| CT COMMUNICATIONS INC /NC Item 1A Risk Factors In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, set forth below are cautionary statements identifying important factors that could cause actual events or results to differ materially from any forward-looking statements made by or on behalf of the Company, whether oral or written |
| The Company wishes to ensure that any forward-looking statements are accompanied by meaningful cautionary statements in order to maximize to the fullest extent possible the protections of the safe harbor provisions established in the Private Securities Litigation Reform Act of 1995 |
| Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause actual events or results to differ materially from the Company’s forward-looking statements |
| For additional information regarding forward-looking statements, please read the “Cautionary Note Regarding Forward-Looking Statements” section included elsewhere in this report |
| In addition to the other information contained or incorporated by reference into this Form 10-K, prospective investors should consider carefully the following risk factors before investing in our securities |
| Additional risks that the Company does not yet perceive or that the Company currently believes are immaterial may also adversely affect the Company’s business and the trading price of the Company’s securities |
| The Company expects to continue to face significant competition in the telecommunications industry |
| The Company operates in an increasingly competitive environment |
| The Company’s current competitors include: • incumbent local exchange carriers, • competitive local exchange carriers, • interexchange carriers, • Internet service providers, • wireless telecommunications providers, • cable television companies, • VoIP providers, • local and regional system integrators, and • resellers of telecommunications services and enhanced services providers |
| Cable operators are entering the local exchange and high speed Internet markets |
| Time Warner currently offers cable television and high-speed Internet service throughout much of the Company’s service area, and has introduced cable telephony to certain CLEC and Greenfield service areas |
| Time Warner is expected to offer cable 19 _________________________________________________________________ [73]Table of Contents telephony to customers in the Company’s ILEC service areas in the second quarter of 2006 |
| Other sources of competition include wireless service providers and VoIP service providers |
| The trend toward business combinations and strategic alliances within the telecommunications industry could further increase competition |
| In addition, the development of new technologies could increase competition |
| One of the primary purposes of the Telecommunications Act is to promote competition, particularly in the local telephone market |
| Since the enactment of the Telecommunications Act, several telecommunications companies have indicated their intention to aggressively expand their ability to compete in many segments of the telecommunications industry, including segments in which the Company participates and expects to participate |
| This expansion may eventually result in more participants than can ultimately be successful in a given market |
| The Company expects that increased competition will result in more competitive pricing |
| Some of the companies with whom the Company competes are, or are affiliated with, major telecommunications companies |
| Companies that have the resources to sustain losses for some time have an advantage over those companies without access to these resources |
| The Company cannot assure that it will be able to achieve or maintain adequate market share or compete effectively in any of its markets |
| Any of these factors could materially adversely affect the Company’s business and the price of its Common Stock |
| Some of the Company’s current and potential competitors have market presence, engineering, technical and marketing capabilities and financial, personnel and other resources substantially greater than the Company’s |
| These competitors may be able to develop and expand their communications and network infrastructures more quickly, adapt more swiftly to new or emerging technologies and changes in customer requirements, take advantage of acquisition and other opportunities more readily and devote greater resources to the marketing and selling of their products and services than the Company can |
| In addition, the greater brand name recognition of some competitors requires the Company to price services at lower levels in order to win business |
| Finally, the cost advantages of some competitors may give them the ability to reduce their prices for an extended period of time if they so choose |
| The Company’s success depends in part upon its ability to grow and develop its business |
| The Company’s future success depends, in part, upon the ability to manage growth, including the ability to build network and related facilities to serve new customers, integrate operations to take advantage of new capabilities and systems; attract and retain skilled personnel across the Company, effectively manage the demands of day to day operations in new areas while attempting to execute the Company’s business strategy, and realize the projected growth and revenue targets developed by Company management |
| The Company’s ability to continue to grow and develop its business will depend, among other things, on whether the Company can successfully do the following in a timely manner, at reasonable costs and on satisfactory terms and conditions: • acquire necessary equipment, software, and facilities, and integrate them into the Company’s systems, • offer competitive services, • evaluate markets, • monitor operations, • control costs, • maintain effective quality controls, • hire, train, and retain key personnel, • obtain sufficient capital funding to support the Company’s business plan, • enhance operating and accounting systems, and • obtain any required government authorizations |
| The Company is making significant operating and capital investments and will have to address numerous operating challenges |
| The Company is currently developing new processes and operating support systems |
| The Company will need to continue developing new marketing initiatives and hiring and training sales people 20 _________________________________________________________________ [74]Table of Contents responsible for selling its services |
| The Company will also need to continue developing the billing and collection systems necessary to integrate these services |
| The Company cannot guarantee that it can design, install, and implement these products and systems in a timely manner to permit the Company to offer new services as demanded by its customers |
| To establish new operations, the Company may be required to spend considerable amounts of capital before it generates related revenue |
| If these services fail to be profitable or if the Company fails in any of these respects, this failure may have a material adverse effect on the Company’s business and the price of its Common Stock |
| The Company must adapt to rapid technological change |
| The telecommunications industry is subject to rapid and significant changes in technology, and the Company relies on third parties for the development of new technology |
| The effect of technological changes on its business cannot be predicted |
| The Company believes its future success will depend, in part, on its ability to anticipate or react appropriately to such changes and to offer, on a timely basis, services that meet customer demands |
| The Company cannot assure that it will be able to adopt and deploy new technology on a timely basis or on satisfactory terms |
| The Company’s failure to adopt and deploy this new technology could have a material adverse effect on the Company’s business and the price of its Common Stock |
| In addition, technology changes can reduce the costs of entry for others and give competitors significant new advantages |
| If the Company does not replace obsolete technology and equipment, then the Company may not be able to compete effectively, and it may be placed at a cost disadvantage in offering other services |
| Furthermore, replacing or upgrading the Company’s infrastructure in the future could result in significant capital expenditures |
| The Company is subject to a complex and uncertain regulatory environment |
| The telecommunications industry is regulated by the FCC, state regulatory commissions and municipalities |
| Federal and state regulations and regulatory trends in the direction of reduced regulation have had, and are likely to have, both positive and negative effects on the Company and its ability to compete |
| Federal or state regulatory changes and any resulting increase in competition may have a material adverse effect on the Company’s businesses and on the price of its Common Stock |
| The Company’s FCC licenses to provide wireless services are subject to renewal and potential revocation in the event that the Company violates applicable laws or regulatory requirements |
| The Company cannot guarantee that the FCC will renew them |
| If any of the Company’s licenses are forfeited or revoked, the Company may not be able to provide service in that area unless it contracts to resell wireless services of another provider, utilize roaming agreements or lease spectrum from other carriers |
| The Company’s success depends upon its ability to attract and retain key personnel |
| The efforts of a small number of key management and operating personnel will largely determine the Company’s success |
| The Company’s success also depends in part upon its ability to hire and retain highly skilled and qualified operating, marketing, sales, financial and technical personnel |
| If the Company loses the services of key personnel or if it is unable to attract additional qualified personnel, the Company’s business and the price of its Common Stock could be materially and adversely affected |
| The Company’s acquisitions, joint ventures and strategic alliances may not be successful |
| The Company may acquire other companies as a means of expanding into new markets, developing new services or supplementing existing businesses |
| The Company cannot predict whether or when any acquisitions may occur or the likelihood of a material transaction being completed on favorable terms |
| These types of transactions involve risks, including: • difficulties assimilating acquired operations and personnel, • disruptions of the Company’s ongoing businesses, • diversion of resources and management time, 21 _________________________________________________________________ [75]Table of Contents • the possibility that uniform management and operating systems and procedures may not be maintained, • increased regulatory burdens, • new markets in which the Company may have limited or no experience and • possible impairment of relationships with employees or customers |
| In addition, future acquisitions by the Company could result in the incurrence of indebtedness or contingent liabilities, which could have a material adverse effect on the Company’s business and its ability to pay dividends on its Common Stock, provide adequate working capital and service the Company’s indebtedness |
| The Company has formed and may in the future form various strategic alliances, joint ventures and other similar arrangements |
| The other parties to these existing or future arrangements, however, may at times have economic, business or legal interests or goals that are inconsistent with the Company’s goals or those of the strategic alliance, joint venture or similar arrangement |
| In addition, a joint venture partner may be unable to meet its economic or other obligations to the venture |
| A disagreement with the Company’s strategic allies or joint venture partners over certain business actions or the failure of a partner to meet its obligations to the venture could adversely affect the Company’s business and the price of its Common Stock |
| The Company is dependent on interconnection agreements, permits and rights-of-way |
| The Company’s success will depend, in part, on its ability to implement existing interconnection agreements and enter into and implement new interconnection agreements as it expands into new markets |
| Interconnection agreements are subject to negotiation and interpretation by the parties to the agreements and are subject to state regulatory commission, FCC and judicial oversight |
| The Company cannot assure that it will be able to enter into interconnection agreements in a timely manner on terms favorable to the Company |
| The Company must also maintain existing and obtain new local permits, including rights to utilize underground conduit and pole space and other rights-of-way |
| The Company cannot assure that it will be able to maintain its existing permits and rights or to obtain and maintain other permits and rights needed to implement its business plan on acceptable terms |
| Cancellation or non-renewal of its interconnection agreements, permits, rights-of-way or other arrangements could materially adversely affect the Company’s business and the price of its Common Stock |
| In addition, the failure to enter into and maintain any required arrangements for a new market may affect the Company’s ability to develop that market |
| The Company’s CLEC and Greenfield businesses must secure network elements from third parties |
| In connection with its CLEC and Greenfield operations, the Company interconnects with and uses incumbent telephone companies’ and other third parties’ networks to access its customers |
| Accordingly, the Company depends upon the technology and capabilities of those third parties to meet the telecommunications needs of certain of its CLEC and Greenfield customers and to maintain its service standards |
| The Company must also maintain efficient procedures for ordering, provisioning, maintaining and repairing lines from those third parties |
| The Company may not be able to obtain the copper lines, transport facilities and services required from the incumbent telephone companies or other third parties at satisfactory quality levels, rates, terms and conditions |
| The Company’s inability to do so could delay the expansion of its networks and degrade service quality to its customers |
| If these events occur, the Company may experience a material adverse effect on its CLEC and Greenfield businesses and the price of its Common Stock |
| The Company is dependent on its operating support systems |
| Sophisticated information and processing systems are vital to the Company’s growth and its ability to monitor costs, bill customers, process customer orders and achieve operating efficiencies |
| Billing and information systems have historically been produced by outside vendors |
| These systems have generally met the Company’s needs |
| As the Company continues providing more services, it will need more sophisticated billing and information systems |
| The Company’s failure, or the failure of vendors, to adequately identify all of the information and processing needs or to upgrade systems as necessary could have a material adverse effect on the Company’s business and the price of its Common Stock |
| 22 _________________________________________________________________ [76]Table of Contents The Company’s long distance services are affected by its ability to establish effective termination agreements |
| The Company offers long distance services as part of the integrated package of telecommunications services that it provides its customers |
| The Company has relied on and will continue to rely on other carriers to provide transport and termination services for portions of its long distance traffic |
| These agreements typically provide for the termination of long distance services on a per-minute basis and may contain minimum volume commitments |
| Negotiation of these agreements involves estimates of future supply and demand for transport capacity, as well as estimates of the calling patterns and traffic levels of its future customers |
| If the Company underestimates its need for transport capacity, the Company may be required to obtain capacity through more expensive means |
| These failures may result in a material adverse effect on the Company’s business and the price of its Common Stock |
| The market price of the Company’s Common Stock has been and may be volatile |
| The Company’s Common Stock has traded on The Nasdaq National Market since January 29, 1999 |
| Since that time, the trading market for its Common Stock has been characterized by limited liquidity, low volume and price volatility |
| In addition, the following factors, among others, may cause the price of the Company’s Common Stock to fluctuate: • entrance of new competitors, • sales by the Company’s current shareholders of large amounts of its Common Stock, • new legislation or regulation, • variations in its revenue, net income and cash flows, • the difference between its actual results and the results expected by investors and analysts, • announcements of unfavorable financial or operational performance for other telecommunications companies, • announcements of new service offerings, marketing plans or price reductions by the Company or its competitors, • technological innovations, and • mergers, acquisitions or strategic alliances |
| General market conditions, poor financial performance, and bankruptcy announcements by other telecommunications companies have resulted in fluctuations in the market prices of the stocks of many companies in the Company’s sector that may not have been directly related to the operating performance of those companies |
| These market fluctuations may materially adversely affect the price of the Company’s Common Stock |
| The Company’s investments in marketable securities and unconsolidated companies may not be successful |
| The Company purchases investments in marketable securities, which may have significant price fluctuations from period to period that may have a material adverse impact on the Company’s financial results |
| The Company also purchases investments in companies that are not publicly traded |
| The Company generally carries these investments at their cost of investment |
| The success or failure of these companies and the resultant effect on the Company’s carrying value for these investments in unconsolidated companies may have a material adverse impact on the Company’s financial results |
| 23 _________________________________________________________________ [77]Table of Contents Anti-takeover provisions may limit the ability of shareholders to effect a change in control of the Company |
| The Company’s Articles of Incorporation and Bylaws contain provisions for staggered terms of directors, removal of directors for cause only, supermajority voting for certain business combinations and the availability of authorized but unissued shares of Common Stock |
| Also, the Company has adopted a shareholders’ rights plan in which each shareholder is entitled to purchase additional shares of Common Stock at a specified purchase price upon the occurrence of certain events related to a potential change in its control |
| These provisions may have the effect of deterring transactions involving a change in the Company’s control or management, including transactions in which shareholders might receive a premium for their shares |
| Evolving corporate governance and public disclosure regulations may result in additional expenses and uncertainty |
| The Company is committed to legal compliance and maintaining a high standard of corporate governance |
| Over the past few years, the laws, regulations and standards associated with corporate governance and public disclosure have dramatically changed |
| The Sarbanes-Oxley Act of 2002, new SEC regulations and Nasdaq National Market rules are subject to varying interpretations, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies |
| Consequently, the Company could face uncertainty regarding compliance matters and substantially higher compliance costs |
| The Company will invest in resources to comply with evolving laws, regulations and standards, which will likely result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities |
| Equipment failure and disasters may adversely affect the Company’s operations |
| Terrorism, a major equipment failure, severe weather, a natural disaster or other breach of network or IT security that affects the Company’s telephone network, microwave links, third-party owned local and long distance networks on which the Company relies, the Company’s cell sites or other equipment or the networks of other providers on which the Company’s wireless customers roam could have a material adverse effect on the Company’s operations |
| The Company’s inability to operate its telephone systems, even for a limited time period, may result in a loss of customers or impair its ability to attract new customers, which would have a material adverse effect on the Company’s business, results of operations and financial condition |
| The Company expects a continued decline in the voice long distance industry |
| Historically, prices for voice communications have fallen because of competition, the introduction of more efficient networks and advanced technology, product substitution, excess capacity and deregulation |
| The Company expects these trends to continue, and the Company may need to continue to reduce prices in the future |
| In addition, the Company does not expect it will be able to achieve increased traffic volumes in the near future to sustain current revenue levels |
| The extent to which each of the Company’s businesses, financial condition, results of operations and cash flow could be materially adversely affected will depend on the pace at which these industry-wide changes continue |
| The Company relies on a limited number of key suppliers and vendors to operate its business |
| Termination or impairment of the Company’s relationship with a small number of key suppliers or vendors could adversely affect its revenues and results of operations |
| The Company has developed relationships with a small number of key vendors, but do not have operational or financial control over those vendors and have limited influence with respect to the manner in which these key suppliers conduct their businesses |
| If these companies were unable to honor, or otherwise failed to honor their obligations to the Company, or terminated their relationship with the Company, then the Company could experience business disruptions and adverse effects on results of operations |