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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, 1993
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-7784
CENTURY TELEPHONE ENTERPRISES, INC.
A Louisiana Corporation I.R.S. Employer Identification
No. 72-0651161
100 Century Park Drive, Monroe, Louisiana 71203
Telephone number (318) 388-9500
Securities registered pursuant to Section 12(b) of the Act:Common
Stock, par value $1.00
Exchange on which registered:New York 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. [ ]
As of February 28, 1994, the aggregate market value of voting stock
held by non-affiliates (affiliates being for this purpose only
directors and executive officers) was approximately $1,378,192,000.
As of February 28, 1994, there were 53,230,538 shares of common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement prepared in connection with the
1994 annual meeting of shareholders are incorporated in Part III of
this Report.
Appendix I of the Prospectus forming a part of Registration
Statement No. 33-50791 filed January 12, 1994 pursuant to Rule
424(b)(5) is incorporated in Part IV of this Report.
PART I
Item 1. Business.
Century Telephone Enterprises, Inc. ("Century") is a regional
diversified telecommuni-cations company that is primarily engaged
in providing traditional telephone services and mobile
communications services. For the year ended December 31, 1993,
telephone operations and mobile communications operations provided
80% and 20%, respectively, of the consolidated revenues of Century
and its subsidiaries (the "Company"). All of the Company's
operations are conducted within the continental United States.
At December 31, 1993 the Company's telephone subsidiaries
operated over 434,000 telephone access lines, primarily in rural,
suburban and small urban areas in 14 states, with the largest
customer bases located in Wisconsin, Louisiana, Michigan, Ohio and
Arkansas. Based on the number of access lines served, the Company
is the fifteenth largest local exchange telephone company in the
United States.
Whenever used herein with respect to the Company, (i) the term
"pops" means the population of licensed cellular telephone markets
(based on 1993 population estimates of Donnelly Marketing
Information Services) multiplied by the Company's proportionate
equity interests in the licensed operators thereof, (ii) the term
"MSA" means any Metropolitan Statistical Area for which the
Federal Communications Commission (the "FCC") has granted a
cellular operating license and (iii) the term "RSA" means any
Rural Service Area for which the FCC has granted a cellular
operating license.
Through its cellular operations, including those operations
acquired in February 1994, the Company controls approximately 7.1
million pops in 27 MSAs, primarily concentrated in Michigan,
Louisiana, Mississippi and Texas, and 32 RSAs, most of which are
in Michigan, Louisiana, Arkansas and Wisconsin. The Company is
the majority owner and operator in 18 of the MSAs and 13 of the
RSAs, which collectively represent 5.5 million pops, and has
minority interests in nine other MSAs and 19 other RSAs, which
collectively represent 1.6 million pops. Of the Company's 7.1
million pops, approximately 73% are attributable to the Company's
MSA interests, with the balance attributable to its RSA interests.
Based on the population of the Company's majority-owned and
operated MSAs and RSAs, the Company is the fifteenth largest
operator of cellular telephone systems in the United States. At
December 31, 1993, the Company's majority-owned cellular systems
had more than 116,000 cellular subscribers, not
1
including approximately 28,000 subscribers acquired by the Company
in connection with its February 1994 acquisition of Celutel, Inc.
described further below. The Company also provides paging
services to customers residing in Louisiana and Michigan in
conjunction with the operation of its cellular systems.
The FCC has awarded only two licenses to provide cellular
service in each market. During its licensing process, the FCC
reserved one license for companies offering local telephone
service in the market (the wireline carrier) and one license for
entities unaffiliated with the local telephone company (the non-
wireline carrier). Each of the MSAs that the Company operated as
of December 31, 1993 and all but one of the RSAs operated by the
Company are wireline markets.
In April 1993 the Company acquired San Marcos Telephone
Company, Inc. ("SMTC") and SM Telecorp, Inc., an affiliate of
SMTC. As a result of these acquisitions, the Company acquired
approximately 22,500 telephone access lines in and around San
Marcos, Texas, along with a 35% ownership interest in the Austin,
Texas MSA wireline cellular market and a 9.6% interest in the
Texas RSA #16 wireline cellular market, together representing
approximately 327,000 pops.
In September 1993 the Company signed a definitive merger
agreement to acquire a local exchange telephone company in
Michigan which serves approximately 2,400 access lines and owns
approximately 11% (representing approximately 33,000 pops) of a
Michigan cellular partnership which holds the wireline licenses
for two RSA cellular markets operated by the Company. This
transaction is expected to be completed in March 1994.
In February 1994 the Company acquired Celutel, Inc.
("Celutel"), which provides cellular mobile telephone services to
approximately 28,000 customers in three MSA non-wireline cellular
markets in Mississippi and two MSA non-wireline cellular markets
in Texas which have a combined population of 1.4 million.
Celutel's share of the pops is approximately 1.1 million.
The Company is continually evaluating the possibility of
acquiring additional telephone access lines and cellular interests
in exchange for either cash, securities or both. Although the
Company's primary focus will continue to be on acquiring telephone
and cellular 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.
2
Partially as a result of 1993 acquisitions, the Company also
provides long distance, operator and interactive services in
certain local and regional markets, as well as certain printing
and related services. The results of these operations, which are
not material individually or in the aggregate, are recorded for
financial reporting purposes as other income, net.
Century 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. Century's principal executive
offices are located at 100 Century Park Drive, Monroe, Louisiana
71203 and its telephone number is (318) 388-9500. As of December
31, 1993, the Company employed approximately 2,800 persons, of
which approximately 200 were covered by a collective bargaining
agreement.
TELEPHONE OPERATIONS
The Company is the fifteenth largest local exchange telephone
company in the United States, based on the more than 434,000
access lines it served at December 31, 1993. An access line is a
single or multi-party circuit between a customer's business or
residence and a central switching office. Through its operating
telephone subsidiaries, Century provides services to predominately
rural, suburban and small urban markets in 14 states, with
Wisconsin, Louisiana, Michigan, Ohio and Arkansas accounting for
the greatest share of access lines served.
Future growth in telephone operations is expected to be
derived from (i) acquiring additional telephone companies, (ii)
providing service to new customers, (iii) upgrading existing
customers to higher grades of service, (iv) increasing network
usage and (v) providing additional services made possible by
advances in technology. For information on developing competitive
trends, see "-Regulation and Competition."
The replacement of mechanical switches with digital switches
is an important component of the Company's growth strategy because
it allows the Company to offer new services (such as call
forwarding, conference calling, caller identification, selective
call ringing and call waiting) and to thereby increase utilization
of existing access lines. In 1993 the Company expanded its list
of premium services offered in certain service areas and plans to
aggressively market these services in 1994. In addition, with
digital switching the Company has been able to construct central
electronic monitoring facilities that allow employees to detect
operating malfunctions in digital switches and, in many cases, to
correct the malfunctions without a site visit by the Company's
personnel, thereby reducing maintenance costs. Progress toward
increased digital switching of
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the Company's telephone systems is demonstrated by the change in
the number of digitally switched lines as a percentage of total
lines, which increased from 19% in 1982 to 93% in 1993.
In addition, the Company is installing fiber optic cable in
certain areas in which it operates and has provided alternative
routing of telephone service over fiber optic cable networks in
two of its larger operating areas.
Services
The Company's telephone subsidiaries derive revenue from
providing (i) local telephone services, (ii) network access and
long distance services and (iii) other related services. The
following table reflects the percentage of total telephone
revenues derived from these respective services:
1993 1992 1991
_________________________
Local service 25.4% 26.3 24.9
Network access and long distance 62.3 61.4 61.6
Other 12.3 12.3 13.5
_________________________
100.0% 100.0 100.0
=========================
Local service revenues are generated by the provision of local
exchange telephone services in the Company's franchised service
areas.
Network access and long distance revenues primarily relate to
services provided to interexchange carriers (long distance
carriers) in connection with the origination and termination of
long distance telephone calls. Substantially all of the Company's
interstate network access revenues are derived through pooling
arrangements administered by the National Exchange Carrier
Association ("NECA"). NECA receives access charges billed by the
Company and other participating local exchange carriers ("LECs")
to interstate long distance carriers for their use of the
participating LECs' local exchange networks to complete long
distance calls and subsequently distributes these revenues to such
LECs based on cost separations studies or average schedule
settlement agreements. The charges billed to the long distance
carriers are based on tariffed access rates filed with the FCC by
NECA on behalf of the Company and other participating LECs.
Interstate revenues as a percentage of total telephone revenues
amounted to 32.1%, 31.4% and 31.0% in 1993, 1992 and 1991,
respectively.
4
Certain of the Company's intrastate network access revenues
are derived through access charges billed by the Company directly
to intrastate long distance carriers. Such intrastate network
access charges are based on access tariffs which are subject to
state regulatory commission approval. Additionally, certain of
the Company's telephone subsidiaries' intrastate network access
revenues, along with intrastate long distance revenues, are
derived through state pooling arrangements and are determined
based on cost separation studies or special settlement
arrangements. The various intrastate access charges and state
pooling arrangements are intended to compensate LECs for the use
of their facilities furnished in originating and terminating
intrastate long distance telephone calls.
Other revenues include revenues related to non-regulated
telecommunications equipment and services, billing and collection
services for interexchange carriers, network facilities leases and
directory 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 Electrification Administration
("REA"), the Rural Telephone Bank ("RTB") and the Federal
Financing Bank ("FFB"). The REA has made long-term loans to
telephone companies since 1949 for the purpose of improving
telephone service in rural areas. The REA continues to make new
loans at interest rates that range from 5% to 7% based on borrower
qualifications and the cost of money to the United States
government. The RTB, established in 1971, makes long-term loans
at an interest rate based on its average cost of funds as
determined by statutory formula (6.35% for the fiscal year ended
September 30, 1993), and in some cases makes loans concurrently
with REA loans. In addition, the REA guarantees certain loans
made to telephone companies by the FFB or other qualified lenders.
A significant portion of the Company's telephone plant is pledged
or is subject to mortgages to secure obligations of the Company's
telephone subsidiaries to the REA, RTB and FFB. The amount of
common stock dividends that may be paid by the Company's
telephone subsidiaries is limited by certain financial
requirements set forth in the mortgages.
Certain of the Company's telephone subsidiaries have made
applications for additional loans from the REA and RTB and intend
to make further applications as needs arise. There is no
assurance that these applications will be accepted or that the
terms or interest rates of any future
5
loan commitments will remain favorable. Federal budget proposals
which could significantly reduce the availability of new loan
commitments to the Company's telephone subsidiaries under the REA
and RTB programs in future fiscal years were considered in recent
years and are expected to continue to be considered. If the
Company's telephone subsidiaries are unable to borrow additional
funds through the REA and RTB programs and are forced to borrow from
conventional lenders at market rates, the Company's cost of new loans
might increase.
For additional information regarding the Company's financings,
see the Company's consolidated financial statements included in
Item 8 herein.
Regulation and Competition
Traditionally, LECs have operated as regulated monopolies.
Consequently, the majority of the Company's telephone operations
are regulated by various state regulatory agencies (generally
called public service commissions or public utility commissions)
and by the FCC. Although it is anticipated that regulation will
continue for some time, the form or degree of such regulation is
unknown. As discussed in greater detail below under "-
Developments Affecting Competition," in recent years various
aspects of federal and state regulation have been subject to
reexamination and ongoing modification. As further indicated
below, it is expected that regulation will decrease and
competition will increase in the traditionally monopolistic
portions of the industry.
Regulation of Rates and Related Matters. The FCC regulates
the interstate services provided by the Company's telephone
subsidiaries. This regulation primarily consists of the
regulation of interstate access charges that are billed to
interexchange carriers by the Company for use of its local network
in connection with the origination and termination of interstate
telephone calls. Additionally, the FCC prescribes rules and
regulations for telephone companies, including a uniform system of
accounts and rules regarding the separation of costs between
jurisdictions and, ultimately, between services.
Effective January 1, 1991 the FCC adopted price-cap regulation
relating to interstate access rates for the regional Bell
operating companies and GTE. An annual opportunity to elect
price-cap regulation is available for other LECs. Under price-
cap regulation, limits imposed on a company's interstate rates
will be adjusted periodically to reflect inflation, productivity
improvement and changes in certain non-controllable costs. This
alternative form of regulation took effect for AT&T's interstate
rates on July 1, 1989. In May 1993 the FCC adopted an optional
incentive regulatory plan for LECs not subject to price-cap
regulation. A LEC electing
6
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 incentive regulatory plan, but will continue to
reevaluate its options on a periodic basis. Consequently, the
Company's telephone subsidiaries' authorized interstate access
rate of return is 11.25%, which is the rate established by the FCC
for LECs not governed by price-cap regulation or the optional
incentive regulatory plan.
The local service rates and intrastate access charges of
substantially all of the Company's telephone subsidiaries are
regulated by state public service commissions. Most of these
commissions also (i) regulate the sale and acquisition of LECs,
(ii) prescribe depreciation rates and certain accounting
procedures and (iii) regulate various other matters, including
certain service standards and operating procedures. In certain
states, construction and/or financing plans are also subject to
regulatory approval.
In recent years, Ohio, Michigan, Wisconsin and a limited
number of other state legislatures and regulatory commissions have
begun to relax the regulation of LECs, including rates and
earnings. Other states have announced their intention to study
these issues and it is expected that several such states,
including states in which the Company operates, may also relax
their regulation of LECs. This relaxed regulatory oversight of
certain of the Company's telephone operations may permit the
Company to offer new and competitive services faster than under
the traditional regulatory process. Coincident with these efforts
is the introduction of competition into traditionally monopolistic
segments of the industry. For a more detailed discussion of these
developments, see "-Developments Affecting Competition".
Substantially all of the state commissions that have
regulatory jurisdiction over the Company's telephone operations
have statutory authority to initiate and conduct earnings reviews
of the LECs that they regulate. The specific limits of their
authority vary depending upon the state and their particular
statutory authority with respect to rate of return regulation and
authorized returns. As indicated above, several states are moving
away from traditional rate of return regulation, which reduces
both the incentive and authority that the respective regulatory
commissions have with respect to earnings reviews. Century does
not currently have any operating telephone company subject to a
formal earnings investigation. However, all independent LECs in
Louisiana have been the subject of an informal earnings review by
the Louisiana Public Service Commission during 1993. There is no
assurance that this informal review (or any other future review in
Louisiana or any other state) will not lead to future revenue
reductions. Moreover, in light of the movement away from
traditional rate of return regulation,
7
no assurance can be given that the Company's telephone
subsidiaries will continue to earn the same rate of return
that they achieved in 1993.
Most of the Company's telephone subsidiaries concur with the
common line and traffic sensitive tariffs filed by NECA and
participate in the access revenue pools administered by NECA for
interstate services. All of the Company's telephone subsidiaries'
long distance and intrastate network access revenues are based on
access charges, cost separation studies or special settlement
arrangements. See "-Services."
Recently, the FCC and certain state public utility commissions
have explored or implemented initiatives to reduce the funding of
certain support mechanisms that have traditionally benefited LECs
serving small communities and rural areas. In 1993 the eight-year
phase-in of the FCC's mandated Universal Service Fund ("USF") was
completed. In December 1993 the FCC adopted a provision which
places certain limitations, including a cap, on the USF growth
rate during 1994 and 1995. The Company anticipates that,
subsequent to 1993, revenues from the USF will continue to
increase in the near term, but at a lesser percentage rate than
that associated with recent prior periods. The FCC has announced
that it intends to comprehensively study the USF during 1994 and
1995 to determine if permanent rule changes should be effected.
In addition, the Public Service Commission of Wisconsin ("PSCW")
has ordered the existing Wisconsin state support fund to be
phased-out over one and one-half years beginning July 1, 1993.
Certain of the Company's subsidiaries affected by the order have
filed requests with the PSCW to receive increased rates and/or
compensation which could potentially offset some or all of the
amounts that those subsidiaries have been receiving from such
support fund. All such additional revenue must be justified based
on each subsidiary's financial need as demonstrated by an
expedited rate case.
Certain long distance carriers have requested the Company to
reduce intrastate access tariffed rates for certain of its
telephone subsidiaries. Although intrastate access tariffed rates
are subject to state regulatory commission approval, there is no
assurance that final resolution of these requests will not result
in reduced intrastate access revenues.
Developments Affecting Competition. Primarily as a result of
regulatory and technological changes, competition has been
introduced and encouraged in certain sectors of the telephone
industry, including interstate and intrastate toll, special access
services and customer premise equipment. In 1992 the FCC took a
step toward introducing competition in the local exchange access
business by ordering that competitive access providers,
interexchange carriers and others
8
have the right to directly interconnect facilities to the central
offices of certain larger (Tier One) telephone companies for the
provision of interstate special transport access services. The
intent of this order and other related FCC decisions
is to allow interstate special access competition with
telephone companies and provide telephone companies with
limited pricing flexibility. In a related proceeding the
FCC also issued proposals to expand competitive interconnection
to LECs' switched access services in the future.
Principally as a result of these and other regulatory actions,
competition from competitive access providers and others has
increased and is expected to continue to increase. Certain states
are considering steps that would further introduce competition
into the LEC business. Moreover, certain well-established
interexchange carriers have publicly announced their desire to
enter the LEC business. Although local exchange competition and
competitive access are expected to initially affect large urban
areas to a greater extent than rural, suburban and small urban
areas such as those in which the Company's telephone operations
are located, there is no assurance that these developments will
not have an adverse effect on the Company in the future.
Certain providers and users of toll service may seek to bypass
LECs' switching services and local distribution facilities,
particularly if services are not strategically priced. There are
three primary ways which users of toll service may bypass the
Company's switching services. First, users may construct and
operate or lease facilities to transmit their traffic to an
interexchange carrier. Second, certain interexchange carriers
provide services which allow users to divert their traffic from
LECs' usage-sensitive services to their flat-rate services.
Third, users may choose to use mobile communications services to
bypass LECs' switching services. Within the past two years, each
of the three largest interexchange carriers in the United States
has acquired, or has entered into preliminary or definitive
agreements to acquire interests in mobile communications
companies, presumably in part to obtain bypass capabilities.
Although certain of the Company's telephone subsidiaries have
experienced a loss of traffic to such bypass, the impact of such
loss on revenues has not been significant. The Company and the
exchange carrier industry are seeking to address bypass by
adopting flexible pricing of access and toll services where
appropriate, although no assurance can be given as to the ultimate
outcome of these efforts.
As the mobile communications industry matures, the Company
anticipates that existing and emerging mobile communications
technologies will increasingly compete with traditional LEC
services. Technological and regulatory developments in cellular
telephone, personal communications services, digital microwave,
coaxial cable, fiber optics and other wired and wireless
technologies are expected to further permit the development of
alternatives to traditional
9
landline services . For further information on these
developments, see "Mobile Communications Operations - Regulation
and Competition."
In connection with the well-publicized convergence of
telecommunications, cable, video, computer and other technologies,
several large companies have recently announced plans to offer
products that would significantly enhance current communications
and data transmission services and, in some instances, introduce
new two-way video, entertainment, data, consumer and other
multimedia services. In particular, several large cable
television companies have announced plans that, if successfully
implemented, could provide significant competition with LECs'
traditional services. Other companies with wireline experience
(including electric utilities) are expected to explore
opportunities in this market, along with wireless companies and
other emerging technology companies. Although the development of
new multimedia services is expected to initially have a greater
effect on larger urban areas, no assurance can be given as to how
the offering of these products or services by others will affect
the Company. For information on the effects of these developments
on the Company's cellular operations, see "Mobile Communications
Operations - Regulation and Competition."
Several bills have been filed in the U. S. Congress that have
the potential to significantly alter the telecommunications
industry and its regulatory framework. Several of these bills are
designed to promote local telephone competition and obligate LECs
to provide competitors with universal access to their networks and
facilities. Several others are designed to remove barriers of
entry to several lines of telecommunications businesses, including
current barriers that prohibit the regional Bell operating
companies and others from providing interstate and intrastate
services and that prohibit LECs from providing cable television
services. In addition, the Clinton administration and Congress
have proposed legislative and regulatory initiatives to promote
wireless technologies as part of the development of a national
information infrastructure. Although it is currently impossible
to assess the ultimate effect of these initiatives, there can be
no assurances that those bills, or others that may follow, will
not materially affect the Company's telephone or cellular
operations.
The Company anticipates that the traditional operations of
LECs will increasingly be affected by continued technological
developments and continued legislative and regulatory initiatives
affecting the ability of LECs to provide new services and the
ability of cable companies, interexchange carriers, competitive
access providers and others to provide competitive LEC services.
The Company intends to actively monitor these developments, to
observe the effect of emerging competitive trends in initial test
markets (which are expected to be large urban
10
areas) and to continue to evaluate new business opportunities that
may arise out of future technological, legislative and regulatory
developments.
MOBILE COMMUNICATIONS OPERATIONS
The Company is the fifteenth largest operator of cellular
telephone systems in the United States, based on the population of
the Company's majority-owned and operated MSAs and RSAs. The
number of pops owned by a cellular operator does not represent the
number of users of cellular service and is not necessarily
indicative of the number of potential subscribers. Rather, this
term is frequently used as a basis for comparing the size of
cellular system operators. At December 31, 1993, the Company's
pops exceeded 5.9 million. Over 1.1 million additional pops were
acquired in the February 1994 acquisition of Celutel. Of the
approximately 7.1 million pops controlled by the Company,
approximately 5.2 million (73%) are applicable to MSAs and
approximately 1.9 million (27%) are RSA pops.
Cellular Industry
The cellular telephone industry has been in existence for just
over ten years in the United States. Although the industry is
relatively new, it has grown significantly during this period.
According to the Cellular Telecommunications Industry Association,
at December 31, 1993 there were estimated to be approximately 16
million cellular customers across the United States. Cellular
service is now available to substantially all areas of the United
States.
Cellular mobile telephone technology was developed in response
to certain limitations of conventional mobile telephone systems.
Compared to such conventional systems, cellular mobile telephone
service is capable of high-quality, high-capacity communications
to and from vehicle-mounted and hand-held radio telephones. While
conventional mobile systems limit the number of people who can
utilize the service simultaneously, cellular systems, if properly
designed and equipped, are capable of handling thousands of calls
at any given time and are capable of providing service to tens of
thousands of subscribers in a market.
In a cellular telephone system, the licensed service area is
subdivided into geographic areas or cells. Each cell has its own
transmitter and receiver that communicates by radio signal with
cellular telephones located within the cell. Each cell is
connected by a telephone circuit or microwave to a Mobile
Switching Center ("MSC"), which in turn is connected to the
worldwide telephone network.
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Communications within a cellular system are controlled by the
MSC through a transfer process as a cellular telephone user moves
from one cell to another. In this process, when the signal
strength of a call declines to a predetermined level, the MSC
determines if the signal strength from an adjacent cell is greater
and, if so, transfers the call to the adjacent cell. Software
which facilitates the transfer between adjacent cells of different
cellular systems using equipment of different manufacturers has
been implemented by the Company in certain markets.
Cellular telephone systems have higher subscriber capacity
than conventional mobile telephone systems because of the
substantial frequency spectrum allocated to these systems by the
FCC and because frequencies can be reused throughout the system.
Frequency reuse is possible because the transmission power of cell
site equipment and mobile units is relatively low. Therefore,
signals on the same channel will not interfere with each other if
they are transmitted in cells that are sufficiently far apart.
Reuse multiplies the capacity of channels available to the system
operator and thereby increases the telephone calling capacity.
Until recently, substantially all of the radio transmissions
of cellular systems were conducted on an analog basis.
Technological developments involving the application of digital
radio technology may offer certain advantages over analog
technologies, including expanding the capacity of mobile
communications systems, improving voice transmission quality,
permitting the introduction of new services, and otherwise making
such systems more efficient, more accessible, more private and
eventually less expensive. Providers of certain competitive
services are currently incorporating digital technology into their
operations, and may be expected to continue to do so in the
future. See "-Regulation and Competition-Developments Affecting
Competition."
In recent years certain cellular carriers have begun to
install digital cellular voice transmission facilities in certain
larger markets. During 1993 the Company upgraded certain portions
of its cellular systems in Louisiana and Michigan to be capable of
providing digital service in the future. The Company will
continue to monitor the development and implementation of this
technology to determine when it will become beneficial for the
Company to install digital cellular voice transmission facilities.
See "-Regulation and Competition-Developments Affecting
Competition."
12
Strategy
The Company's business development strategy for its cellular
telephone operations is to secure operating control of service
areas that are geographically clustered. Clustered cellular
systems aid the Company's marketing efforts and provide various
operating and service advantages. After giving effect to those
operations acquired in February 1994, 51% of the Company's pops in
markets operated by the Company were in a single, contiguous
cluster of eight MSAs and six RSAs in Michigan; another 19% were
in a cluster of four MSAs and seven RSAs in northern and central
Louisiana, southern Arkansas and eastern Texas.
Another component of the Company's strategy for cellular
operations includes capturing revenues from roaming service.
Roaming service revenues are derived from calls made in one
cellular service area by subscribers from other service areas.
Roaming service is made possible by technical standards requiring
that cellular telephones be functionally compatible with the
cellular systems in all United States market areas. The Company
charges premium rates (compared to rates charged to the Company's
customers) for roaming service provided to most non-Company
customers. The Company's Michigan cellular properties include a
significant portion of the interstate highway corridor between
Chicago and Detroit, and its Louisiana properties include an east-
west interstate highway and a north-south interstate highway which
intersect in its Louisiana cellular service area.
In connection with its February 1994 acquisition of Celutel,
the Company acquired over 84 percent of the Biloxi/Gulfport,
Mississippi MSA and over 82% the Pascagoula, Mississippi MSA.
The interstate highway between New Orleans, Louisiana and Mobile,
Alabama spans these markets. In connection with this acquisition,
the Company also acquired over 86% interest in the Jackson,
Mississippi MSA; over 77% in the Brownsville, Texas MSA; and over
67% in the McAllen, Texas MSA. Jackson is the state capital and
is located in central Mississippi where two interstate highways
intersect. The MSAs in Texas are adjacent to Mexico and consist of
urban, resort, farm and ranch areas and include two Foreign Trade
Zones.
Marketing
The Company coordinates the marketing strategy for each
cellular system in which it has a majority interest. The
Company's cellular sales force consists of approximately 60 sales
employees and approximately 200 independent agents. Each sales
employee and independent agent solicits cellular customers
exclusively for the Company. Company sales employees are
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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 Company is a founding partner and participant in a
national alliance of 15 leading mobile communications companies
which is marketing a national brand of cellular service under the
name MobiLink. This cellular alliance offers a customer
satisfaction guarantee and certain quality standards.
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 sells a full range of vehicle-mounted,
transportable, and hand-held portable cellular telephones.
Features offered in the cellular telephones sold by the Company
include hands-free calling, repeat dialing, horn alert and others.
The Company's customers are able to choose from a variety of
packaged pricing plans which are designed to fit different calling
patterns. The Company typically charges its customers separately
for custom-calling features, air time in excess of the packaged
amount, and toll calls. Custom-calling features provided by the
Company include call-forwarding, call-waiting, three-way calling
and no-answer transfer. The Company offers a voice message
service in many of its markets. This service, which functions
like a sophisticated answering machine, allows customers to
receive messages from callers when they are not available to take
calls.
Cellular customers come from a wide range of occupations.
They typically include a large proportion of individuals who work
outside of their office, such as employees in the construction,
real estate, wholesale and retail distribution businesses, and
professionals. More customers are selecting portable and other
transportable cellular telephones as these units become more
compact and fully featured, as well as more attractively priced.
It is anticipated that average revenue per customer will continue
to decline as additional non-commercial customers who generate
fewer local minutes of use are added as subscribers and as roaming
revenues grow more slowly.
An added service offered by the Company allows a customer to
place or receive a call in a cellular service area away from the
customer's home market area. The Company has entered into
"roaming agreements" with operators of other cellular systems
covering virtually all systems in
14
the United States. These agreements offer the Company's customers
the opportunity to roam in these systems. These reciprocal
agreements automatically pre-register the customers of the Company's
system in the other carriers' systems. Also, a customer of a
participating non-Company system traveling in a market operated by
the Company where this arrangement is in effect is able to
automatically make and receive calls on the Company's system. The
charge to a non-Company customer for this service is typically at
premium rates, and is billed by the Company to the customer's home
system, which then bills the customer. Occasionally, the Company
will enter into reciprocal agreements with other cellular carriers to
settle roaming usage at a rate different from such premium rates. In
some instances, based on competitive factors, the Company may
charge a lower amount to its customers than the amount actually
charged by another cellular carrier for roaming. The Company
anticipates that competitive factors may place downward pressures
on charging premium roaming rates. For additional information on
roaming revenue, see"-Strategy."
During 1993, the Company's cellular subsidiaries experienced
strong subscriber growth in the fourth quarter, primarily due to
increased holiday season sales. According to the Cellular
Telecommunications Industry Association, industry-wide cellular
sales have been seasonally strong in the fourth quarter for the
past several years.
The following table summarizes, among other things, certain
information about the Company's customers and market penetration
(without giving effect to the operations acquired in February
1994):
Year Ended or At December 31,
_____________________________
1993 1992 1991
____ ____ ____
Majority-owned and operated MSA
and RSA systems (Note 1):
Cellular systems operated 26 25 22
Total population of systems
operated 5,015,463 4,813,985 4,312,712
Customers (Note 2):
At beginning of period 73,084 51,083 35,815
Additions during period 62,564 35,713 27,222
Disconnects during period 19,164 13,712 11,954
At end of period 116,484 73,084 51,083
Market penetration at end
of period (Note 3) 2.32% 1.52% 1.18%
Construction expenditures (000s) $ 56,070 $ 10,806 $ 12,387
All operated MSA and RSA systems
(Note 4):
Cellular systems operated 31 31 26
Total population of systems
operated 6,084,794 5,997,360 4,963,127
Customers at end of
period (Note 5) 124,908 77,106 52,411
Market penetration at end
of period 2.05% 1.29% 1.06%
________________
15
Notes:
1. Represents the number of systems in which the Company owned
at least a 50% interest and which it operated. The revenues and
expenses of these cellular markets are included in the Company's
consolidated revenues and expenses.
2. Represents the approximate number of revenue-generating
cellular telephones served by the cellular systems referred to in
footnote 1.
3. Computed by dividing the number of customers at the end of
the period by the total population of markets in service as
estimated by Donnelly Marketing Information Services for the
respective years.
4. Represents the total number of systems that the Company
operated, including systems in which it does not own a controlling
interest.
5. Represents the approximate number of revenue-generating
cellular telephones served in all systems that the Company
operated, including systems in which it does not own a controlling
interest.
The Company's Cellular Interests
The table below sets forth certain information with respect to
the interests in cellular systems that the Company owned or had the
right to acquire pursuant to definitive agreements as of
December 31, 1993:
Other
1993 Ownership Net 1993 cellular
population percentage pops operator (1)
===================================================================================================
Majority-Owned MSAs
___________________
Grand Rapids, MI 718,689 97.92% 703,740 PACTEL
Lansing, MI 500,081 99.00% 495,080 PACTEL
Saginaw, MI 402,331 91.70% 368,938 PACTEL
Kalamazoo, MI 298,247 97.92% 292,043 Centennial
Battle Creek, MI 190,797 77.94% 148,700 Centennial
Muskegon, MI 185,830 97.92% 181,965 PACTEL
Benton Harbor, MI 161,539 97.92% 158,179 Masters Cellular
Jackson, MI 152,205 99.00% 150,683 Centennial
Shreveport, LA 371,681 62.00% 230,442 McCaw
Alexandria, LA 150,358 100.00% 150,358 Centennial
Monroe, LA 145,654 62.00% 90,305 McCaw
Jackson, MS (3) 406,000 86.06% 349,423 MCTA
Biloxi-Gulfport, MS (3) 213,986 84.82% 181,492 Cellular South
Pascagoula, MS (3) 120,464 82.57% 99,470 Cellular South
LaCrosse, WI 99,124 95.00% 94,168 U. S. Cellular
McAllen-Edinburg-Mission, TX (3) 419,283 67.27% 282,052 Southwestern Bell Mobile Systems
Brownsville-Harlingen, TX (3) 279,597 77.42% 216,456 Southwestern Bell Mobile Systems
Texarkana, AR/TX 134,891 89.00% 120,053 McCaw
_______________________________________________________________
4,950,757 4,313,547
_______________________________________________________________
16
Other
1993 Ownership Net 1993 cellular
population percentage pops operator (1)
===================================================================================================
Minority-owned MSAs
___________________
Flint, MI 504,031 3.04% 15,323 (2)
Detroit, MI 4,596,929 3.04% 139,747 (2)
Appleton/Oshkosh/Neenah, WI 466,005 10.83% 50,468 (2)
Duluth, MN/WI 242,628 16.33% 39,621 (2)
Owensboro, KY 88,896 5.73% 5,094 (2)
Little Rock, AR 528,129 36.00% 190,126 (2)
Evansville, IN 316,107 5.73% 18,113 (2)
Lafayette, LA 251,746 49.00% 123,356 (2)
Austin, TX 850,163 35.00% 297,557 (2)
_______________________________________________________________
7,844,634 879,405
_______________________________________________________________
TOTAL MSAs 12,795,391 5,192,952
_______________________________________________________________
RSAs
____
Arizona 2 224,764 21.30% 47,875 (2)
Arizona 3 144,585 58.70% 84,865 Sprint Cellular
Arkansas 2 77,044 82.00% 63,176 Sterling Cellular
Arkansas 3 101,555 82.00% 83,275 Sterling Cellular
Arkansas 11 67,078 89.00% 59,699 Mercury Communications
Arkansas 12 188,142 80.00% 150,514 Mercury Communications
Colorado 6 62,251 25.00% 15,563 (2)
Colorado 7 44,328 20.00% 8,866 (2)
Iowa 13 66,743 10.00% 6,674 (2)
Louisiana 1 112,382 62.00% 69,677 McCaw
Louisiana 2 113,620 62.00% 70,444 Sterling Cellular
Louisiana 3 (B2) 93,171 62.00% 57,766 Mid South Cellular
Louisiana 4 71,196 100.00% 71,196 Mid South Cellular
Michigan 3 151,737 33.43% 50,725 Unitel
Michigan 5 149,145 33.43% 49,859 Unitel
Michigan 6 140,994 98.00% 138,174 Sterling Cellular
Michigan 7 233,450 36.50% 85,209 Sterling Cellular
Michigan 8 95,178 97.92% 93,198 Allegan Cellular
Michigan 9 289,415 43.38% 125,548 Centennial
Michigan 10 132,716 26.00% 34,506 (2)
Minnesota 6 (3) 241,382 100.00% 241,382 Cellular 2000
Minnesota 11 203,134 9.51% 19,324 (2)
New Mexico 1 245,584 22.22% 54,574 Sprint Cellular
New Mexico 3 76,635 25.00% 19,159 (2)
New Mexico 4W 123,643 35.71% 44,158 (2)
Texas 7 (B6) 57,709 89.00% 51,361 McCaw
Texas 16 308,447 9.60% 29,611 (2)
Wisconsin 1 105,662 8.44% 8,920 (2)
Wisconsin 2 83,672 12.81% 10,718 (2)
Wisconsin 3 134,703 14.29% 19,243 (2)
Wisconsin 6 114,135 28.57% 32,610 (2)
Wisconsin 10 126,854 15.00% 19,028 (2)
_______________________________________________________________
TOTAL RSAs 4,381,054 1,916,897
_______________________________________________________________
GRAND TOTALS 17,176,445 7,109,849
===============================================================
17
(1) To the best of the Company's knowledge.
(2) Markets not operated by the Company.
(3) Represents a non-wireline interest.
Certain Considerations Regarding Cellular Telephone Operations
The cellular industry has a relatively limited operating
history and there continues to be uncertainty regarding its
future. Among other factors, there is uncertainty regarding (i)
the continued growth in the number of customers, (ii) the usage
and pricing of cellular services, particularly as market
penetration increases and lower-usage customers subscribe for
service, (iii) the number of customers who will terminate service
each month, and (iv) the impact of changes in technology,
regulation and competition, any of which could have a material
adverse effect on the Company. See " - Regulation and
Competition."
Management believes that a significant portion of the
aggregate market value of Century's common stock is represented by
the current market value of its cellular interests. There can be
no assurance that the market value of its cellular interests will
remain at its current level. Management believes that decreases
in the market value of such interests could materially decrease
the trading price of Century common stock.
The market value of cellular interests is frequently
determined on the basis of the number of pops controlled by a
cellular provider. The population of a particular cellular
market, however, does not necessarily bear a direct relationship
to the number of subscribers or the revenues that may be realized
from the operation of the related cellular system. The future
market value of the Company's cellular interests will depend on,
among other things, the success of its cellular operations.
Paging
As part of the Company's strategy of focusing its resources in
the cellular and telephone businesses, the Company's Florida
paging operations were sold during 1991. The Company continues to
provide paging services to customers in Michigan and Louisiana in
conjunction with the operation of its majority-owned cellular
systems. As of December 31, 1993, the Company had approximately
9,500 pagers in service.
18
Revenue
The following table reflects the major revenue categories for
the Company's mobile communications operations as a percentage of
total mobile communications revenues in 1993, 1992 and 1991.
1993 1992 1991
_________________________
Cellular access fees, toll revenues
and equipment sales 80.5% 78.6 72.4
Cellular roaming 14.5 14.3 16.4
Paging services 5.0 7.1 11.2
_________________________
100.0% 100.0 100.0
=========================
For further information on these revenue categories, see"-
Services, Customers and System Usage" and "- Paging."
Regulation And Competition
The FCC and various state public utility commissions regulate
the licensing, construction, operation, interconnection
arrangements, sale and acquisition of cellular telephone systems
and certain state public utility commissions also regulate certain
aspects of pricing by cellular operators.
Cellular Licensing Process. The FCC awarded only two licenses
to provide cellular service in each market. Each licensee is
required to provide service to a designated portion of the area or
population in its licensed area as a condition to maintaining that
license. 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 completion of acquisitions 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. Acquisitions of minority interests generally do not
require FCC approval. Whenever FCC
19
approval is required, any interested party may file a petition
to dismiss or deny the application for approval of the proposed
transfer.
Initial operating licenses are granted for ten-year periods
and are renewable upon application to the FCC for periods of ten
years. Licenses may be revoked and license renewal applications
denied for cause. There may be competition for licenses upon the
expiration of the initial ten-year terms and there is no assurance
that any license will be renewed, although 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.
Five years after initial operating licenses are granted,
unserved areas within markets previously granted to licensees may
be applied for by both wireline and non-wireline entities and by
third parties. The FCC has rules that govern the procedures for
filing and granting such applications and has established
requirements for constructing and operating systems in such areas.
The Company has not lost, and does not expect to lose, any
significant market areas as a result of not providing service to
such areas. In addition to regulation by the FCC, cellular
systems are subject to certain Federal Aviation Administration
tower height regulations respecting the siting and construction of
cellular transmitter towers and antennas.
Competition between cellular providers in each market is
conducted principally on the basis of services and enhancements
offered, the technical quality and coverage of the system, quality
and responsiveness of customer service, and price. Competition
may be intense. For a listing of the Company's competitors in
cellular markets operated by the Company, see "- The Company's
Cellular Interests." 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 competition for
agents. Some of the Company's competitors have greater assets and
resources than the Company.
Developments Affecting Mobile Communications Competition.
Continued and rapid technological advances in the communications
field, coupled with legislative and regulatory uncertainty, make
it impossible to (i) predict the extent of future competition to
cellular systems, (ii) determine which emerging technologies pose
the most viable alternatives to the Company's cellular operations,
or (iii) systematically list each development that may ultimately
impact the
20
Company's cellular operations. No assurance can be
given that current or future technological advances, or
legislative or regulatory changes, will not impact the Company's
cellular operations.
Several recent FCC initiatives have resulted in the allocation
of additional radio spectrum or the issuance of experimental
licenses for emerging mobile communications technologies that will
or may be competitive with the Company's cellular and telephone
operations, including personal communication services ("PCS").
Due to PCS' next generation, high-capacity digital technology
(which has been tested under experimental licenses since late
1989), PCS may be able to offer wireless data, image and other
advanced wireless services. In late 1993, the FCC proposed rules
for auctioning up to seven PCS licenses per market, two of which
would entitle the licensees to use 30 megahertz ("MHz") of
frequency band each, one of which would entitle the licensee to
use 20 MHz, and four of which would entitle the licensees to use
10 MHz each. These rules would divide the United States into 540
licensed markets, none of which would be co-terminus with current
cellular markets. Under these rules, the Company will be
permitted to freely pursue PCS licenses outside its cellular
markets, but will be limited to acquiring only one 10 MHz block in
licensed areas where it controls more than a 20% interest in a
cellular licensee and serves more than 10% of the population
within the PCS licensed area. Auctioning of certain PCS licenses
is anticipated to commence in 1994. Due to several pending
petitions to reconsider these rules, it is possible that the final
rules will be modified.
In addition to PCS, users and potential users of cellular
systems may find their communication needs satisfied by other
current and developing technologies, several of which may enjoy
potential operational and service advantages through their use of
digital technology. The FCC has recently authorized the licensees
of certain specialized mobile radio service ("SMR") systems (which
currently are generally used by taxicabs and tow truck operators)
to configure their systems so as to operate in a manner similar to
cellular systems. The Company believes that SMR systems are
operating in a majority of its cellular markets. Certain well-
established SMR providers have announced their intention to create
a nationwide digital mobile communications system to compete with
cellular systems, and in connection therewith have sought and
obtained financial and other assistance from various other well-
established telecommunication companies. Other similar
communication services which have the technical capability to
handle mobile telephone calls may provide competition in certain
markets, although these services currently lack the subscriber
capacity of cellular systems. One-way paging or beeper services
that feature voice message and data display as well as tones may
be adequate for potential subscribers who do not need to transmit
back to the caller. Other two-way mobile services may also be
competitive with the Company's services. For example, the second
21
generation of cordless telephone technology ("CT-2") will permit
the application of this technology to a public environment.
The FCC has taken various actions to authorize mobile
satellite systems in which transmissions from mobile units to
satellites would augment or replace transmissions to land-based
stations. It is anticipated that the first operational satellite-
based mobile communications system will serve primarily rural
customers in North America. However, other satellite-based
systems are being studied and designed, including a worldwide-
system backed by an international consortium, and no assurance can
be given that such systems will not ultimately be successful in
augmenting or replacing land-based cellular systems.
As described further under "Telephone Operations - Regulation
and Competition," in connection with the well-publicized
convergence of telecommunications, cable, video, computer and
other technologies, several large companies have recently
announced plans to offer products that would significantly enhance
current communications and data transmissions services and, in
some instances, introduce new services. Although much of the
resulting competition is expected to center on wireline services,
it is anticipated that these developments may also increase
competition in the mobile communications industry. Several
wireless data and computer companies are currently developing and,
in some instances, marketing small hand-held products that may
ultimately provide an additional source of competition for
cellular systems, and it is anticipated that this trend will
continue.
As also described further under "Telephone Operations -
Regulation and Competition," several bills have been filed in the
U.S. Congress that have the potential to significantly alter the
telecommunications industry, including various bills that focus on
the mobile communications industry.
It is uncertain how PCS, SMR, CT-2, mobile satellites and
other emerging technologies will ultimately affect the Company.
However, PCS, SMR, CT-2 and mobile satellites are not anticipated
to be significant sources of competition in the Company's markets
in the near term. Moreover, management believes that equipping
its current cellular networks with digital enhancements and
applying new microcellular technologies may permit its cellular
systems to provide services comparable with the emerging
technologies described above, although no assurances can be given
that this will happen or that future technological advances or
legislative or regulatory changes will not create additional
sources of competition.
22
Paging. There is vigorous competition for paging customers in
most of the areas served by the Company. Some of the Company's
competitors have greater assets and resources than the Company.
The paging companies compete on the basis of price, the
reliability and strength of their signals, the size of the area
served and the customer service they provide. In recent months,
certain other companies have reduced prices on nationwide paging
services, a development which is not expected to have a
substantial impact on the Company's consolidated operations.
The FCC has authorized the use of cellular frequencies to
provide paging service, creating the potential for new
competitors. It is anticipated that all or substantially all of
the developments described in the immediately preceding section
will affect the Company's paging operations. It is too early to
predict the extent to which these developments may affect the
Company.
OTHER
The Company has certain obligations based on federal, state
and local laws relating to the protection of the environment.
Costs of compliance through 1993 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, 6, 7 and 12 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, telephone instruments and related
equipment, and land and building related to telephone operations
and (ii) switching and cell site equipment related to cellular
telephone operations. As of December 31, 1993, the Company's
gross property, plant and equipment of approximately $1.2 billion
consisted of the following:
23
Telephone:
General support 7.3%
Central office equipment 24.0
Information origination/termination equipment 3.1
Cable and wire 43.8
Construction in progress 4.6
Other .9
_____
83.7
Mobile Communications 9.7
Other 6.6
_____
100.0%
=====
"General support" consists primarily of land, buildings,
tools, furnishings, fixtures, motor vehicles and work equipment.
"Central office equipment" consists primarily of switching
equipment, circuit equipment, and related facilities.
"Information origination/termination equipment" consists primarily
of premise equipment (private branch exchanges and telephones) for
official company use. "Cable and wire" facilities consist
primarily of buried cable and aerial cable, poles, wire, conduit
and drops. "Construction in progress" includes property of the
foregoing categories that has not been placed in service because
it is still under construction. The properties of the Company's
telephone subsidiaries are subject to mortgages securing the
funded 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
cellular 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 mobile communications
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, tort actions relating to employee claims and occasional
grievance hearings before labor regulatory agencies. Currently,
there are no material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
24
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.
Century'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
____ ___ ____________
1992:
First quarter $ 24-7/8 18-5/8 .0733
Second quarter $ 25-3/8 18-3/8 .0733
Third quarter $ 25 18-5/8 .0733
Fourth quarter $ 28-7/8 22-7/8 .0733
1993:
First quarter $ 33-3/8 26 .0775
Second quarter $ 33-1/8 28 .0775
Third quarter $ 31-5/8 27-1/8 .0775
Fourth quarter $ 30-3/8 23-1/4 .0775
Common stock dividends during 1992 and 1993 were paid each
quarter. As of February 28, 1994, there were approximately 5,900
stockholders of record of Century'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, 1993.
25
Selected Income Statement Data
Year ended December 31,
_________________________________________________
1993 1992 1991 1990 1989
_________________________________________________
(expressed in thousands, except per share amounts)
Revenues
Telephone $ 348,485 297,510 235,796 215,771 190,538
Mobile Communications 84,712 62,092 46,731 34,594 24,852
_________________________________________________
Total revenues $ 433,197 359,602 282,527 250,365 215,390
=================================================
Operating income (loss)
Telephone $ 114,902 103,672 80,039 70,654 61,153
Mobile Communications 9,906 5,956 (4,952) (9,553) (13,970)
_________________________________________________
Total operating
income $ 124,808 109,628 75,087 61,101 47,183
=================================================
Income before cumulative
effect of changes in
accounting principles $ 69,004 59,973 37,419 31,098 22,164
Cumulative effect of
changes in accounting
principles - (15,668) - - -
_________________________________________________
Net income $ 69,004 44,305 37,419 31,098 22,164
=================================================
Fully diluted earnings
per share before
cumulative effect of
changes in accounting
principles $ 1.32 1.22 .79 .66 .49
Cumulative effect of
changes in accounting
principles - (.31) - - -
_________________________________________________
Fully diluted earnings
per share $ 1.32 .91 .79 .66 .49
=================================================
Dividends per common
share $ .310 .293 .287 .280 .272
=================================================
Average fully diluted
shares outstanding 55,892 48,653 47,432 46,944 44,540
=================================================
26
Selected Balance Sheet Data
December 31,
_________________________________________________
1993 1992 1991 1990 1989
_________________________________________________
(expressed in thousands)
Net property, plant and
equipment $ 827,776 675,878 534,998 490,957 474,158
Excess cost of net assets
acquired, net $ 297,158 217,688 114,258 110,013 109,197
Total assets $1,319,390 1,040,487 764,539 706,411 691,569
Long-term debt $ 460,933 391,944 254,753 230,715 257,708
Stockholders' equity $ 513,768 385,449 319,977 280,915 256,530
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, 1993.
Year ended December 31,
_____________________________________________
1993 1992 1991 1990 1989
_____________________________________________
Telephone access lines 434,691 397,300 314,819 304,915 296,034
Cellular units in service
in majority-owned
markets 116,484 73,084 51,083 35,815 23,199
See Items 1 and 2 in Part I and notes 4, 8 and 12 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
The 1993 net income of Century Telephone Enterprises, Inc.
and subsidiaries (the "Company") increased to $69,004,000 from
$44,305,000 during 1992 and $37,419,000 during 1991. Income
before the cumulative effect of changes in accounting principles
during 1992 was $59,973,000.
Fully diluted earnings per share for 1993 increased to $1.32
from $.91 during 1992 and $.79 during 1991. Fully diluted
earnings per share in 1992 before the cumulative effect of
changes in accounting principles was $1.22.
27
As of January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers'
Accounting for Postretirement Benefits Other than Pensions," and
Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes." The cumulative effect of the
changes in accounting principles related to SFAS 106 and SFAS 109
reduced 1992 net income by $14,755,000 ($.30 per share) and
$913,000 ($.01 per share), respectively.
The Company is a regional diversified telecommunications
company that is primarily engaged in providing traditional
telephone services and cellular mobile telephone services. The
Company's 1993 operating income was $124,808,000, an increase of
$15,180,000 (13.8%) over 1992 operating income of $109,628,000.
During 1993 the operating income of the telephone operations and
the mobile communications operations increased $11,230,000
(10.8%) and $3,950,000 (66.3%), respectively, compared to the
1992 results of operations. The Company's net operating income
during 1991 was $75,087,000.
Year ended December 31, 1993 1992 1991
==================================================================
(expressed in thousands,
except per share amounts)
Operating income (loss)
Telephone $ 114,902 103,672 80,039
Mobile Communications 9,906 5,956 (4,952)
__________________________________________________________________
124,808 109,628 75,087
Interest expense (30,149) (27,166) (22,504)
Earnings from unconsolidated
cellular partnerships 6,626 1,692 697
Gain on sales of assets 1,661 3,985 -
Other income, net 3,310 4,433 4,209
Income tax expense (37,252) (32,599) (20,070)
__________________________________________________________________
Income before cumulative effect
of changes in accounting
principles 69,004 59,973 37,419
Cumulative effect of changes in
accounting principles - (15,668) -
__________________________________________________________________
Net income $ 69,004 44,305 37,419
==================================================================
Fully diluted earnings per share:
Income before cumulative
effect of changes in
accounting principles $ 1.32 1.22 .79
Cumulative effect of changes
in accounting principles - (.31) -
__________________________________________________________________
Fully diluted earnings per share $ 1.32 .91 .79
==================================================================
The operating income of the telephone segment includes the
operations, subsequent to each respective acquisition, of Century
Telephone of San Marcos, Inc. ("San Marcos"), acquired
28
in April 1993; Century Telephone of Ohio, Inc. ("Ohio"), acquired in
April 1992; and two other local exchange telephone companies
collectively with Ohio the "1992 Acquisitions") acquired during
the first quarter of 1992. See note 12 for additional
information applicable to these acquisitions.
The mobile communications operating income (loss) reflects
the operations of the cellular partnerships in which the Company
has a majority interest. The minority interest partners' share
of the income or loss of such partnerships is reflected in other
income, net. The Company's share of income or loss from the
cellular partnerships in which it has less than a majority
interest is reflected in earnings from unconsolidated cellular
partnerships. The operating income of the mobile communications
segment during 1993 includes the operations of the Alexandria,
Louisiana Metropolitan Statistical Area ("MSA") cellular system
("Alexandria"), which was acquired in December 1992.
According to published sources, the Company has the second
highest ratio of cellular subscribers to telephone access lines
among the 20 largest telephone companies in the United States.
Accordingly, the Company anticipates that its mobile
communications operations will continue to increasingly influence
the Company's overall operations as the cellular industry
matures. The following chart illustrates this trend:
Year ended December 31, 1993 1992 1991
==================================================================
Telephone Operations:
Revenues (% of total revenues) 80.4% 82.7 83.5
Operating income (% of total
operating income) 92.1% 94.6 106.6
Mobile Communications Operations:
Revenues (% of total revenues) 19.6% 17.3 16.5
Operating income (% of total
operating income) 7.9% 5.4 (6.6)
==================================================================
29
TELEPHONE OPERATIONS
1993 1992 1991
==================================================================
(expressed in thousands)
Revenues
Local service $ 88,704 78,108 58,653
Network access and
long distance 217,055 182,711 145,279
Other 42,726 36,691 31,864
__________________________________________________________________
348,485 297,510 235,796
__________________________________________________________________
Expenses
Plant operations 80,578 66,878 52,546
Customer operations 32,225 26,242 19,502
Corporate and other 55,605 46,791 39,227
Depreciation and
amortization 65,175 53,927 44,482
__________________________________________________________________
233,583 193,838 155,757
__________________________________________________________________
Operating income $ 114,902 103,672 80,039
==================================================================
Telephone revenues increased $50,975,000 (17.1%) in 1993 and
$61,714,000 (26.2%) in 1992. Revenues applicable to San Marcos
and Ohio accounted for $15,681,000 and $14,833,000, respectively,
of the 1993 increase and revenues applicable to the 1992
Acquisitions accounted for $34,891,000 of the 1992 increase.
Amounts recorded as a result of revisions of prior years' revenue
settlements were $8,380,000 (exclusive of Ohio), $8,181,000 and
$8,206,000 in 1993, 1992 and 1991, respectively.
Local Revenues
Local service revenues are derived from the provision of
local exchange telephone services in the Company's franchised
service areas. During 1993 local service revenues increased
$2,219,000 and $5,252,000 due to San Marcos and Ohio,
respectively. During 1992 such revenues increased $15,670,000
due to the 1992 Acquisitions. Internal access line growth during
1993, 1992 and 1991 was 3.6%, 3.8% and 3.2%, respectively.
Network Access and Long Distance Revenues
Network access and long distance revenues increased
$34,344,000 (18.8%) in 1993 and $37,432,000 (25.8%) in 1992 due
to the following factors:
30
1993 1992
==================================================================
(expressed in thousands)
San Marcos acquisition $ 11,279 -
1992 Acquisitions 8,458 13,687
Partial recovery of increased operating
expenses through revenue pools in
which the Company participates with
other telephone companies and
return on rate base 7,326 9,931
Increased recovery as a result of
additional investment and phase-in
of the Federal Communications
Commission ("FCC") mandated
Universal Service Fund 6,161 7,040
Increased minutes of use 3,444 3,607
Other (2,324) 3,167
__________________________________________________________________
$ 34,344 37,432
==================================================================
Network access and long distance revenues primarily relate
to services provided to interexchange carriers (long distance
carriers) in connection with the completion of long distance
telephone calls. Substantially all of the Company's interstate
network access revenues are received through pooling arrangements
administered by the National Exchange Carrier Association
("NECA") based on cost separations studies and average schedule
settlement agreements. The NECA receives access charges billed
by the Company and other participating local exchange carriers to
interstate long distance carriers for their use of the local
exchange network to complete long distance calls. These charges
to the long distance carriers are based on tariffed access rates
filed with the FCC by the NECA on behalf of the Company and other
participating local exchange telephone companies. Long distance
and intrastate network access revenues are based on access rates,
cost separations studies or special settlement arrangements with
intrastate long distance carriers.
In December 1993 the eight-year phase-in of the FCC
Universal Service Fund ("USF") was completed. Revenues from the
USF increased approximately $6,161,000 during 1993, of which
approximately $3,200,000 was the effect of the phase-in.
Revenues were unfavorably impacted in the amount of $1,000,000
during 1993 by reductions (which will aggregate
31
approximately $3,500,000 annually upon final phase-in 1994) in
the level of certain settlements received from South Central
Bell by the Company's Louisiana subsidiaries.
Other Revenues
Other revenues include revenues related to nonregulated
telecommunications equipment and services, billing and collection
services for interexchange long distance carriers, network
facilities leases and directories. The increases in other
revenues during 1993 and 1992 were primarily due to the 1992
Acquisitions and, during 1993, to San Marcos.
Expenses
Plant operations expenses during 1993 and 1992 increased
$13,700,000 (20.5%) and $14,332,000 (27.3%), respectively.
Approximately $3,650,000 and $3,455,000 of the 1993 increase were
due to San Marcos and Ohio, respectively. Increases in salaries,
wages and benefits during 1993 accounted for approximately
$2,192,000. The remainder of the 1993 increase was due to
increases in other general operating expenses. Approximately
$10,269,000 and $1,105,000 of the 1992 increase were due to the
1992 Acquisitions and the SFAS 106 postretirement benefit costs,
respectively. The remainder of the 1992 increase was due to
increases in salaries and wages and other general operating
expenses.
Customer operations, corporate expenses and other expenses
increased $14,797,000 (20.3%) in 1993 and $14,304,000 (24.4%) in
1992. The operations of San Marcos and Ohio contributed
$6,467,000 and $4,532,000, respectively, to the 1993 increase.
The 1992 Acquisitions and the SFAS 106 postretirement benefit
costs accounted for approximately $11,186,000 and $806,000,
respectively, of the 1992 increase. The remainder of the 1993
and 1992 increases included increased operating costs, such as
salaries and wages, employee benefits, insurance and operating
taxes.
Depreciation and amortization increased $11,248,000 (20.9%)
and $9,445,000 (21.2%) in 1993 and 1992, respectively.
Approximately $5,447,000 of the 1993 increase was due to San
Marcos and Ohio. The 1992 Acquisitions accounted for $6,939,000
of the 1992 increase. Depreciation expense included one-time
depreciation charges in certain jurisdictions which aggregated
$3,336,000 in 1993 (exclusive of San Marcos), $2,938,000 in 1992
(exclusive of the 1992 Acquisitions) and $1,784,000 in 1991. In
addition, the Company obtained higher depreciation rates for
certain subsidiaries during the last three years. The first-year
effects of the
32
higher rates were approximately $1,650,000 in 1993 (exclusive
of San Marcos), $700,000 in 1992 (exclusive of the 1992
Acquisitions) and $3,100,000 in 1991. The remaining
increases in depreciation and amortization are due to higher
levels of plant in service. The composite depreciation rate for
telephone properties, including the one-time additional
depreciation, was 7.1%, 6.6% and 6.7% for 1993, 1992 and 1991,
respectively.
See Other Matters for additional information.
MOBILE COMMUNICATIONS OPERATIONS
1993 1992 1991
==================================================================
(expressed in thousands)
Revenues
Cellular
Service $ 76,583 54,489 38,923
Equipment 3,930 3,194 2,592
Paging 4,199 4,409 5,216
__________________________________________________________________
84,712 62,092 46,731
__________________________________________________________________
Expenses
General, administrative
and customer service 23,872 19,685 18,144
Sales and marketing 19,894 13,167 13,403
Cost of sales and other
operating expenses 19,681 14,313 12,378
Depreciation and amortization 11,359 8,971 7,758
__________________________________________________________________
74,806 56,136 51,683
__________________________________________________________________
Operating income (loss) $ 9,906 5,956 (4,952)
==================================================================
Revenues
Revenues from cellular operations during 1993 increased to
$80,513,000 from $57,683,000 in 1992 and $41,515,000 in 1991.
Service revenues include monthly service fees for providing
access and airtime to customers, service fees for providing
airtime to users roaming through the Company's service areas and
toll revenue.
Service revenues increased $22,094,000 (40.5%) in 1993 and
$15,566,000 (40.0%) in 1992. Increases in access and usage
revenues, exclusive of Alexandria, accounted for $14,585,000 of
the 1993 increase in service revenues, compared to $12,871,000
during 1992. The increases in access and usage revenues in both
years were primarily attributable to increases in the number of
cellular customers. Roaming and toll revenues increased
$4,120,000 in 1993, exclusive of Alexandria, after increasing
$2,281,000 during 1992. The remainder of the 1993 increase in
cellular revenues was due substantially to the Alexandria
acquisition.
33
Cellular units in service increased to 116,484 as of
December 31, 1993 from 73,084 as of December 31, 1992 (which
included the December 1992 acquisition of Alexandria) and 51,083
at December 31, 1991.
The average monthly service revenue per subscriber declined
to $71 in 1993 from $75 in 1992 and 1991, primarily due to the
trend that a higher percentage of new subscribers tend to be
lower usage customers. The decline in average monthly service
revenue per subscriber was also affected by the growth rate of
cellular units in service exceeding the growth rate of roaming
revenues. The average monthly service revenue per subscriber may
further decline as market penetration increases and additional
lower usage customers are activated. The Company will continue
to attempt to stimulate cellular usage by promoting the
availability of certain enhanced services and by increasing
coverage areas through the construction of additional cell sites.
Expenses
General, administrative and customer service expenses
increased $4,187,000 (21.3%) and $1,541,000 (8.5%) during 1993
and 1992, respectively. The increases were primarily due to
higher billing and other costs due to the increased number of
customers and, in 1993, to Alexandria.
During 1993 mobile communications sales and marketing
expenses increased $6,727,000 (51.1%) primarily due to an
increase in commissions paid to agents for selling cellular
services to the large volume of new customers. The remaining
increase during 1993 was primarily due to an increase in
advertising costs and to Alexandria. The Company implemented a
new cellular sales commission structure during 1992 which,
notwithstanding an increase in agent sales, contributed to the
1.8% decrease in mobile communications sales and marketing
expenses in 1992.
The increases in cost of sales and other operating expenses
in 1993 and 1992 were primarily due to growth in the business, to
the development and operation of the Company's Rural Service Area
("RSA") cellular systems and, in 1993, to Alexandria. Sixty-two
cell sites were placed in service during 1993 (compared to 21
during 1992 and 24 during 1991) in partnerships in which the
Company has a majority interest. In addition, as a result of the
December 1992 acquisition of Alexandria, the Company acquired
five additional cell sites. The Company operated 158 cell sites
at December 31, 1993 in partnerships in which it has a majority
interest.
34
Depreciation and amortization increased $2,388,000 (26.6%)
in 1993 and $1,213,000 (15.6%) in 1992 primarily due to higher
levels of cellular plant in service.
See Other Matters for additional information.
INTEREST EXPENSE
Interest expense increased $2,983,000 (11.0%) during 1993
and $4,662,000 (20.7%) during 1992. Interest expense incurred
during 1993 due to an increase in average debt outstanding was
substantially offset by the effect of lower average interest
rates. Interest expense during 1992 increased primarily due to
the issuance of $115,000,000 of 6% convertible debentures during
the first quarter of 1992. The debenture interest of
approximately $6,200,000 during 1992 was partially offset by
reduced interest expense due to lower average interest rates.
EARNINGS FROM UNCONSOLIDATED CELLULAR PARTNERSHIPS
Earnings from unconsolidated cellular partnerships increased
$4,934,000 in 1993 and $995,000 in 1992. The Company's share of
income from the partnership interests acquired in the San Marcos
acquisition contributed substantially to the 1993 increase.
SALES OF ASSETS
During 1993 the Company sold a minority investment in a
telephone company which resulted in a pre-tax gain of $1,661,000