| SPRINT NEXTEL CORP Item 1A Risk Factors Risks Related to the Sprint-Nextel Merger and the Spin-off of Embarq We may not be able to successfully integrate the businesses of Nextel with ours and realize the anticipated benefits of the merger |
| Significant management attention and resources are being devoted to integrating the Nextel wireless network and other wireless technologies with ours, as well as the business practices, operations and support functions of the two companies |
| The challenges we are facing and/or may face in the future in connection with these integration efforts include the following: • integrating our CDMA and iDEN wireless networks, which operate on different technology platforms and use different spectrum bands, and developing wireless devices and other products and services that operate seamlessly on both technology platforms; • developing and deploying next generation wireless technologies; • combining and simplifying diverse product and service offerings, subscriber plans and sales and marketing approaches; • preserving subscriber, supplier and other important relationships; 20 ______________________________________________________________________ • consolidating and integrating duplicative facilities and operations, including back-office systems; • addressing differences in business cultures, preserving employee morale and retaining key employees, while maintaining focus on providing consistent, high quality customer service and meeting our operational and financial goals; and • adequately addressing business integration issues while also planning and preparing for the contemplated spin-off of Embarq |
| The process of integrating Nextel’s operations with ours could cause interruptions of, or loss of momentum in, our business and financial performance |
| The diversion of management’s attention and any delays or difficulties encountered in connection with the integration of the two companies’ operations could have an adverse effect on our business, financial condition or results of operations |
| We may also incur additional and unforeseen expenses in connection with the integration efforts |
| There can be no assurance that the expense savings and synergies that we anticipate from the merger will be realized fully or within our expected timeframe |
| We also recently acquired five PCS Affiliates (US Unwired, IWO Holdings, Gulf Coast Wireless, Alamosa Holdings and Enterprise Communications), and will acquire Nextel Partners when the required regulatory approvals are obtained |
| The process of integrating the business practices, operations and support functions of these companies could involve challenges similar to those identified above or add to those challenges by placing a greater strain on our management and employees |
| Operational challenges, proposed tax law changes and other uncertainties may make it difficult or less economical to complete the contemplated spin-off of Embarq on terms that are acceptable to us |
| Failure to complete the spin-off could adversely affect our growth |
| There are significant operational and technical challenges that need to be addressed in order to separate the assets and operations of Embarq from the rest of our business in connection with the planned spin-off of Embarq to our shareholders |
| The spin-off will require the creation of a new publicly traded company with a capital structure appropriate for that company, the creation and staffing of operational and corporate functional groups and the establishment of ongoing commercial arrangements and transition services arrangements between us and Embarq |
| The spin-off may result in additional and unforeseen expenses, and completion of the spin-off cannot be assured because it is conditioned upon, among other things, receipt of required consents and approvals from various federal and state regulatory agencies, including state PUCs |
| These consents and approvals, if received, may impose conditions and limitations that could jeopardize or delay completion of the spin-off and could reduce the anticipated benefits of the merger and the spin-off |
| The US House of Representatives and the US Senate have separately approved legislation either of which would, if enacted, make certain changes to Section 355 of the Internal Revenue Code of 1986, as amended, or the Code, which governs the tax treatment of the spin-off |
| These bills, which are currently subject to conference negotiation between members of the House and Senate, contain similar, but not identical provisions |
| In addition, the US Department of the Treasury has recommended a similar provision regarding spin-offs in its revenue proposals for the fiscal year 2007 budget |
| After consultation with our tax advisors, we believe that it is unlikely that any of the proposed legislation, as currently drafted, would prevent the contemplated spin-off of Embarq |
| However, if we are unable to obtain satisfactory opinions from counsel regarding the tax-free qualification of the spin-off, our Board of Directors would consider several options, including electing not to complete the spin-off |
| We expect to receive approximately dlra6dtta6 billion in the form of cash and senior notes of Embarq in exchange for the assets contributed to Embarq |
| We expect to sell the senior notes issued to us and intend to use the proceeds from any such sale and the proceeds paid to us by Embarq to repay various obligations |
| There can be no assurance of the final amount of indebtedness to be incurred by Embarq or the proceeds to be received by us |
| If the contemplated spin-off of Embarq is not completed, we may have slower rates of growth than currently expected because of the industry-wide trends of increased competition and product substitution that are adversely 21 ______________________________________________________________________ affecting local communications businesses |
| Moreover, our strategy of developing our higher growth wireless business may conflict with the strategy and interests of Embarq, particularly as customers are increasingly choosing between wireline and wireless services |
| If the spin-off of Embarq does not qualify as a tax-free transaction, tax could be imposed on both our shareholders and us |
| We have received a private letter ruling from the Internal Revenue Service, or IRS, that the spin-off of Embarq will qualify for tax-free treatment under Code Sections 355 and 361 |
| In addition, we intend to obtain opinions of counsel from each of Cravath, Swaine & Moore LLP and Paul, Weiss, Rifkind, Wharton & Garrison LLP that the spin-off will so qualify |
| The IRS ruling relies, and the opinions will rely, on certain representations, assumptions and undertakings, including those relating to the past and future conduct of Embarq’s and our business, and neither the IRS ruling nor the opinions would be valid if such representations, assumptions and undertakings were incorrect |
| Moreover, the IRS private letter ruling does not address all the issues that are relevant to determining whether the distribution will qualify for tax-free treatment |
| Notwithstanding the IRS private letter ruling and opinions, the IRS could determine that the distribution should be treated as a taxable transaction if it determines that any of the representations, assumptions or undertakings that were included in the request for the private letter ruling are false or have been violated, or if it disagrees with the conclusions in the opinions that are not covered by the IRS private letter ruling |
| If the distribution fails to qualify for tax-free treatment, it will be treated as a taxable distribution to our shareholders in an amount equal to the fair market value of Embarq’s equity securities (ie, Embarq’s common stock issued to our common shareholders) received by them |
| In addition, we would be required to recognize gain in an amount up to the fair market value of the Embarq equity securities that we distribute on the distribution date plus the fair market value of the senior notes received by us |
| Furthermore, subsequent events could cause us to recognize gain on the distribution |
| For example, even minimal acquisitions of our equity securities or Embarq’s equity securities that are deemed to be part of a plan or a series of related transactions that include the distribution and the Sprint-Nextel merger could cause us to recognize gain on the distribution |
| We will be subject to restrictions on acquisitions involving our stock and other stock issuances and possibly other corporate opportunities in order to enable the contemplated spin-off of Embarq to qualify for tax-free treatment |
| The contemplated spin-off of Embarq cannot qualify for tax-free treatment if 50prca or more (by vote or value) of our stock, or the stock of Embarq, is acquired or issued as part of a plan, or series of related transactions, that includes the contemplated spin-off |
| Because the Nextel merger generally is treated as involving the acquisition of 49dtta9prca of our stock (and the stock of Embarq) for purposes of this analysis, until the completion of the spin-off (and for some period thereafter), we will be subject to restrictions on certain acquisitions using our stock and other issuances of our stock in order to enable the spin-off to qualify for tax-free treatment |
| At this time, it is not possible to determine how long these restrictions will apply |
| In addition, it is not possible to determine whether these limitations will have a material impact on us |
| We are subject to exclusivity provisions and other restrictions under our arrangements with the remaining independent PCS Affiliates |
| Continued compliance with those restrictions may limit our ability to achieve synergies and fully integrate the operations of Nextel in the geographic areas served by those PCS Affiliates, and we could incur significant costs to resolve issues related to the merger under these arrangements |
| The manner in which these restrictions will be addressed is not currently known |
| The arrangements with the remaining five independent PCS Affiliates restrict our and their ability to own, operate, build or manage specified wireless communication networks or to sell certain wireless services within specified geographic areas |
| Several of these PCS Affiliates have commenced litigation against us asserting that actions that we have taken or may take in the future in connection with our integration efforts are inconsistent 22 ______________________________________________________________________ with our obligations under our agreements with them, particularly with respect to the restrictions noted above |
| Continued compliance with those restrictions may limit our ability to achieve synergies and fully integrate the operations of Nextel and Nextel Partners, following its expected acquisition, in the areas served by those PCS Affiliates |
| We could incur significant costs to resolve these issues |
| Risks Related to our Business and Operations We face intense competition that may reduce our market share and harm our financial performance |
| Each of our three operating segments faces intense competition |
| Our ability to compete effectively depends on, among other things, the factors discussed below |
| The blurring of the traditional dividing lines between local, long distance, wireless, video and Internet services contribute to increased competition |
| The traditional dividing lines between long distance, local, wireless, cable and Internet services are increasingly becoming blurred |
| Through mergers, joint ventures and various service expansion strategies, major providers are striving to provide integrated services in many of the markets we serve |
| This trend is also reflected in changes in the regulatory environment that have encouraged competition and the offering of integrated services |
| We expect competition to intensify across all of our business segments as a result of the entrance of new competitors or the expansion of services offered by existing competitors, and the rapid development of new technologies, products, and services |
| We cannot predict which of many possible future technologies, products, or services will be important to maintain our competitive position or what expenditures we will be required to make in order to develop and provide these technologies, products or services |
| To the extent we do not keep pace with technological advances or fail to timely respond to changes in the competitive environment affecting our industry, we could lose market share or experience a decline in revenue, cash flows and net income |
| As a result of the financial strength and benefits of scale enjoyed by some of our competitors, they may be able to offer services at lower prices than we can, thereby adversely affecting our revenues, growth and profitability |
| If we are not able to attract and retain customers, our financial performance could be impaired |
| Our ability to compete successfully for new customers and to retain our existing customers will depend on: • our marketing and sales and service delivery activities; • our ability to anticipate and develop new or enhanced services that are attractive to existing or potential customers; and • our ability to anticipate and respond to various competitive factors affecting the industry, including new services that may be introduced by our competitors, changes in consumer preferences, demographic trends, economic conditions, and discount pricing and other strategies that may be implemented by our competitors |
| A key element in the economic success of communications carriers is the ability to retain customers as measured by the rate of subscriber churn |
| Our ability to retain customers and reduce our rate of churn is affected by a number of factors including, with respect to our wireless business, the actual or perceived quality and coverage of our network and the attractiveness of our service offerings |
| Our ability to retain customers in our businesses also is affected by competitive pricing pressures and the quality of our customer service |
| Our efforts to reduce churn may not be successful |
| A high rate of churn could impair our ability to increase the revenues of, or cause a deterioration in the operating margins of, our wireless operations or our operations as a whole |
| As the wireless market matures, we must increasingly seek to attract customers from competitiors and face increased credit risk from first time wireless subscribers |
| We increasingly must attract a greater proportion of our new customers from our competitors’ existing customer bases rather than from first time purchasers of wireless services |
| The higher market penetration also means that 23 ______________________________________________________________________ customers purchasing wireless services for the first time, on average, have a lower credit rating than existing wireless users, which generally results in both a higher churn rate due to involuntary churn and in a higher bad debt expense |
| Competition and technological changes in the market for wireless services could negatively affect our average revenue per user, subscriber churn, ability to attract new subscribers, and operating costs, which would adversely affect our revenues, growth and profitability |
| We compete with several other wireless service providers in each of the markets in which we provide wireless services |
| As competition among wireless communications providers has increased, we have created pricing plans that have resulted in declining average revenue per minute of use for voice services, a trend which we expect will continue |
| Competition in pricing and service and product offerings may also adversely impact customer retention, which would adversely affect our results of operations |
| The wireless communications industry is experiencing significant technological change, including improvements in the capacity and quality of digital technology such as the move to third generation, or 3G, wireless technology and the deployment of unlicensed spectrum devices |
| This causes uncertainty about future subscriber demand for our wireless services and the prices that we will be able to charge for these services |
| The rapid change in technology may lead to the development of wireless communications technologies or alternative services that exceed our levels of service or that consumers prefer over our services |
| If we are unable to meet future advances in competing technologies on a timely basis, or at an acceptable cost, we may not be able to compete effectively and could lose customers to our competitors |
| Mergers or other combinations involving our competitors and new entrants, including MVNOs, beginning to offer wireless services may also continue to increase competition |
| These wireless operators may be able to offer subscribers network features or products and services not offered by us, coverage in areas not served by either of our wireless networks or pricing plans that are lower than those offered by us, all of which would negatively affect our average revenue per user, subscriber churn, ability to attract new subscribers, and operating costs |
| One of the primary differentiating features of our Nextel-branded service is the two-way walkie-talkie service available on our iDEN network |
| A number of wireless equipment vendors, including Motorola, which supplies equipment for our Nextel branded service, have begun to offer wireless equipment that is capable of providing walkie-talkie services that are designed to compete with our walkie-talkie services |
| Several of our competitors have introduced handsets that are capable of providing walkie-talkie services |
| If these competitors’ services are perceived to be or become, or if any such services introduced in the future are, comparable to our Nextel branded walkie-talkie services, a key competitive advantage of our Nextel service would be reduced, which in turn could adversely affect our business |
| Failure to improve wireless subscriber service and to continue to enhance the quality and features of our wireless networks and meet capacity requirements of our subscriber growth could impair our financial performance and adversely affect our results of operations |
| We must continually make investments and incur costs in order to improve our wireless subscriber service and remain competitive |
| In connection with our continuing enhancement of the quality of our wireless networks and related services, we must: • maintain and expand the capacity and coverage of our networks; • obtain additional spectrum in some or all of our markets, if and when necessary; • secure sufficient transmitter and receiver sites and obtain zoning and construction approvals or permits at appropriate locations; and 24 ______________________________________________________________________ • obtain adequate quantities of system infrastructure equipment and handsets, and related accessories to meet subscriber demand |
| Network enhancements may not occur as scheduled or at the cost that we have estimated |
| Delays or failure to add network capacity, or increased costs of adding capacity, could limit our ability to satisfy our wireless subscribers, resulting in decreased revenues |
| Even if we continuously upgrade our wireless networks, there can be no assurance that existing subscribers will not prefer features of our competitors and switch wireless providers |
| Consolidation and competition in the wholesale market for wireline services could adversely affect our revenues and profitability |
| Our Long Distance segment competes with AT&T (formerly known as SBC Communications, which recently acquired AT&T), Verizon Communications (which recently acquired MCI), BellSouth Corporation, Qwest Communications, Level 3 Communications, Inc, and cable operators, as well as a host of smaller competitors, in the provision of wireline services |
| Some of these companies have built high-capacity, IP-based fiber-optic networks capable of supporting large amounts of voice and data traffic |
| These companies claim certain cost structure advantages which, among other factors, may allow them to maintain profitability while offering services at a price below that which we can offer profitably |
| Increased competition and the significant increase in capacity resulting from new technologies and networks may drive already low prices down further |
| Both AT&T and Verizon, as a result of their recent acquisitions, continue to be our two largest competitors in the domestic long distance communications market |
| We and other long distance carriers depend heavily on local access facilities obtained from ILECs to serve our long distance customers, and payments to ILECs for these facilities is a significant cost of service for our Long Distance segment |
| The acquisition of AT&T by SBC and MCI by Verizon could give those carriers’ long distance operations cost and operational advantages with respect to these access facilities because those carriers serve significant geographic areas, including many large urban areas, as the incumbent local carrier |
| In urban areas where Embarq operates, there is substantial competition from CLECs and cable operators, and competition is increasing in the suburban and rural areas that it serves |
| Cable companies selling cable modems continue to provide competition for high-speed data services to residential customers in Embarq’s service areas and are beginning to offer voice telephone service using their cable facilities in those areas |
| Competition from wireless services also affects Embarq, as e-mail and wireless services continue to grow as an alternative to the wireline services we offer |
| Failure to complete development, testing and deployment of new technology that supports new services could affect our ability to compete in the industry and the technology we use places us at a competitive disadvantage |
| We develop, test and deploy various new technologies and support systems intended both to enhance our competitiveness by supporting new services and features and reducing the costs associated with providing those services |
| Successful development and implementation of technology upgrades depend, in part, on the willingness of third parties to develop new applications in a timely manner |
| We may not successfully complete the development and rollout of new technology and related features or services in a timely manner, and they may not be widely accepted by our customers or may not be profitable, in which case we could not recover our investment in the technology |
| Deployment of technology supporting new service offerings may also adversely affect the performance or reliability of our networks with respect to both the new and existing services |
| Any resulting customer dissatisfaction could affect our ability to retain customers and have an adverse effect on our results of operations and growth prospects |
| Our wireless networks provide services utilizing CDMA and iDEN technologies |
| Wireless subscribers served by these two technologies represent a smaller portion of global wireless subscribers than the subscribers served by wireless networks that utilize GSM technology |
| As a result, our costs with respect to both CDMA and iDEN network equipment and handsets are generally higher than the comparable costs incurred by our competitors who use GSM technology |
| 25 ______________________________________________________________________ If we are unable to meet our future capital needs relating to investment in our networks and other obligations, it may be necessary for us to curtail, delay or abandon our business growth plans |
| If we incur significant additional indebtedness to fund our plans, it could cause a decline in our credit rating and could increase our borrowing costs or limit our ability to raise additional capital |
| We have substantial indebtedness, and we will require capital to satisfy our debt service requirements and other obligations, such as the obligation to (i) purchase the shares of Nextel Partners common stock that we do not already own, (ii) pay debt that we will assume in connection with the acquisition of Nextel Partners, and (iii) pay debt that we have assumed in connection with the acquisitions of PCS Affiliates |
| We also will require additional capital to make the capital expenditures necessary to implement our business plans or support future growth of our wireless business |
| Continued declines in the ability of our Long Distance segment to generate cash from its operations requires us to increase cash generated from our other segments |
| A decrease in our ability to generate cash from operations, or to obtain funds from other sources, may require us to seek additional financing to expand our businesses and meet our other obligations or divert cash used for capital expenditures, which could detract from operations and limit our ability to increase, or cause a decline in, revenues and net income |
| In addition, any future acquisitions may be made with additional borrowings |
| We may not be able to arrange additional financing to fund our requirements on terms acceptable to us |
| Our ability to arrange additional financing will depend on, among other factors, our financial performance, general economic conditions and prevailing market conditions |
| Failure to obtain suitable financing when needed could, among other things, result in the inability to continue to expand our businesses and meet competitive challenges |
| If we incur significant additional indebtedness, or if we do not continue to generate sufficient cash from our operations, our credit rating could be adversely affected |
| As a result, our future borrowing costs would likely increase and our access to capital could be adversely affected |
| We have entered into outsourcing agreements related to certain business operations |
| Any difficulties experienced in these arrangements could result in additional expense, loss of customers and revenue, interruption of our services or a delay in the roll-out of new technology |
| We have entered into outsourcing agreements for the development and maintenance of certain software systems necessary for the operation of our business |
| We have also entered into agreements with third parties to provide customer service and related support to our wireless subscribers and outsourced many aspects of our customer care and billing functions to third parties |
| We also have entered into an agreement whereby a third party has leased or operates a significant number of our communications towers, and we sublease space on these towers |
| As a result, we must rely on third parties to perform certain of our operations and, in certain circumstances, interface with our customers |
| If these third parties are unable to perform to our requirements, we would have to pursue alternative strategies to provide these services and that could result in delays, interruptions, additional expenses and loss of customers |
| The intellectual property rights utilized by us and our suppliers and service providers may infringe on intellectual property rights owned by others |
| Some of our products and services use intellectual property that we own |
| We also purchase products from suppliers, including handset device suppliers, and outsource services to service providers, including billing and customer care functions, that incorporate or utilize intellectual property |
| We and some of our suppliers and service providers have received, or may receive in the future, assertions and claims from third parties that the products or software utilized by us or our suppliers and service providers infringe on the patents or other intellectual property rights of these third parties |
| These claims could require us or an infringing supplier or service provider to cease certain activities or to cease selling the relevant products and services |
| Such claims and assertions also could subject us to costly litigation and significant liabilities for damages or royalty payments, or require us to cease certain activities or to cease selling certain products and services |
| 26 ______________________________________________________________________ If Motorola is unable or unwilling to provide us with equipment and handsets in support of our Nextel branded services, as well as anticipated handset and infrastructure improvements for those services, our iDEN operations will be adversely affected |
| Motorola is our sole source for most of the equipment that supports the iDEN network and for all of the handsets we offer under the Nextel brand except BlackBerry devices |
| Although our handset supply agreement with Motorola is structured to provide competitively priced handsets, the cost of iDEN handsets is generally higher than handsets that do not incorporate a similar multi-function capability |
| This difference may make it more difficult or costly for us to offer handsets at prices that are attractive to potential customers |
| In addition, the higher cost of iDEN handsets requires us to absorb a larger part of the cost of offering handsets to new and existing customers |
| These increased costs and handset subsidy expenses may reduce our growth and profitability |
| Also, we must rely on Motorola to develop handsets and equipment capable of supporting the features and services we plan to offer to subscribers of services on our iDEN network, including a dual-mode handset |
| A decision by Motorola to discontinue manufacturing, supporting or enhancing our iDEN-based infrastructure and handsets would have a material adverse effect on us |
| In addition, because iDEN technology is not as widely adopted and has fewer subscribers than other wireless technologies and because we expect that over time more of our customers will utilize service offered on our CDMA network, it is less likely that manufacturers other than Motorola will be willing to make the significant financial commitment required to license, develop and manufacture iDEN infrastructure equipment and handsets |
| Further, our ability to timely and efficiently implement the spectrum reconfiguration plan in connection with the FCC’s Report and Order is dependent, in part, on Motorola |
| The reconfiguration process contemplated by the FCC’s Report and Order may adversely affect our business and operations, which could adversely affect our future growth and operating results |
| As part of an ongoing FCC proceeding to eliminate interference with public safety operations in the 800 MHz band, the FCC released the Report and Order, which provides for the exchange of a portion of the FCC licenses used in our iDEN network for other licenses, including 10 MHz of spectrum in the 1dtta9 GHz band |
| In order to accomplish the reconfiguration of the 800 MHz spectrum band that is contemplated by the Report and Order, in most cases we will need to cease our use of a portion of the 800 MHz spectrum on our iDEN network in a particular market before we are able to commence use of replacement 800 MHz spectrum in that market |
| To mitigate the temporary loss of the use of this spectrum, in many markets we will need to construct additional transmitter and receiver sites or acquire additional spectrum in the 800 MHz or 900 MHz bands |
| This spectrum may not be available to us on acceptable terms |
| In markets where we are unable to construct additional sites or acquire additional spectrum as needed, the decrease in capacity may adversely affect the performance of our iDEN network, require us to curtail subscriber additions in those markets until the capacity limitation can be corrected, or a combination of the two |
| Degradation in network performance in any market could result in higher subscriber churn in that market, the effect of which could be exacerbated if we are forced to curtail subscriber additions in that market |
| A resulting loss of a significant number of subscribers could adversely affect our results of operations |
| We expect that the reconfiguration process will have at least some adverse impact on the capacity and performance of our iDEN network, particularly in some of our more capacity constrained markets |
| In addition, the Report and Order gives the FCC the authority to suspend our use of the 1dtta9 GHz spectrum that we received under the Report and Order if we do not comply with our obligations under the Report and Order |
| Government regulation could adversely affect our prospects and results of operations; the FCC and state regulatory commissions may adopt new regulations or take other actions that could adversely affect our business prospects or results of operations |
| The FCC and other federal, state and local governmental authorities have jurisdiction over our business and could adopt regulations or take other actions that would adversely affect our business prospects or results of operations |
| The licensing, construction, operation, sale and interconnection arrangements of wireless telecommunications systems are regulated by the FCC and, depending on the jurisdiction, state and local regulatory agencies |
| In particular, the FCC imposes significant regulation on licensees of wireless spectrum with respect to: • how radio spectrum is used by licensees; • the nature of the services that licensees may offer and how such services may be offered; and • resolution of issues of interference between spectrum bands |
| The Communications Act preempts state and local regulation of market entry by, and the rates charged by, CMRS providers, except that states may exercise authority over such things as certain billing practices and consumer-related issues |
| The California PUC has imposed rules designed to impose consumer protections |
| Several other states are considering similar initiatives |
| These regulations could increase the costs of our wireless operations |
| The FCC grants wireless licenses for terms of generally ten years that are subject to renewal and revocation |
| FCC rules require all wireless licensees to meet certain buildout requirements and substantially comply with applicable FCC rules and policies and the Communications Act of 1934 in order to retain their licenses |
| Failure to comply with FCC requirements in a given license area could result in revocation of the PCS license for that license area |
| There is no guarantee that our licenses will be renewed |
| The FCC has initiated a number of proceedings to evaluate its rules and policies regarding spectrum licensing and usage |
| For example, it is considering new concepts that might permit unlicensed users to “share” our licensed spectrum to the extent the FCC believes harmful interference will not occur |
| These new uses could adversely impact our utilization of our licensed spectrum and our operational costs |
| CMRS providers must implement E911 capabilities in accordance with FCC rules |
| Failure to deploy E911 service consistent with FCC requirements could subject us to significant fines |
| We were unable to satisfy the requirement that 95prca of our subscriber base have Assisted-GPS capable handsets by December 31, 2005 |
| We have filed a request for a waiver with the FCC seeking an extension of the December 31, 2005 handset penetration deadline to December 31, 2007, on which the FCC has not yet ruled |
| The FCC, together with the FAA, also regulates tower marking and lighting |
| In addition, tower construction is affected by federal, state and local statutes addressing zoning, environmental protection and historic preservation |
| The FCC adopted significant changes to its rules governing historic preservation review of projects, which makes it more difficult and expensive to deploy antenna facilities |
| The FCC is also considering changes to its rules regarding environmental protection as related to tower construction, which, if adopted, could make it more difficult to deploy facilities |
| Wireline Operations |
| The FCC order released in February 2005 on UNEs has largely eliminated the ability of our Long Distance segment to use the unbundled network element platform to offer competing local services to small business and residential customers in areas outside the Embarq local service areas, and the FCC’s pending re-examination of pricing guidelines for UNEs could limit our future ability to use high-capacity loop and transport UNEs to offer competing local services to medium and large business customers |
| The continued regulatory uncertainty regarding VoIP may result in a reduction in access revenues for our Local segment and may adversely affect the competitive position of our Long Distance segment to the extent it makes less use of VoIP than our competitors |
| While clarification of VoIP’s status as either an “information service” or a “telecommunications service” will provide greater certainty regarding the payment structure for VoIP traffic, the resulting decision could adversely impact access revenues for our Local segment |
| Adoption by the FCC of 28 ______________________________________________________________________ intercarrier compensation reform also may provide more regulatory certainty regarding charges applicable to VoIP traffic, but it could also reduce the revenues of our Local segment unless the plan provides a mechanism to replace those revenues with revenues from other sources |
| Depending upon its outcome, the FCC’s proceedings regarding regulation of special access rates could affect the rates paid by our Long Distance segment and revenues received by our Local segment for special access services in the future |
| Concerns about health risks associated with wireless equipment may reduce the demand for our services |
| Portable communications devices have been alleged to pose health risks, including cancer, due to radio frequency emissions from these devices |
| Purported class actions and other lawsuits have been filed against numerous wireless carriers, including us, seeking not only damages but also remedies that could increase our cost of doing business |
| We cannot be sure of the outcome of those cases or that our business and financial condition will not be adversely affected by litigation of this nature or public perception about health risks |
| The actual or perceived risk of mobile communications devices could adversely affect us through a reduction in subscribers, reduced network usage per subscriber or reduced financing available to the mobile communications industry |
| Further research and studies are ongoing, and we cannot be sure that additional studies will not demonstrate a link between radio frequency emissions and health concerns |