The Motley Fool: Can you briefly explain to the layman how you make money, and how you plan to grow profits in the future?
Maggie Wilderotter: Frontier is a communications company that offers telephone, television, and Internet services to primarily rural and suburban communities in 23 states. We are excited about the continuing growth opportunities in our markets, and plan to grow revenues through broadband, value-added services, new products, productivity improvements, and disciplined use of capital that emphasizes rate of return (ROI).
The Fool: Historically, the big dogs of telecom such as Verizon
Wilderotter: The myth is that what is good for urban America isn't good for rural America. [It's] quite the contrary. We are delivering the same new services across our footprint that the AT&Ts and Verizons are delivering. As a matter of fact, in some cases, they are following us! The rural market is certainly our sweet spot; it's been good for us, and I think Frontier is and has been very good for our markets. We saw early on that customers in more rural areas really need to be connected -- in some cases more so than their urban counterparts. Our customers live in more rural areas because they chose a great quality of life, not from a desire to be disconnected.
The areas we serve can be challenging -- there is a very low customer density, so in some cases, the areas are more expensive to serve. There's a lot of windshield time. We are providing the best service, the most value, and an array of products and services that suit every need. I think we're in a good position -- we're local, we are first to market, we offer great products, we're trying to make the customer experience simple, swift, and positive. We're high-touch and high-tech!
The Fool: What new technology are you most excited about? Or, as the case may be, most worried about?
Wilderotter: We are rolling out wireless data services in a number of communities, and the response had been very promising. So that's exciting. I can honestly say that I don't worry or lose sleep over products or technology. I do lose sleep when I see gaps in the customer's experience. I receive emails all the time from customers, and that correspondence is a great way to learn about areas where we simply need to become better. It boils down to the Golden Rule and treating customers as we would wish to be treated. It's that simple.
The Fool: How would you compare the threats of cable-supplied telephone service to more powerful wireless?
Wilderotter: Competition is competition. Cable has many weaknesses, especially with reliability, customer service, high price increases, and local presence. Our Digital Phone Product (unlimited local and long distance calling, plus four key features for one low monthly price) is a great competitive differentiator to cable voice or wireless substitution. We believe we can hold our own against both. We are service-oriented with great prices, the right product offers, and local service options. Oh, and did I say we are reliable and trusted?
The Fool: Capital budgeting is a balancing act for any company. Can you loosely rank a few of your top priorities?
Wilderotter: My team knows not to propose any project without addressing the question of how it will improve a customer's experience and deliver a strong ROI. If it doesn't add value, or provide a path to profitability, then it is not a priority. We have a core competency in this analysis and review.
The Fool: Despite the challenges, Citizens Communications oozes cash flow. How do you feel about your stock price? Is there anything you feel the market overlooks about Citizens?
Wilderotter: I don't obsess about the stock price. My focus is on running the business and delivering results. Consistent results in the long run will translate into a higher stock price. We continue to tell our story and build a track record. That is our priority; and yes, we do "ooze" cash flow.
The Fool: Regarding federal subsidies for rural high-cost service areas: How reliant on these subsidies is the company? Is there any threat that the subsidies may be taken away?
Wilderotter: Subsidies are very important to most rural providers, but less important to Frontier. In 2006, subsidies were 8% of our revenues. The good news is that we focus on growing customer revenue -- not sustaining subsidies. There is little doubt that reductions in subsidies will continue for all rural players, and the irony is that it is happening at a time when communications connections have never been more important.
Despite a pullback in subsidies, we are still at an 88% coverage percentage for high-speed Internet in our markets. We continue to invest because it's good business. We will also creatively find a way to reach the other 12% that are on the edge of our networks. We are hopeful that in the next few years, the Federal Communications Commission will clarify the Universal Services Fund (USF) and Intercarrier Compensation. But we aren't counting on it -- if they do, it is only an upside for us. What's needed is a more rational approach to universal service programs.
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