to secure obligations of the Company's telephone
subsidiaries to the RUS and RTB. The Company's telephone subsidiaries that have
borrowed from government agencies generally may not loan or advance any funds to
CenturyTel, but may pay dividends if certain financial covenants are met.
For additional information regarding the Company's financing, see the
Company's consolidated financial statements included in Item 8 herein.
Regulation and Competition
Traditionally, LECs have operated as regulated monopolies. Consequently,
most of the Company's telephone operations have traditionally been regulated
extensively by various state regulatory agencies (generally called public
service commissions or public utility commissions) and by the FCC. As discussed
in greater detail below, passage of the Telecommunications Act of 1996 (the
"1996 Act"), coupled with state legislative and regulatory initiatives and
technological changes, has fundamentally altered the telephone industry by
reducing the regulation of LECs and permitting competition in each segment of
the telephone industry. Although CenturyTel anticipates that these trends
towards reduced regulation and increased competition will continue, it is
difficult to determine the form or degree of future regulation and competition
in the Company's service areas.
State regulation. The local service rates and intrastate access charges of
substantially all of the Company's telephone subsidiaries are regulated by state
regulatory commissions. Most of such commissions have traditionally regulated
pricing through "rate of return" regulation that focuses on authorized levels of
earnings by LECs. Most of these commissions also (i) regulate the purchase and
sale of LECs, (ii) prescribe depreciation rates and certain accounting
procedures and (iii) regulate various other matters, including certain service
standards and operating procedures.
In recent years, state legislatures and regulatory commissions in most of
the states in which the Company has substantial operations have either reduced
the regulation of LECs or have announced their intention to do so, and it is
expected that this trend will continue. Wisconsin, Louisiana and several other
states have passed legislation or issued regulatory rulings which permit LECs to
opt out of rate of return regulation in exchange for agreeing to alternative
forms of regulation which typically permit the LEC greater freedom to establish
local service rates in exchange for agreeing not to charge rates in excess of
specified caps. As discussed further below, most of the Company's Wisconsin
telephone subsidiaries, with the exception of the recently acquired properties,
have agreed to be governed by alternative regulation plans, and the Company
continues to explore its options for similar treatment in other states. Other
states have imposed new regulatory models that do not rely on "rate of return"
regulation. The Company believes that reduced regulatory oversight of certain of
the Company's telephone operations may allow the Company to offer new and
competitive services faster than under the traditional regulatory process. For a
discussion of legislative, regulatory and technological changes that have
introduced competition into the local exchange industry, see "-Developments
Affecting Competition."
A portion of the Company's telephone operations in Wisconsin have been
regulated under an alternative regulation plan since June 1996. In late 1999 and
early 2000, most of the Company's remaining Wisconsin telephone subsidiaries
agreed to be subject to alternative regulation plans. Each of these plans has a
five-year term and permits the Company to adjust local rates within specified
parameters if certain quality-of-service and infrastructure-development
commitments are met. These plans also include initiatives designed to promote
competition. Although the Company believes that these plans will be favorable in
the future as additional revenue streams are added and cost efficiencies are
obtained, these plans slowed revenue growth during 2000 because they are more
closely tied to access line growth rather than minutes of use growth, which has
traditionally grown at a faster rate than access lines. There can be no
assurance that current or future alternative regulation plans will not reduce
revenue growth in the future. For a discussion of the Company's pending rate
proceedings with the Wisconsin Public Service Commission, see Item 7 of this
Report.
In 1997 the Louisiana Public Service Commission ("LPSC") adopted a
Consumer Price Protection Plan (the "Louisiana Plan"), effective July 1997 and
renewed substantially in its same form during 2000, which impacts all of the
Company's LECs operating in Louisiana. This form of regulation focuses on price
and quality of service. Under the Louisiana Plan, the Company's Louisiana LECs'
local rates were frozen for a period of three years and access rates were frozen
for a period of two years. The Company's Louisiana LECs have the option to
propose a new plan at any time if the LPSC determines that (i) effective
competition exists or (ii) unforeseen events threaten the LEC's ability to
provide adequate service or impair its financial health. Although the Louisiana
Plan has no specified term, the LPSC is required to review it by mid-2003.
The Company's Arkansas LECs, excluding the newly-acquired Verizon
properties, are regulated under an alternative regulation plan adopted in 1997,
which initially froze access rates for three years, after which time such rates
can be adjusted based on an inflation-based factor. Local service rates can be
adjusted without commission approval; however, such rates are subject to
commission review if certain petition criteria are met. In addition, since 1995
the Company's Michigan LECs have been subject to a regulatory structure that
focuses on price and quality of service as opposed to traditional rate of return
regulation, and which relies more on existing federal and state law regarding
antitrust consumer protection and fair trade to provide safeguards for
competition and consumers.
Notwithstanding the movement towards deregulation, LECs operating
approximately 68% of the Company's total access lines continue to be subject
to "rate of return" regulation. These LECs remain subject to the powers of state
regulatory commissions to conduct earnings reviews and adjust service rates.
FCC regulation. The FCC regulates the interstate services provided by the
Company's telephone subsidiaries primarily by regulating the interstate access
charges that are billed to long distance companies and other LECs by the Company
for use of its local network in connection with the origination and termination
of interstate telephone calls. Additionally, the FCC has prescribed certain
rules and regulations for telephone companies, including regulations regarding
the use of radio frequencies; a uniform system of accounts; and rules regarding
the separation of costs between jurisdictions and, ultimately, between
interstate services.
Effective January 1, 1991, the FCC adopted price-cap regulation relating
to interstate access rates for the Regional Bell Operating Companies ("RBOCs")
and GTE Corporation. All other LECs may elect to be subject to price-cap
regulation. Under price-cap regulation, limits imposed on a company's interstate
rates are adjusted periodically to reflect inflation, productivity improvement
and changes in certain non-controllable costs. In May 1993 the FCC adopted an
optional incentive regulatory plan for LECs not subject to price-cap regulation.
A LEC electing the optional incentive regulatory plan would, among other things,
file tariffs based primarily on historical costs and not be allowed to
participate in the relevant NECA pooling arrangements. The Company has not
elected price-cap regulation or the optional incentive regulatory plan, but will
continue to evaluate its options on a periodic basis. Either election, if made
by the Company, would have to be applicable to all of the Company's telephone
subsidiaries. The authorized interstate access rate of return for the Company's
telephone subsidiaries is currently 11.25%, which is the authorized rate
established by the FCC for LECs not governed by price-cap regulation or the
optional incentive regulatory plan.
On October 20, 2000, a proposed comprehensive reform plan designed to
address access rates, universal service, rate of return and separations was
filed with the FCC by a Multi Association Group representing small and mid-sized
telephone companies that currently are regulated under traditional rate of
return mechanisms. The proposed plan attempts to mirror certain principles of
the access charge reform plan implemented by the FCC for price cap companies in
mid-1999. Under this plan, companies would have a five-year period to transition
from their existing forms of rate of return regulation to a new form of
incentive regulation. If adopted in its current form, the plan would not have a
material effect on the Company's operating revenues or results of operations;
however, until the plan is finalized under the rulemaking procedures of the FCC,
it is premature to assess the ultimate impact this proposal will have on the
Company. There can be no assurance that the plan, in its final form, will not
have a material effect on the Company's results of operations.
High-cost support funds, revenue sharing arrangements and related matters.
A significant number of the Company's telephone subsidiaries recover a portion
of their costs under federal and state cost recovery mechanisms that
traditionally have allowed LECs serving small communities and rural areas to
provide communications services reasonably comparable to those available in
urban areas and at reasonably comparable prices.
The 1996 Act authorized the establishment of new federal and state
universal service funds to provide continued support to eligible
telecommunications carriers. Substantially all of the Company's LECs has been
designated eligible to receive continued support by its respective state
regulatory agency. These new suppport funds are intended to replace existing
federal support mechanisms that are based on historical cost models. The FCC has
established a task force to recommend how universal service support should be
administered for rural LECs. This task force has recommended a modified embedded
cost model which, if adopted in its current form, would not have a material
effect on the Company's consolidated revenues or results of operations. However,
if the FCC implements new universal support mechanisms for rural carriers,
including substantially all of the Company's LECs, based on forward-looking cost
models (as it did for non-rural carriers in October 1999), the Company's
consolidated revenues could be negatively impacted. Until new support mechanisms
are finalized under the FCC's rulemaking procedures, there can be no assurance
that the universal service support mechanism ultimately adopted by the FCC will
not negatively affect the Company's operations. During 2000 and 1999 the
Company's telephone subsidiaries received $146.4 million (of which $8.3 million
related to the Company's recently-acquired Verizon operations) and $127.5
million (of which $5.2 million related to the Alaska based operations which were
disposed of in mid-1999), respectively, from the federal Universal Service Fund,
representing 7.9% and 7.6%, respectively, of the Company's consolidated revenues
for 2000 and 1999. In addition, the Company's telephone subsidiaries received
$30.7 million and $19.5 million in 2000 and 1999, respectively, from intrastate
support funds. For additional information, see Item 7 of this report.
In 1997, the FCC also established new programs to provide discounted
telecommunications services annually to schools, libraries and rural health care
providers. All communications carriers providing interstate telecommunications
services, including the Company's LECs and its cellular and long distance
operations, are required to contribute to these programs. The Company's LECs
recover their funding contributions in their rates for interstate services. The
Company's contribution by its cellular and long distance operations, which is
passed on to its customers, was approximately $3.7 million in 2000 and $3.9
million in 1999.
Some of the Company's telephone subsidiaries operate in states where
traditional cost recovery mechanisms, including rate structures, are under
evaluation or have been modified. See "-State Regulation." There can be no
assurance that these states will continue to provide for cost recovery at
current levels.
Substantially all of the Company's LECs concur with the common line
tariffs and certain of the Company's LECs concur with the traffic sensitive
tariffs filed by the NECA; such LECs participate in the access revenue sharing
arrangements administered by the NECA for interstate services. All of the
intrastate network access revenues of the Company's LECs are based on access
charges, cost separation studies or special settlement arrangements. See
"-Services."
Certain long distance carriers continue to request that certain of the
Company's LECs reduce intrastate access tariffed rates. Long distance carriers
have also aggressively pursued regulatory or legislative changes that would
reduce access rates. There is no assurance that these requests or initiatives
will not result in decreased access revenues.
Developments affecting competition. The communications industry continues
to undergo fundamental changes which are likely to significantly impact the
future operations and financial performance of all communications companies.
Primarily as a result of legislative and regulatory initiatives and
technological changes, competition has been introduced and encouraged in each
sector of the telephone industry, including, most recently, the local exchange
sector. As a result, the number of companies offering competitive services has
increased substantially.
As indicated above, in February 1996 Congress enacted the 1996 Act, which
obligates LECs to permit competitors to interconnect their facilities to the
LEC's network and to take various other steps that are designed to promote
competition. The 1996 Act imposes several duties on a LEC if it receives a
specific request from another entity which seeks to connect with or provide
services using the LEC's network. In addition, each incumbent LEC is obligated
to (i) negotiate interconnection agreements in good faith, (ii) provide
"unbundled" access to all aspects of the LEC's network, (iii) offer resale of
its telecommunications services at wholesale rates and (iv) permit competitors
to collocate their physical plant on the LEC's property, or provide virtual
collocation if physical collocation is not practicable. Under the 1996 Act's
rural telephone company exemption, substantially all of the Company's telephone
subsidiaries are exempt from certain of these interconnection requirements
unless and until the appropriate state regulatory commission overrides the
exemption upon receipt from a competitor of a request meeting certain criteria.
In mid-2000, a federal appellate court overturned portions of the FCC's 1996
interconnection order that sought to place the burden of proving the continuing
availability of this exemption on rural LECs. States are permitted to adopt laws
or regulations that provide for greater competition than is mandated under the
1996 Act. Although portions of the FCC's August 1996 interconnection order have
survived judicial challenge, the FCC has neither completed its interconnection
rulemaking nor issued rules on universal service or access reform for rural
carriers. Management believes that competition in its telephone service areas
has increased and will continue to increase as a result of the 1996 Act,
although the form and degree of competition cannot be ascertained until such
time as the FCC (and, in certain instances, state regulatory commissions) adopts
final and nonappealable implementing regulations.
In addition to these changes in federal regulation, all of the 21 states
in which the Company provides telephone services have taken legislative or
regulatory steps to further introduce competition into the LEC business. As a
result of these regulatory developments, incumbent LECs ("ILECs") increasingly
face competition from competitive local exchange carriers ("CLECs"),
particularly in high population areas. CLECs provide competing services through
reselling the ILECs' local services, through use of the ILECs' unbundled network
elements or through their own facilities.
The number of companies which have requested authorization to provide
local exchange service in the Company's service areas has increased
substantially, especially in the Company's newly-acquired Verizon markets, and
it is anticipated that similar action may be taken by others in the future.
In addition to facing direct competition from CLECs, ILECs increasingly
face competition from alternate communication systems constructed by long
distance carriers, large customers or alternative access vendors. These systems,
which have become more prevalent as a result of the 1996 Act, are capable of
originating or terminating calls without use of the ILECs' networks. Customers
may also use wireless or Internet voice service to bypass ILECs' switching
services. In addition, technological and regulatory developments have increased
the feasibility of competing services offered by cable television companies,
several of whom are pursuing these opportunities. Other potential sources of
competition include noncarrier systems that are capable of bypassing ILECs'
local networks, either partially or completely, through substitution of special
access for switched access or through concentration of telecommunications
traffic on few of the ILECs' access lines. The Company anticipates that all
these trends will continue and lead to increased competition with the Company's
LECs.
Historically, cellular telephone services have complemented traditional
LEC services. However, existing and emerging wireless technologies increasingly
compete with LEC services. The Company anticipates this trend will continue,
particularly if wireless service rates continue to drop. Technological and
regulatory developments in cellular telephone, personal communications services,
digital microwave, coaxial cable, fiber optics, local multipoint distribution
services and other wired and wireless technologies are expected to further
permit the development of alternatives to traditional landline services. For
further information on certain of these developments, see "Wireless Operations -
Regulation and Competition."
Historically, ILECs earned all or substantially all of the toll revenues
associated with intra-LATA long distance calls. Principally as a result of
recent state regulatory changes, companies offering competing toll services have
emerged in the Company's local exchange markets.
To the extent that the telephone industry increasingly experiences
competition, the size and resources of each respective competitor may
increasingly influence its prospects. Many companies currently providing or
planning to provide competitive communication services have substantially
greater financial and marketing resources than the Company, and several are not
subject to the same regulatory constraints as the Company.
The Company anticipates that the traditional operations of LECs will
continue to be impacted by continued technological developments as well as
legislative and regulatory initiatives affecting the ability of LECs to provide
new services and the capability of long distance companies, CLECs, wireless
companies, cable television companies and others to provide competitive LEC
services. Competition relating to services traditionally provided solely by LECs
has thus far affected large urban areas to a greater extent than rural, suburban
and small urban areas such as those in which the Company operates. The Company
intends to actively monitor these developments, to observe the effect of
emerging competitive trends in initial competitive markets and to continue to
evaluate new business opportunities that may arise out of future technological,
legislative and regulatory developments.
The Company anticipates that regulatory changes and competitive pressures
may result in future revenue reductions in its telephone operations. However,
the Company anticipates that such reductions may be minimized by increases in
revenues attributable to the continued demand for enhanced services and new
product offerings. While the Company expects its telephone revenues to continue
to grow, its internal telephone revenue growth rate may slow during upcoming
periods.
WIRELESS OPERATIONS
At December 31, 2000, the Company had access to approximately 9.5 million
cellular pops, of which 65% were applicable to MSAs and 35% were RSA pops.
According to data derived from published sources, the Company is the eighth
largest cellular telephone company in the United States based on the Company's
9.5 million pops.
Cellular Industry
The cellular telephone industry has been in existence for over 16 years in
the United States. The industry has grown significantly during this period and
cellular service is now available in substantially all areas of the United
States. According to the Cellular Telecommunications Industry Association, at
June 2000 there were estimated to be over 97 million wireless customers across
the United States.
Initially, all radio transmissions of cellular systems were conducted on
an analog basis. Technological developments involving the application of digital
radio technology offer certain advantages over analog technologies, including
expanding the capacity of mobile communications systems, improving voice
clarity, permitting the introduction of new services, and making such systems
more secure. Digital service is now available in 100% of the Company's MSA
markets and approximately 65% of its RSA markets. Approximately 19% of the
Company's cellular customers currently subscribe to digital services. As
discussed further below, several large wireless carriers have taken initial
steps to develop "next generation" technologies capable of providing enhanced
digital wireless services. For additional information, see "-Regulation and
Competition-Developments Affecting Wireless Competition."
Construction and Maintenance
The construction and maintenance of cellular systems is capital intensive.
Although the Company's MSA and RSA systems have been operational for many years,
the Company has continued to add cell sites to increase coverage, provide
additional capacity, and improve the quality of these systems. In 2000 the
Company completed construction of 47 cell sites in its majority-owned markets.
At December 31, 2000, the Company operated 743 cell sites in its majority-owned
markets.
Over the past several years the Company has upgraded most of its wireless
systems to be capable of providing digital service under the Time Division
Multiple Access ("TDMA") standard, which is one of the four primary digital
cellular standards currently used worldwide. The Company intends to continue
installing digital voice transmission facilities in other markets in 2001. See
"-Regulation and Competition-Developments Affecting Wireless Competition."
Capital expenditures related to majority-owned and operated wireless systems
totaled approximately $58.5 million in 2000. Such capital expenditures for 2001
are anticipated to be approximately $70 million.
Strategy
The Company's business development strategy for its wireless operations is
to secure operating control of service areas that are geographically clustered.
Clustered systems aid the Company's marketing efforts and provide various
operating and service advantages. Approximately 46% of the Company's customers
are in a single, contiguous cluster of eight MSAs and nine RSAs in Michigan;
another 25% are in a cluster of five MSAs and seven RSAs in northern and central
Louisiana, southern Arkansas and eastern Texas. See "-The Company's Cellular
Interests."
The Company has also traditionally targeted roaming service revenues,
which are derived from calls made in one of the Company's service areas by
customers of other cellular carriers from other service areas. In exchange for
providing roaming service to customers of other carriers, the Company has
traditionally charged premium rates to most of these other carriers, who then
frequently pass on some or all of these premium rates to their own customers.
The Company's Michigan, Louisiana and Mississippi cellular properties provide
service to various interstate highway corridors. As indicated elsewhere in Items
1 and 7 of this Report, the Company has increasingly received pressure from
other cellular operators to reduce substantially its roaming rates. See
"-Services, Customers and System Usage."
Marketing
The Company markets its wireless services through several distribution
channels, including its direct sales force, retail outlets owned by the Company
and independent agents. All sales employees and certain independent agents
solicit customers exclusively for the Company. Company sales employees are
compensated by salary and commission and independent sales agents are paid
commissions. The Company advertises its services through various means,
including direct mail, billboard, magazine, radio, television and newspaper
advertisements.
The sales and marketing costs of obtaining new subscribers include
advertising and a direct expense applicable to most new subscribers, either in
the form of a commission payment to an agent or an incentive payment to a direct
sales employee. In addition, the Company discounts the cost of cellular
telephone equipment sold to its customers, and periodically runs promotions
which waive certain fees or provide some amount of free service to new
subscribers. The average cost of acquiring each new customer ($289 in 2000)
remains one of the larger expenses in conducting the Company's wireless
operations. In recent years, the Company has sought to lower this average cost
by focusing more on its direct distribution channels. The Company opened its
first retail outlet in 1994, and currently operates 143 such outlets. During
2000, approximately 65% of new cellular customers were added through direct
distribution channels, up from 37% during 1996.
Because most of the Company's cellular markets are located in rural,
suburban or small urban areas, the Company believes that most of its customers
typically require only local or regional services. The Company lacks the
facilities and national brand name necessary to compete effectively for business
customers requiring nationwide services, and the Company does not actively
target these customers in its marketing campaigns. See "-Regulation and
Competition."
Services, Customers and System Usage
There are a number of different types of cellular telephones, all of which
are currently compatible with cellular systems nationwide. The Company offers a
full range of vehicle-mounted, transportable, and hand-held portable cellular
telephones. The Company typically purchases cellular phones in bulk, and
typically resells them at a loss to meet competition or to stimulate sales by
reducing the cost of becoming a cellular customer.
The Company charges its subscribers for access to its systems, for minutes
of use and for enhanced services, such as voice mail. A subscriber may purchase
certain of these services separately or may purchase rate plans which bundle
these services in different ways and are designed to fit different customer
requirements. While the Company historically has typically charged its customers
separately for custom-calling features, air time in excess of the packaged
amount, and toll calls, it currently offers plans which include features such as
unlimited toll calls and unlimited weekend calling in certain calling areas.
Custom-calling features provided by the Company include call-forwarding,
call-waiting, three-way calling and no- answer transfer. The Company also offers
voice message service in its markets.
Cellular customers come from a wide range of occupations and typically
include a large proportion of individuals who work outside of their office. In
recent years, the individual consumer market has generated a majority of new
customer additions. The Company's average monthly cellular revenue per customer
declined to $49 in 2000 from $53 in 1999 and $57 in 1998. Such average revenue
per customer is expected to further decline (i) as market penetration increases
and additional lower usage customers are activated, (ii) as the Company
continues to receive pressure from other cellular operators to reduce roaming
rates and (iii) as competitive pressures from current and future wireless
communications providers intensify. See "-Regulation and Competition."
The Company has entered into "roaming agreements" nationwide with
operators of other cellular systems that permit each company's respective
customers to place or receive calls outside of their home market area. The
charge to a non-Company customer for this service has traditionally been at
premium rates, and is billed by the Company to the customer's service provider,
which then bills the customer. In most instances, based on competitive factors
and financial considerations, the Company charges an amount to its customers
that is equal to or lower than the amount actually charged by the cellular
carrier providing the roaming service. Within the past two years, several large
nationwide cellular providers have introduced rate plans that offer roaming
coverage (provided through other carriers) at the same rate as service within
the customer's home market area. To defray the cost of these plans, these
providers have exerted substantial pressure on other cellular providers,
including the Company, to reduce their roaming fees. The Company anticipates
that competitive factors and industry consolidation will continue to place
further pressure on charging premium roaming rates. For additional information
on roaming revenue, see "-Strategy."
Churn rate (the average percentage of cellular customers that terminate
service each month) is an industry-wide concern. A significant portion of the
churn in the Company's markets is due to the Company disconnecting service to
cellular customers for nonpayment of their bills. In addition, the Company faces
substantial competition from the other wireless providers, including PCS
providers. The Company's average monthly churn rate, excluding prepaid
customers, in its majority-owned and operated markets was 1.95% in 2000 and
2.02% in 1999. The Company is attempting to lower its churn rate by increasing
its proactive customer service efforts and implementing additional customer
retention programs.
During recent years, the Company's cellular subsidiaries experienced
strong subscriber growth in the fourth quarter, primarily due to holiday season
sales.
The following table summarizes, among other things, certain information
about the Company's customers and market penetration:
Year ended or at December 31,
- --------------------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------------------
Majority-owned and operated MSA and RSA systems (Note 1):
Cellular systems operated 41 42 44
Cell sites 743 711 644
Population of systems operated (Note 2) 8,219,411 8,267,140 9,026,150
Customers (Note 3):
At beginning of period 707,486 624,290 569,983
Gross units added internally 339,247 240,084 214,767
Disconnects 284,880 146,325 160,460
Net units added internally 54,367 93,759 54,307
Effect of property dispositions (10,653) (10,563) -
At end of period 751,200 707,486 624,290
Market penetration at end of period (Note 4) 9.1% 8.6 6.9
Churn rate (Note 5) 1.95% 2.02 2.23
Average monthly service revenue
per customer $ 49 53 57
Construction expenditures (in thousands) $ 58,468 58,760 57,326
- --------------------------------------------------------------------------------------------------------
For additional information, see "- The Company's Wireless Interests."
Notes:
1. Represents the number of systems in which the Company owned at least a 50%
interest. The revenues and expenses of these markets, all of which are
operated by the Company, are included in the Company's consolidated
operating revenues and operating expenses.
2. Based on independent third-party population estimates for each respective
year.
3. Represents the approximate number of revenue-generating cellular telephones
served by the cellular systems referred to in note 1.
4. Computed by dividing the number of customers at the end of the period by
the total population of systems referred to in note 1.
5. Represents the average percentage of customers, excluding prepaid customers,
that were disconnected per month.
The Company's Wireless Interests
Cellular interests. The Company obtained the right to provide cellular
service through (i) the FCC's licensing process described below, under which it
received interests in wireline licenses, and (ii) its acquisition program, under
which it has acquired interests in both wireline and non-wireline licenses. The
table below sets forth certain information with respect to the interests in
cellular systems that the Company owned as of December 31, 2000:
The Other
2000 Company's cellular
population Ownership pops at operator
(Note 1) percentage 12/31/00 (Note 2)
- ---------------------------------------------------------------------------------------------
Majority-owned and operated MSAs
- --------------------------------
Pine Bluff, AR 80,281 100.00% 80,281 Cingular
Texarkana, AR/TX 135,898 89.00 120,949 AT&T
Alexandria, LA 146,312 100.00 146,312 Centennial
Monroe, LA 146,578 87.00 127,523 AT&T
Shreveport, LA 377,761 87.00 328,652 AT&T
Battle Creek, MI 196,796 97.00 190,892 Centennial
Benton Harbor, MI 159,535 97.00 154,749 Centennial
Grand Rapids, MI 787,798 97.00 764,164 Verizon
Jackson, MI 157,913 97.00 153,176 Centennial
Kalamazoo, MI 306,384 97.00 297,192 Centennial
Lansing-E. Lansing, MI 519,292 97.00 503,713 Verizon
Muskegon, MI 193,840 97.00 188,025 Verizon
Saginaw-Bay City-
Midland, MI 400,325 91.70 367,098 Verizon
Biloxi-Gulfport, MS (Note 4) 235,582 96.45 227,222 Cellular South
Jackson, MS (Note 4) 435,366 90.22 392,779 MCTA
Pascagoula, MS (Note 4) 134,358 89.20 119,851 Cellular South
Appleton-Oshkosh-
Neenah, WI 502,946 98.85 497,151 U.S. Cellular
Eau Claire, WI 144,884 55.50 80,411 American Cellular
LaCrosse, WI 102,624 95.00 97,493 U. S. Cellular
- ---------------------------------------------------------------------
5,164,473 4,837,633
- ---------------------------------------------------------------------
Minority-owned MSAs (Note 3)
- -----------------------------
Little Rock, AR 562,766 36.00% 202,596
Lafayette, LA 268,286 49.00 131,460
Detroit, MI 4,803,771 3.20 153,625
Flint, MI 510,354 3.20 16,321
Rochester, MN 120,080 2.93 3,518
Austin, TX 1,085,641 35.00 379,974
Dallas-Ft. Worth, TX 4,893,547 0.50 24,468
Sherman-Denison, TX 104,843 0.50 524
Madison, WI 731,747 9.78 71,558
Milwaukee, WI 1,982,586 17.96 356,132
- ---------------------------------------------------------------------
15,063,621 1,340,176
- ---------------------------------------------------------------------
Total MSAs 20,228,094 6,177,809
- ---------------------------------------------------------------------
The Other
2000 Company's cellular
population Ownership pops at operator
(Note 1) percentage 12/31/00 (Note 2)
- -----------------------------------------------------------------------------------------------
Operated RSAs
- -------------
Arkansas 2 87,754 82.00 71,958 Cingular
Arkansas 3 103,195 82.00 84,620 Cingular
Arkansas 11 65,468 89.00 58,267 Cingular
Arkansas 12 183,300 80.00 146,640 Cingular
Louisiana 1 111,200 87.00 96,744 AT&T
Louisiana 2 114,514 87.00 99,627 AT&T
Louisiana 3 B2 95,821 87.00 83,364 Centennial
Louisiana 4 73,021 100.00 73,021 Centennial
Michigan 1 196,868 100.00 196,868 American Cellular
Michigan 2 113,791 100.00 113,791 RFB
Michigan 3 169,125 48.63 82,244 Unitel
Michigan 4 137,452 100.00 137,452 RFB
Michigan 5 164,253 48.63 79,875 Unitel
Michigan 6 144,166 98.00 141,283 Centennial
Michigan 7 249,579 56.07 139,940 Centennial
Michigan 8 104,503 97.00 101,368 Allegan Cellular
Michigan 9 303,549 43.38 131,680 Centennial
Mississippi 2 (Note 4) 253,145 100.00 253,145 Cingular
Mississippi 5 (Note 4) 157,526 100.00 157,526 Cingular
Mississippi 6 (Note 4) 182,880 100.00 182,880 Cellular South
Mississippi 7 (Note 4) 180,620 100.00 180,620 MCTA
Texas 7 B6 57,433 89.00 51,115 AT&T
Wisconsin 1 115,077 42.21 48,571 American Cellular
Wisconsin 2 85,070 99.00 84,219 American Cellular
Wisconsin 6 118,257 57.14 67,575 U.S. Cellular
Wisconsin 7 293,085 22.70 66,536 U.S. Cellular
Wisconsin 8 239,375 84.00 201,075 U.S. Cellular
- ---------------------------------------------------------------------
4,100,027 3,132,004
- ---------------------------------------------------------------------
Non-operated RSAs (Note 3)
- ----------------------------
Michigan 10 137,416 26.00 35,728
Minnesota 7 171,133 2.93 5,014
Minnesota 8 65,841 2.93 1,929
Minnesota 9 131,183 2.93 3,844
Minnesota 10 233,392 2.93 6,839
Minnesota 11 207,482 2.93 6,079
Washington 5 61,860 8.47 5,241
Washington 8 137,121 7.36 10,086
Wisconsin 3 143,138 42.86 61,345
Wisconsin 4 122,361 25.00 30,590
Wisconsin 10 130,092 22.50 29,271
- ---------------------------------------------------------------------
1,541,019 195,966
- ---------------------------------------------------------------------
Total RSAs 5,641,046 3,327,970
- ---------------------------------------------------------------------
25,869,140 9,505,779
=====================================================================
Notes:
1. Based on 2000 independent third-party population estimates.
2. Information provided to the best of the Company's knowledge. There is also
at least one PCS competitor in each of the operated MSAs and certain of
the operated RSAs.
3. Markets not operated by the Company.
4. Represents a non-wireline interest. See "Regulation and Competition
- Cellular licensing and regulation."
Other wireless interests - Excluding licenses that it is committed to
sell, the Company owned at December 31, 2000 (i) licenses to provide personal
communications services ("PCS") representing approximately 3.0 million pops
and (ii) 36 local multi-point distribution system ("LMDS") licenses representing
approximately 12.2 million pops. The Company intends to use a portion of its
LMDS licenses in connection with its new competitive local exchange business
described below under "Other Operations." The Company is currently evaluating
its options with respect to the remainder of these licenses, some of which will
lapse if not used by the Company by certain specified dates.
Operations
A substantial number of the cellular systems in MSAs operated by the
Company are owned by limited partnerships in which the Company is a general
partner ("MSA Partnerships"). Most of these partnerships are governed by
partnership agreements with similar terms, including, among other things,
customary provisions concerning capital contributions, sharing of profits and
losses, and dissolution and termination of the partnership. Most of these
partnership agreements vest complete operational control of the partnership with
the general partner. The general partner typically has the power to manage,
supervise and conduct the affairs of the partnership, make all decisions
appropriate in connection with the business purposes of the partnership, and
incur obligations and execute agreements on behalf of the partnership. The
general partner also may make decisions regarding the time and amount of cash
contributions and distributions, and the nature, timing and extent of
construction, without the consent of the other partners. The Company owns more
than 50% of all of the MSA Partnerships.
A substantial number of the cellular systems in RSAs operated by the
Company are also owned by limited or general partnerships in which the Company
is either the general or managing partner (the "RSA Partnerships"). These
partnerships are governed by partnership agreements with varying terms and
provisions. In many of these partnerships, the noncontrolling partners have the
right to vote on major issues such as the annual budget and system design. In a
few of these partnerships, the Company's management position is for a limited
term (similar to a management contract) and the other partners in the
partnership have the right to change managers, with or without cause. The
Company owns less than 50% of some of the RSA Partnerships.
The partnership agreements for both the MSA Partnerships and RSA
Partnerships generally contain provisions granting all partners a right of first
refusal in the event a partner desires to transfer a partnership interest. This
restriction on transfer can under certain circumstances make these partnership
interests more difficult to sell to a third party.
Revenue
The following table reflects the major revenue categories for the
Company's wireless operations as a percentage of wireless operating revenues in
2000, 1999 and 1998. Virtually all of these revenues were derived from cellular
operations.
2000 1999 1998
- --------------------------------------------------------------------------------
Access fees and toll revenues 74.2% 72.2 74.2
Roaming 22.5 25.2 23.6
Equipment sales 3.3 2.6 2.2
- --------------------------------------------------------------------------------
100.0% 100.0 100.0
================================================================================
For further information on these revenue categories, see "-Services,
Customers and System Usage."
Regulation and Competition
As discussed below, the FCC and various state public utility commissions
regulate, among other things, the licensing, construction, operation, safety,
interconnection arrangements, sale and acquisition of cellular telephone
systems.
Competition between providers of wireless communications service in each
market is conducted principally on the basis of price, services and enhancements
offered, the technical quality and coverage of the system, and the quality and
responsiveness of customer service. As discussed below, competition has
intensified in recent years in a substantial number of the Company's markets.
Under applicable law, the Company is required to permit the reselling of its
services. In certain larger markets and in certain market segments, competition
from resellers may be significant. There is also substantial competition for
sales agents. Certain of the Company's competitors have substantially greater
assets and resources than the Company.
Cellular licensing and regulation. The term "MSA" means a Metropolitan
Statistical Area for which the FCC has granted a cellular operating license. The
term "RSA" means a Rural Service Area for which the FCC has granted a cellular
operating license. During the 1980's and early 1990's, the FCC awarded two
10-year licenses to provide cellular service in each MSA and RSA market.
Initially, one license was reserved for companies offering local telephone
service in the market (the wireline carrier) and one license was available for
firms unaffiliated with the local telephone company (the non-wireline carrier).
Since mid-1986, the FCC has permitted telephone companies or their affiliates to
acquire control of non-wireline licenses in markets in which they do not hold
interests in the wireline license. The FCC has issued a decision that grants a
renewal expectancy during the license renewal period to incumbent licensees that
substantially comply with the terms and conditions of their cellular
authorizations and the FCC's regulations. The licenses for the MSA markets
operated by the Company were initially granted between 1984 and 1987, and
licenses for operated RSAs were initially granted between 1989 and 1991. Thus
far, the Company has received 10-year extensions of all of its licenses that
have become subject to renewal since their original grant dates.
The completion of an acquisition involving the transfer of control of a
cellular system requires prior FCC approval and, in certain cases, receipt of
other federal and state regulatory approvals. The acquisition of a minority
interest generally does not require FCC approval. Whenever FCC approval is
required, any interested party may file a petition to dismiss or deny the
application for approval of the proposed transfer.
In recent years, the FCC has also taken steps to (i) require certain
cellular towers and antennas to comply with radio frequency radiation
guidelines, (ii) require cellular carriers to work with public safety or law
enforcement officials to process 911 calls and conduct electronic surveillance,
(iii) enable cellular subscribers to retain, subject to certain limitations,
their existing telephone numbers when they change service providers and (iv)
implement portions of the 1996 Act. These initiatives may increase the cost of
providing cellular service.
In addition to regulation of these and other matters by the FCC, cellular
systems are subject to certain Federal Aviation Administration tower height
regulations concerning the siting and construction of cellular transmitter
towers and antennas.
Cellular operators are also subject to state and local regulation in some
instances. Although the FCC has pre-empted the states from exercising
jurisdiction in the areas of licensing, technical standards and market
structure, certain states require cellular operators to be certified. In
addition, some state authorities regulate certain aspects of a cellular
operator's business, including certain aspects of pricing, the resale of long
distance service to its customers, the technical arrangements and charges for
interconnection with the local wireline network, and the transfer of interests
in cellular systems. The siting and construction of the cellular facilities may
also be subject to state or local zoning, land use and other local regulations,
as well as the increasing possibility of local community opposition to new
towers.
Media and other reports have from time to time suggested that radio
frequency emissions from wireless handsets and base stations can cause various
health problems, and may interefere with electronic medical devices. These
concerns received increased scrutiny in 2000 following (i) the June 2000
announcement that the U.S. Food and Drug Administration had agreed to oversee a
$1 million industry-funded long-term study of handset emissions and had
recommended that users of handsets limit the length of their calls pending
completion of the study and (ii) the July 2000 adoption of a policy by the
leading industry trade group requiring handset manufacturers to disclose
emission levels. No assurance can be given that future research and studies will
not demonstrate a link between the radio frequency emissions of wireless handset
and base stations and health problems. If such a link is demonstrated, the
Company cannot provide assurances that government authorities will not increase
regulation of wireless handsets and base stations or that wireless companies
will not be held liable for cost or damages associated with these concerns.
Moreover, these concerns could materially reduce demand for wireless services,
including those offered by the Company.
A small number of local communities have enacted ordinances restricting or
prohibiting the use of wireless phones while driving motor vehicles, and several
state and local legislative bodies have proposed legislation to adopt similar
laws. In addition, some studies have indicated that using wireless phones while
driving may impair drivers' attention. Laws prohibiting or restricting the use
of wireless phones while driving could reduce subscriber usage. Additionally,
concerns over the use of wireless phones while driving could lead to potential
litigation against wireless carriers.
Developments affecting wireless competition. Competition in the wireless
communications industry has increased substantially in recent years due to
continued and rapid technological advances in the communications field, coupled
with legislative and regulatory changes.
Several FCC initiatives over the past decade have resulted in the
allocation of additional radio spectrum or the issuance of licenses for emerging
mobile communications technologies that are competitive with the Company's
cellular and telephone operations, including PCS. Although there is no
universally recognized definition of PCS, the term is generally used to refer to
wireless services to be provided by licensees operating in the 1850 MHz to 1990
MHz radio frequency band using microcells and high-capacity digital technology.
In 1996 and early 1997 the FCC auctioned up to six PCS licenses per market. Two
30MHz frequency blocks were awarded for each of the 51 Rand McNally Major
Trading Areas ("MTAs"), while one 30MHz and three 10MHz frequency blocks were
awarded for each of the 493 Rand McNally Basic Trading Areas ("BTAs").
Additional future auctions of radio spectrum will further intensify competition.
PCS technology permits PCS operators to offer wireless voice, data, image
and multimedia services. The largest PCS providers commenced initial operations
in late 1996 and since then have aggressively expanded their operations. These
providers have initially focused on larger markets, and have generally marketed
PCS as being a competitive service to cellular. Many of these companies have
aggressively competed for customers on the basis of price, which has placed
downward pressure on cellular prices. There is at least one PCS competitor in
each of the Company's operated MSAs and some of its operated RSAs.
In addition to PCS, current and prospective users of cellular systems may
find their communication needs satisfied by other current and developing
technologies. Several years ago the FCC authorized the licensees of certain
specialized mobile radio service ("SMR") systems (which historically have
generally been used by taxicabs and tow truck operators) to configure their
systems into digital networks that operate in a manner similar to cellular
systems. Such systems are commonly referred to as enhanced specialized mobile
radio service ("ESMR") systems. FCC regulations allow up to two ESMR carriers
per market. The Company believes that ESMR systems are operating in a few of its
cellular markets. One well-established ESMR provider has constructed a
nationwide digital mobile communications system to compete with cellular
systems. Other similar communication services that have the technical capability
to handle wireless telephone calls may provide competition in certain markets,
although these services currently lack the subscriber capacity of cellular
systems. Paging or beeper services that feature text message and data display as
well as tones may be adequate for potential subscribers who do not need to
converse directly with the caller. Mobile satellite systems, in which
transmissions are between mobile units and satellites, may ultimately be
successful in obtaining market share from cellular systems that communicate
directly to land-based stations. Other future technological advances or
regulatory changes (including additional spectrum auctions) may result in other
alternatives to cellular service, thereby creating additional sources of
competition.
Several large wireless carriers have recently taken one or more of the
following steps that could impact the Company's competitive position:
o First, several large wireless carriers have merged with other companies
or formed marketing alliances or joint ventures in order to enhance their
ability to provide nationwide cellular or PCS service under a single brand
name. Although the Company believes that most of the customers in its
smaller markets require only local or regional services, the Company's
wireless operations could be negatively impacted if competitors are
successful in marketing their nationwide services in the Company's
markets.
o Second, several large wireless carriers have taken initial steps to
provide wireless data, short messaging and other enhanced "next
generation" digital wireless services. In connection therewith, several
large domestic carriers that currently use the TDMA standard have either
announced their intention to abandon the TDMA standard or have begun to
overlay their TDMA systems with additional network elements permitting
packet data transmissions. The Company is evaluating whether the
opportunity to derive additional revenues from these enhanced services
justify the capital costs necessary to provide these services. If the
Company elects to continue to use the TDMA standard or to forego
implementation of "next generation" technology or services, there can be
no assurance that the Company will be able to receive support from vendors
or to compete effectively against companies using different technologies
or offering more services.
Although it is uncertain how competing services and emerging "next
generation" technologies will ultimately affect the Company, the Company
anticipates that it will continue to face increased competition in its wireless
markets.
OTHER OPERATIONS
The Company provides long distance, Internet access, competitive local
exchange services, broadband data, security monitoring, cable television and
interactive services in certain local and regional markets, as well as certain
printing and related services. The results of these operations, which accounted
for 8.1% and 6.0%, respectively, of the Company's consolidated revenues and
operating income during 2000, are reflected for financial reporting purposes in
the "Other operations" section.
Long distance. In 1996 the Company began marketing long distance service
in all of its equal access telephone operating areas. At December 31, 2000, the
Company provided long distance services to approximately 363,000 customers.
Approximately 75% of the Company's long distance revenues are derived from
service provided to residential customers. Although the Company owns and
operates a long distance switch in LaCrosse, Wisconsin, it anticipates that most
of its future long distance service revenues will be provided by reselling
service purchased from other facilities-based long distance providers. The
Company intends to continue to expand its long distance business, principally
through reselling arrangements.
Internet access. The Company began offering traditional Internet access
services to its telephone customers in 1995. At December 31, 2000 the Company
provided Internet access services to approximately 108,700 customers in 500
markets in 13 states. These 500 markets represent 64% of the access lines served
by the Company's LECs.
In late 1999, the Company began offering in select markets digital
subscriber line ("DSL") Internet access services, a high-speed premium-priced
data service. At December 31, 2000 the Company provided DSL service to
approximately 6,000 customers in markets that cover approximately 45% of the
access lines served by the Company's LECs (exclusive of those lines acquired in
mid-2000 in the Verizon acquisitions).
Competitive local exchange services. In late 2000, the Company began
offering competitive local exchange telephone services, coupled with long
distance, wireless, Internet access and other Company services, to small to
medium-sized businesses in two Louisiana wireless markets. The Company currently
plans to target a total of ten new markets by year end 2001, and has budgeted
$20 million of capital expenditures for 2001 to enter these markets. The Company
expects to incur an operating loss in 2001 of approximately $15 million in
connection with providing these services.
Broadband data. In connection with its long-range plans to sell capacity
to other carriers in or near certain of its select markets, the Company expects
to complete construction and testing by the second quarter of 2001 of a 650-
to 700-mile fiber optic ring connecting several communities in southern and
central Michigan.
Security monitoring. The Company offers 24-hour burglary and fire
monitoring services to approximately 7,400 customers in select markets in
Louisiana, Arkansas, Mississippi, Texas and Ohio.
Other. The Company also provides audiotext services; printing, database
management and direct mail services; and cable television services. The Company
is also in the process of developing an integrated billing and customer care
system which will enable the Company to offer customers value packaging and
produce a single bill for multiple services such as local telephone, wireless,
Internet access and long distance. From time to time the Company also makes
investments in other domestic or foreign communications companies, the most
significant of which to date is a minority investment in a start-up Internet
service provider in India.
Certain service subsidiaries of the Company provide installation and
maintenance services, materials and supplies, and managerial, technical,
accounting and administrative services to the telephone and wireless operating
subsidiaries. In addition, the Company provides and bills management services to
subsidiaries and in certain instances makes interest-bearing advances to finance
construction of plant, purchases of equipment or acquisitions of other
businesses. These transactions are recorded by the Company's regulated telephone
subsidiaries at their cost to the extent permitted by regulatory authorities.
Intercompany profit on transactions with regulated affiliates is limited to a
reasonable return on investment and has not been eliminated in connection with
consolidating the results of operations of CenturyTel and its subsidiaries. Such
intercompany profit is reflected in operating income in "Other operations".
FORWARD-LOOKING STATEMENTS
This report on Form 10-K and other documents filed by the Company under
the federal securities laws include, and future oral or written statements or
press releases of the Company and its management may include, certain
forward-looking statements, including without limitation statements with respect
to the Company's anticipated future operating and financial performance
(including the impact of pending acquisitions), financial position and
liquidity, growth opportunities and growth rates, business prospects, regulatory
and competitive outlook, investment and expenditure plans, investment results,
financing opportunities and sources (including the impact of financings on the
Company's financial position, financial performance or credit ratings), pricing
plans, strategic alternatives, business strategies, and other similar statements
of expectations or objectives that are highlighted by words such as "expects,"
"anticipates," "intends," "plans," "believes," "projects," "seeks," "estimates,"
"hopes," "should," and "may," and variations thereof and similar expressions.
Such forward-looking statements are inherently speculative and are based upon
several assumptions concerning future events, many of which are outside of the
Company's control. The Company's forward-looking statements, and the assumptions
upon which such statements are based, are subject to uncertainties that could
cause the Company's actual results to differ materially from such statements.
These uncertainties include but are not limited to those set forth below:
o the Company's ability to timely consummate acquisitions and effectively
manage its growth, including without limitation the Company's ability to
(i) integrate newly-acquired operations into the Company's operations,
(ii) attract and retain technological, managerial and other key personnel
to work at the Company's Monroe, Louisiana headquarters or regional
offices, (iii) achieve projected economies of scale and cost savings, (iv)
achieve projected growth and revenue targets developed by management in
valuing newly-acquired businesses, (v) upgrade its billing and other
information systems and (vi) otherwise monitor its operations, costs,
regulatory compliance, and service quality and maintain other necessary
internal controls.
o the risks inherent in rapid technological change, including without
limitation (i) the lack of assurance that the Company's ongoing wireless
network improvements will be sufficient to meet or exceed the capabilities
and quality of competing networks, (ii) technological developments that
could make the Company's analog and digital wireless networks
uncompetitive or obsolete, such as the risk that the TDMA digital
technology used by the Company will be uncompetitive with existing or
future "next generation" technologies, and (iii) the risk that
technologies will not be developed or embraced by the Company on a timely
or cost-effective basis or perform according to expectations.
o the effects of ongoing changes in the regulation of the communications
industry, including without limitation (i) changes as a result of the 1996
Act and other similar federal and state legislation and federal and state
regulations enacted thereunder, (ii) greater than anticipated
interconnection requests or competition in the Company's predominately
rural local exchange telephone markets resulting therefrom, (iii) greater
than anticipated reductions in revenues received from the Universal
Service Fund or other current or future federal and state support funds
designed to compensate LECs that provide services in high-cost markets,
(iv) the final outcome of regulatory and judicial proceedings with respect
to interconnection agreements and access charge reforms, (v) future
judicial or regulatory actions taken in response to the 1996 Act and (vi)
future legislation or regulations addressing potential concerns about
radio frequency emissions from wireless handsets and base stations, or the
potential hazards of using wireless phones while driving motor vehicles.
o the effects of greater than anticipated competition, including (i)
competition from competitive local exchange companies or wireless carriers
in the Company's local exchange markets and (ii) the inability of the
Company's wireless operations to compete against larger nationwide
wireless carriers on the basis of price, service coverage area or product
offerings, or due to other factors, including technological obsolescence
or the lack of marketing or other resources.
o possible changes in the demand for the Company's products and services,
including without limitation (i) lower than anticipated demand for
traditional or premium telephone services or for additional access lines
per household, (ii) lower than anticipated demand for wireless telephone
services, whether caused by changes in economic conditions, technology,
competition, health concerns or otherwise, (iii) lower than anticipated
demand for the Company's DSL Internet access services and (iv) reduced
demand for the Company's access or billing and collection services.
o the Company's ability to successfully introduce new offerings on a timely
and cost-effective basis, including without limitation the Company's
ability to (i) expand successfully its long distance and Internet
offerings to new markets (including those to be acquired in connection
with future acquisitions), (ii) offer bundled service packages on terms
attractive to its customers and (iii) successfully initiate competitive
local exchange and data services in its targeted markets.
o regulatory limits on the Company's ability to change its prices for
telephone services in response to competitive pressures.
o any difficulties in the Company's ability to expand through attractively
priced acquisitions, whether caused by financing constraints, a decrease
in the pool of attractive target companies, or competition for
acquisitions from other interested buyers.
o the possibility of the need to make abrupt and potentially disruptive
changes in the Company's business strategies due to changes in
competition, regulation, technology, product acceptance or other factors.
o higher than anticipated wireless operating costs due to churn or to
fraudulent uses of the Company's networks, or lower than anticipated
wireless revenues due to reduced roaming fees.
o the lack of assurance that the Company can compete effectively against
better-capitalized competitors.
o the future unavailability of SFAS 71 to the Company's telephone
subsidiaries.
o the effects of more general factors, including without limitation:
- changes in general industry and market conditions and growth rates
- changes in interest rates or other general national, regional or
local economic conditions
- changes in legislation, regulation or public policy, including
changes in federal rural financing programs
- unanticipated increases in capital, operating or administrative
costs, or the impact of new business opportunities requiring significant
up-front investments
- the continued availability of financing in amounts, and on terms and
conditions, necessary to support the Company's operations
- changes in the Company's relationships with vendors, or the failure
of these vendors to provide competitive products on a timely basis
- changes in the Company's senior debt ratings
- unfavorable outcomes of regulatory or legal proceedings, including
rate proceedings and environmental proceedings
- losses or unfavorable returns on the Company's investments in other
communications companies
- delays in the construction of the Company's networks
- changes in accounting policies or practices adopted voluntarily or as
required by generally accepted accounting principles.
For additional information, see the description of the Company's business
included above, as well as Item 7 of this report. Due to these uncertainties,
you are cautioned not to place undue reliance upon the Company's forward-looking
statements, which speak only as of the date made. The Company undertakes no
obligation to update or revise any of its forward-looking statements for any
reason.
OTHER MATTERS
The Company has certain obligations based on federal, state and local laws
relating to the protection of the environment. Costs of compliance through 2000
have not been material and the Company currently has no reason to believe that
such costs will become material.
For additional information concerning the business and properties of the
Company, see notes 2, 4, 5, 12, and 18 of Notes to Consolidated Financial
Statements set forth in Item 8 elsewhere herein.
Item 2. Properties.
The Company's properties consist principally of (i) telephone lines,
central office equipment, and land and buildings related to telephone
operations, and (ii) switching and cell site equipment related to cellular
telephone operations. As of December 31, 2000 and 1999, the Company's gross
property, plant and equipment of approximately $5.9 billion and $4.2 billion,
respectively, consisted of the following:
December 31,
- --------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------
Telephone operations
Cable and wire 47.7% 45.4
Central office equipment 28.0 27.4
General support 5.5 5.9
Information origination/termination equipment .9 1.4
Construction in progress 2.3 1.9
Other .1 .2
- --------------------------------------------------------------------------------
84.5 82.2
- --------------------------------------------------------------------------------
Wireless operations
Cell sites 6.2 8.4
General support 1.8 2.3
Construction in progress .9 .4
Other - .1
- --------------------------------------------------------------------------------
8.9 11.2
- --------------------------------------------------------------------------------
Other 6.6 6.6
- --------------------------------------------------------------------------------
100.0% 100.0
================================================================================
"Cable and wire" facilities consist primarily of buried cable and aerial
cable, poles, wire, conduit and drops. "Central office equipment" consists
primarily of switching equipment, circuit equipment and related facilities.
"General support" consists primarily of land, buildings, tools, furnishings,
fixtures, motor vehicles and work equipment. "Information
origination/termination equipment" consists primarily of premise equipment
(private branch exchanges and telephones) for official company use. "Cell sites"
consist primarily of radio frequency channel equipment, switching equipment and
towers. "Construction in progress" includes property of the foregoing categories
that has not been placed in service because it is still under construction.
Most of the properties of the Company's telephone subsidiaries are subject
to mortgages securing the debt of such companies. The Company owns substantially
all of the central office buildings, local administrative buildings, warehouses,
and storage facilities used in its telephone operations. The Company leases most
of the offices used in its wireless operations; certain of its transmitter sites
are leased while others are owned by the Company. For further information on the
location and type of the Company's properties, see the descriptions of the
Company's telephone and wireless operations in Item 1.
Item 3. Legal Proceedings.
From time to time, the Company is involved in litigation incidental to its
business, including administrative hearings of state public utility commissions
relating primarily to rate making, actions relating to employee claims,
occasional grievance hearings before labor regulatory agencies and miscellaneous
third party tort actions. Currently, there are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Executive Officers of the Registrant
Information concerning Executive Officers, set forth at Item 10 in Part
III hereof, is incorporated in Part I of this Report by reference.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
CenturyTel's common stock is listed on the New York Stock Exchange and is
traded under the symbol CTL. The following table sets forth the high and low
sale prices, along with the quarterly dividends, for each of the quarters
indicated:
Sale prices
---------------------- Dividend per
High Low common share
---- --- ------------
2000:
First quarter $ 47.31 32.31 .0475
Second quarter $ 40.38 24.44 .0475
Third quarter $ 32.38 25.25 .0475
Fourth quarter $ 38.50 26.81 .0475
1999:
First quarter $ 49.00 40.06 .0450
Second quarter $ 47.63 35.13 .0450
Third quarter $ 43.88 38.25 .0450
Fourth quarter $ 48.75 37.56 .0450
Common stock dividends during 2000 and 1999 were paid each quarter. As of
February 28, 2001, there were approximately 5,550 stockholders of record of
CenturyTel's common stock.
Item 6. Selected Financial Data.
The following table presents certain selected consolidated financial data
as of and for each of the years ended in the five-year period ended December 31,
2000:
Selected Income Statement Data
Year ended December 31,
------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------
(Dollars, except per share amounts, and shares expressed in thousands)
Operating revenues
Telephone $ 1,253,969 1,126,112 1,077,343 526,428 450,082
Wireless 443,569 422,269 407,827 307,742 250,243
Other 148,388 128,288 91,915 67,351 49,352
------------------------------------------------------------------
Total operating revenues $ 1,845,926 1,676,669 1,577,085 901,521 749,677
==================================================================
Operating income (loss)
Telephone $ 376,290 351,559 334,604 177,782 156,565
Wireless 117,865 133,930 129,124 87,772 67,914
Other 31,258 22,580 16,083 2,216 (1,183)
-------------------------------------------------------------------
Total operating income $ 525,413 508,069 479,811 267,770 223,296
===================================================================
Gain on sale or exchange
of assets, net (pre-tax) $ 20,593 62,808 49,859 169,640 815
==================================================================
Net income $ 231,474 239,769 228,757 255,978 129,077
==================================================================
Basic earnings per share $ 1.65 1.72 1.67 1.89 .96
==================================================================
Diluted earnings per share $ 1.63 1.70 1.64 1.87 .95
==================================================================
Dividends per common share $ .190 .180 .173 .164 .160
==================================================================
Average basic shares outstanding 140,069 138,848 137,010 134,984 133,400
==================================================================
Average diluted shares
outstanding 141,864 141,432 140,105 137,412 135,980
==================================================================
Selected Balance Sheet Data
December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
(Dollars in thousands)
Net property, plant and
equipment $ 2,959,293 2,256,458 2,351,453 2,258,563 1,149,012
Excess cost of net assets
acquired, net $ 2,509,033 1,644,884 1,956,701 1,767,352 532,410
Total assets $ 6,393,290 4,705,407 4,935,455 4,709,401 2,028,505
Long-term debt $ 3,050,292 2,078,311 2,558,000 2,609,541 625,930
Stockholders' equity $ 2,032,079 1,847,992 1,531,482 1,300,272 1,028,153
-------------------------------------------------------------------------
The following table presents certain selected consolidated operating data
as of the end of each of the years in the five-year period ended December 31,
2000:
Year ended December 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------------------------------------------------------------
Telephone access lines 1,800,565 1,272,867 1,346,567 1,203,650 503,562
Wireless units in service in majority-
owned markets 751,200 707,486 624,290 569,983 368,233
Long distance customers 363,307 303,722 226,730 171,962 110,560
------------------------------------------------------------------------
See Items 1 and 2 in Part I, Item 7 in Part II and notes 1, 2 and 5 of
Notes to Consolidated Financial Statements set forth in Item 8 elsewhere herein
for additional information.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Overview
CenturyTel, Inc. and its subsidiaries (the "Company") is a regional
integrated communications company engaged primarily in providing local exchange,
wireless, long distance, Internet access and data services to customers in 21
states.
On July 31, 2000 and September 29, 2000, affiliates of the Company acquired
over 490,000 telephone access lines and related local exchange assets in
Arkansas, Missouri and Wisconsin from affiliates of Verizon Communications, Inc.
("Verizon") for an aggregate of approximately $1.5 billion cash. On December 1,
1998, the Company acquired from affiliates of Ameritech Corporation
("Ameritech") telephone and directory operations serving approximately 86,000
access lines in northern and central Wisconsin for approximately $221 million
cash. The operations of these acquired properties are included in the Company's
results of operations beginning on the respective dates of acquisition. See
Acquisitions and Note 2 of Notes to Consolidated Financial Statements for
additional information.
On May 14, 1999, the Company sold substantially all of its Alaska-based
operations serving approximately 134,900 telephone access lines and 3,000
cellular subscribers. On June 1, 1999, the Company sold the assets of its
Brownsville and McAllen, Texas cellular operations serving approximately 7,500
cellular subscribers. In February 2000, the Company sold the assets of its
remaining Alaska cellular operations serving approximately 10,600 cellular
subscribers. The operations of these disposed properties are included in the
Company's results of operations up to the respective dates of disposition.
During the three years ended December 31, 2000, the Company has acquired
and sold various other operations, the impact of which has not been material to
the financial position or results of operations of the Company.
The net income of the Company for 2000 was $231.5 million, compared to
$239.8 million during 1999 and $228.8 million during 1998. Diluted earnings per
share for 2000 were $1.63 compared to $1.70 in 1999 and $1.64 in 1998.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars, except per share amounts,
and shares in thousands)
Operating income
Telephone $ 376,290 351,559 334,604
Wireless 117,865 133,930 129,124
Other 31,258 22,580 16,083
- --------------------------------------------------------------------------------
525,413 508,069 479,811
Gain on sale or exchange
of assets, net 20,593 62,808 49,859
Interest expense (183,302) (150,557) (167,552)
Income from unconsolidated
cellular entities 26,986 27,675 32,869
Minority interest (10,201) (27,913) (12,797)
Other income and expense 6,696 9,190 5,268
Income tax expense (154,711) (189,503) (158,701)
- --------------------------------------------------------------------------------
Net income $ 231,474 239,769 228,757
================================================================================
Basic earnings per share $ 1.65 1.72 1.67
================================================================================
Diluted earnings per share $ 1.63 1.70 1.64
================================================================================
Average basic shares outstanding 140,069 138,848 137,010
================================================================================
Average diluted shares outstanding 141,864 141,432 140,105
================================================================================
Contributions to operating revenues and operating income by the Company's
telephone, wireless and other operations for each of the years in the three-year
period ended December 31, 2000 were as follows:
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
Operating revenues
Telephone operations 67.9% 67.2 68.3
Wireless operations 24.0% 25.2 25.9
Other operations 8.1% 7.6 5.8
Operating income
Telephone operations 71.6% 69.2 69.7
Wireless operations 22.4% 26.4 26.9
Other operations 6.0% 4.4 3.4
- --------------------------------------------------------------------------------
In addition to historical information, management's discussion and analysis
includes certain forward-looking statements regarding events and financial
trends that may affect the Company's future operating results and financial
position. Such forward-looking statements are subject to uncertainties that
could cause the Company's actual results to differ materially from such
statements. Such uncertainties include but are not limited to: the Company's
ability to effectively manage its growth, including integrating newly-acquired
businesses into the Company's operations, hiring adequate numbers of qualified
staff and successfully upgrading its billing and other information systems; the
risks inherent in rapid technological change; the effects of ongoing changes in
the regulation of the telecommunications industry; the effects of greater than
anticipated competition in the Company's markets; possible changes in the demand
for, or pricing of, the Company's products and services; the Company's ability
to successfully introduce new product or service offerings on a timely and
cost-effective basis; and the effects of more general factors such as changes in
general market or economic conditions or in legislation, regulation or public
policy. These and other uncertainties related to the business are described in
greater detail in Item 1 to the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. You are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. The Company undertakes no obligation to update any of its
forward-looking statements for any reason.
TELEPHONE OPERATIONS
The Company conducts its telephone operations in rural, suburban and small
urban communities in 21 states. As of December 31, 2000, approximately 87% of
the Company's 1.8 million access lines were in Wisconsin, Arkansas, Washington,
Missouri, Michigan, Louisiana, Colorado, Ohio, and Oregon. The operating
revenues, expenses and income of the Company's telephone operations for 2000,
1999 and 1998 are summarized below.
Year ended December 31, 2000 1999 1998
- --------------------------------------------------------------------------------
(Dollars in thousands)
Operating revenues
Local service $ 408,538 353,534 331,736
Network access 727,797 654,003 629,583
Other 117,634 118,575 116,024
- --------------------------------------------------------------------------------
1,253,969 1,126,112 1,077,343
- --------------------------------------------------------------------------------
Operating expenses
Plant operations 290,062 251,704 233,896
Customer operations 105,950 88,552 90,331
Corporate and other 163,761 160,631 157,142
Depreciation and amortization 317,906 273,666 261,370
- ------------------------