Citizens Communications has negotiated a settlement with AT&T by which it will be paid $38 million for a past billing dispute. The cash provides extra padding for a milestone that the Stamford-based telephone company recently achieved; in the fourth quarter of 2006, Citizens erased the $800 million in losses it had accumulated in the telecom bust, with just $6 million in wiggle room to spare.
The company”™s steady profit stream is quickly scrubbing out the stain of red ink from the period between 2000 and 2002, when under former Chief Executive Officer Leonard Tow the company dumped its energy business to focus on telecommunications, only to get zapped when the industry”™s fortunes flagged. Citizens Communications reported an $823 million loss in 2002, and corporate cuts incurred wrath in Rochester, N.Y., where its Frontier unit runs its operations.
Under CEO Maggie Wilderotter, who Citizens did not make available for comment, the company has engineered a spectacular turnaround in 2006, earning $345 million on revenue of $2 billion. While it was short of its revenue record of $2.4 billion set in 2000, it was easily its best-ever profit.
Last year, Citizens received $255 million in selling Electric Lightwave, which runs fiber optic networks and services in the western United States. Citizens also received $65 million from the federal government following the dissolution of the Rural Telephone Bank, which subsidized telephone service in rural areas.
The Electric Lightwave divestment left Citizens with 5,450 employees at the close of 2006, down 11 percent from a year earlier. In early March, however, Citizens picked up more than 1,000 new employees via its $1.3 billion acquisition of Commonwealth Telephone Enterprises Inc. of Dallas, Pa.
Commonwealth Telephone had an $84 million profit on sales of $330 million last year. Citizens plans to rename the operations Frontier, the brand it uses in 23 states.
The deal adds more than 300,000 lines in Pennsylvania, giving Citizens a total 2.8 million lines in 23 states. For the first time since 2002, Citizens lost customer lines in 2006, finishing the year with just above 2.5 million. The decline was largely due to its New York operations, where lines dipped below the 1 million mark for the first time since its 2000 acquisition of Frontier.
The only market in which Citizens can claim an unqualified success is West Virginia, where it has increased its line count 16 percent since 2000.
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Traditional telephone companies face a barrage of competition, from peers as well as mobile carriers and cable TV companies offering Internet-based service. Like AT&T Corp. and Verizon Communications Inc., Citizens is battling cable TV companies on their own turf, establishing a partnership in 2005 with Echostar”™s DISH Network. Citizens has signed up 63,000 customers for satellite television service, though it only receives activation and nominal bill collection fees, with DISH receiving the monthly service charges.
Citizens is also experimenting with wireless Internet service in a few locations, including the State University of New York in Orange County.
Citizens is not without its challenges. The company”™s profit fell 17 percent in the fourth quarter to $64 million, which it attributed to declines in local and long-distance service revenue. And it was slapped with a federal lawsuit in Louisiana, with a landlord accusing Citizens of attempting to extricate itself from a lease in a New Orleans tower that was damaged in Hurricane Katrina. In a response filed this month, Citizens said it has met all obligations under the lease agreement.
Citizens is meeting its covenant with investors as well. Since mid-February, the company”™s stock has flirted with a closing price of $15 a share, a dollar value it has not reached since 2001, and never on an adjusted basis.
The company closed 2006 by announcing a share buyback program, and this month announced it would issue $750 million in notes to refinance debt.
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