the future.  We continue to focusare focused on enhancing our broadband and commercial and broadband growth opportunitiesproduct suite and are continually expandingenhancing our commercial product offerings for both small and large businesses to capitalize on industry technological advances.meet the needs of our business customers.  We can leverage our advanced fiber optic networks and tailor our services for business customers by developing solutions to fit their specific needs.  We provide services to a wide range of commercial customers from sole proprietors and other small businesses to multi-location corporations and telecommunications carriers.  Our businessAdditionally, we are continuously enhancing our suite of services includes localmanaged and long-distance calling plans, hosted voice services using cloud network servers, the added capacity for multiple phone lines, scalable broadband Internet, online back-up and business directory listings.  In addition, we recently launched a suite of cloud services, and an enhanced hosted voice product thatwhich increases efficiency and enables greater scalability and reliability for businesses.  We anticipate future momentum in commercial and carrier services as these products gain traction as well as from the demand from customers for additional bandwidth and data-based services.  

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For larger businesses, we offer data services including dedicated Internet access through our Metro Ethernet network.  Wide Area Network (“WAN”) products include point-to-point and multi-point deployments from 2.5 Mbps to 10 Gbps, accommodating the growth patterns of our business customers.  Our data centers provide redundant, scalable bandwidth over a self-healing fiber-optic backbone that is protected by uninterrupted power supplies and generator back-ups with direct connection to broadband.  We also offer wholesale services to regional and national interexchange and wireless carriers, including cellular backhaul, dark fiber and other fiber-based transport solutions with speeds up to 100 Gbps.

We market services to our residential customers either individuallyservices by leading with broadband or as a bundled package.  Our “triple play” bundleservices, which includes our voice,high-speed Internet, video and dataphone services.  As the marketconsumer demands for bandwidth continue to increase, as a result of consumer trends toward increased Internet usage, our continued focus is on enhancing productour broadband services, and service offerings, such as our progressively increasing consumer databroadband speeds.  We offer data speeds of up to 1 GbpsGigabits per second (“Gbps”) in select markets.    Wheremarkets, and up to 100 Mbps in markets where 1 Gbps speeds areis not yet offered, the maximum broadband speed is 100 Mbps,available, depending on the geographic market availability.geographical region.  As of December 31, 2016, approximately 28% of the homes in the areas we serve subscribe to our data service.  Our exceptional consumer broadband speed allows us to continue to meetincrease broadband speeds, we are also able to simultaneously expand the needsarray of our customersservices and content offerings that the demand for higher speed resulting from the growing trend of over-the-top (“OTT”) content viewing.  The availability of 1 Gbps data speed also complements our wireless home networking (“Wi-Fi”) that supports our TV Everywhere service and allows our subscribers to watch their favorite programs at home or away on a computer, smartphone or tablet.network provides.

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A discussion of factors potentially affecting our operations is set forth in Part I – Item 1A – “Risk Factors”, which is incorporated herein by reference.

Key Operating Statistics

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Voice Services

Voice services include basic local phone and long-distance service packages for business customers.  The plans include options for voicemail, conference calling, linking multiple office locations and other custom calling features such as caller ID, call forwarding, speed dialing and call waiting.  Services can be charged at a fixed monthly rate, a measured rate or can be bundled with selected services at a discounted rate.  We are also a full service 9-1-1 provider and have installed and now maintain two turn-key, state of the art statewide next-generation emergency 9-1-1 systems.  These systems, located in Maine and Vermont, have processed over four million calls relying on the caller's location information for routing.  Next-generation emergency 9-1-1 systems are an improvement over traditional 9-1-1 and are expected to provide the foundation to handle future communication modes such as texting and video.

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Other

Other services revenues include business equipment sales and related hardware and maintenance support, video services and other miscellaneous revenues.

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Consumer

Broadband Services

Broadband services include revenuerevenues from residential customers for subscriptions to our VoIP data and videodata products.  We offer high speedhigh-speed Internet access at speeds of up to 1 Gbps, depending on the nature of the network facilities that are available, the level of service selected and the location.  Our data service plans also include wireless internet access, email and internet security and protection. Our VoIP digital phone service is also available in certain markets as an alternative to the traditional telephone line.  We offer multiple voice service plans with customizable calling features and voicemail.  voicemail including voicemail to email options.  

Video Services

Depending on geographic market availability, our video services range from limited basic service to advanced digital television, which includes several plans, each with hundreds of local, national and music channels including premium and pay-per-viewPay-Per-View channels as well as video on-demandOn-Demand service.  Certain customers may also subscribe to our advanced video services, which consist of high-definition television, digital video recorders (“DVR”) and/or a whole home DVR.  Our Whole Home DVR allows customers the ability to watch recorded shows on any television in the house, record multiple shows at one time and utilize an intuitive on-screen guide and user interface.  Video subscribers also have access to our TV Everywhere service in certain markets, which allows subscriber access to full episodes of available shows, movies and live streams using a computer or mobile device.  In addition, we offer other in-demand streaming content, including: DIRECTV^®, DIRECTV NOW^SM, fuboTV, Philo, HBO NOW^®, FlixFling and VEMOX.

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Voice Services

We offer several different basic local phone service packages and long-distance calling plans, including unlimited flat-rate calling plans.  The plans include options for voicemail and other custom calling features such as caller ID, call forwarding and call waiting.  The number of local access lines in service directly affects the recurring revenue we

Subsidies

Subsidies consist of both federal and state subsidies, which are designed to promote widely available, quality telephone servicebroadband services at affordable prices with higher data speeds in rural areas.  Subsidies are funded by end user surcharges to which telecommunications providers, including local, long-distance and wireless carriers, contribute on a monthly basis.  Subsidies are allocated and distributed to participating carriers monthly based upon their respective costs for providing local service.  Similar to access charges, subsidies are regulated by the federal and state regulatory commissions.  See Part I – Item 1 – “Regulatory Environment” below and Item 1A – “Risk Factors – Risks Related to the Regulation of Our Business” for further discussion regarding the subsidies we receive”.receive.

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Network Access Services

Network access services include interstate and intrastate switched access revenue,revenues, network special access services and end user access.  Switched access revenue includesrevenues include access services to other communications carriers to terminate or originate long-distance calls on our network.  Special access circuits provide dedicated lines and trunks to business customers and interexchange carriers.  Certain of our network access revenues are based on rates set or approved by the federal and state regulatory commissions or as directed by law that are subject to change at any time.

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Other Products and Services

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Other products and services include revenues from telephone directory publishing, video advertising, and billing and support services.services and other miscellaneous revenue.

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No customer accounted for more than 10% of our consolidated operating revenues during the years ended December 31, 2016, 20152019, 2018 and 2014.2017.

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Wireless Partnerships

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In addition to our core business, we also derive a significant portion of our cash flow and earnings from investments in five wireless partnerships.  Wireless partnership investment income is included as a component of other income in the consolidated statements of operations.  Our wireless partnership investment consists of five cellular partnerships: GTE Mobilnet of South Texas Limited Partnership (“Mobilnet South Partnership”), GTE Mobilnet of Texas RSA #17 Limited Partnership (“RSA #17”), Pittsburgh SMSA Limited Partnership (“Pittsburgh SMSA”), Pennsylvania RSA No. 6(I) Limited Partnership (“RSA 6(I)”) and Pennsylvania RSA No. 6(II) Limited Partnership (“RSA 6(II)”).

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Cellco Partnership (“Cellco”) is the general partner for each of the five cellular partnerships.  Cellco is an indirect, wholly-owned subsidiary of Verizon Communications Inc.  As the general partner, Cellco is responsible for managing the operations of each partnership.

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We own 2.34% of the Mobilnet South Partnership.  The principal activity of the Mobilnet South Partnership is providing cellular service in the Houston, Galveston and Beaumont, Texas metropolitan areas.  Because we have a minor ownership interest and cannot influence operations, weWe account for this investment using theat our initial cost method.less any impairment because fair value is not readily available for this investment.  Income is recognized only upon cash distributions of our proportionate earnings in the partnership.

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We own 20.51% of RSA #17, which serves areas in and around Conroe, Texas.  Because we have some influence over the operating and financial policies of this partnership, we accountThis investment is accounted for the investment under the equity method, recognizing incomemethod.  Income is recognized on our proportionate share of earnings.  Cashearnings and cash distributions are recorded as a reduction in our investment.

San Antonio MTA, L.P., a wholly owned partnership of Cellco Partnership (doing business as Verizon Wireless), is the general partner for both the Mobilnet South Partnership and RSA #17.

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We own 3.60% of Pittsburgh SMSA, 16.67% of RSA 6(I) and 23.67% of RSA 6(II), all of which are majority owned and operated by Verizon Wireless..  These partnerships cover territories that almost entirely overlap the markets served by our Pennsylvania ILECIncumbent Local Exchange Carrier (“ILEC”) and CLECCompetitive Local Exchange Carrier operations.  Because of our limited influence over Pittsburgh SMSA, we account for thethis investment using theat our initial cost method.less any impairment because fair value is not readily available for this investment.  RSA 6(I) and RSA 6(II) are accounted for under the equity method.

Employees

Employees

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As of December 31, 2016,2019, we employed approximately 1,6763,400 employees, including part-time employees.  We also use temporary employees in the normal course of our business.

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Approximately 20%42% of our employees were covered by collective bargaining agreements as of December 31, 2016.2019.  For a more detailed discussion regarding how the collective bargaining agreements could affect our business, see Part I - Item 1A – Risk Factors – “Risks Relating to Our Business”.

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Sales and Marketing

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The key components of our overall marketing strategy include:

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We currently offer our services through customer service call centers, our website, communication centers and commissioned sales representatives.representatives and third-party sales agents.  Our customer service call centers and dedicated sales teams serve as the primary sales channels for consumer, businesscommercial and carrier services.  Our sales efforts are supported by direct mail, bill inserts, newspaper, radio, television and televisioninternet advertising, public relations activities, community events and website promotions.

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We market our services both individually and as bundled services, including our triple-play offering of data, voice data and video services.  By bundling our service offerings, we are able to offer and sell a more complete and competitive package of services, which we believe simultaneously increases our average revenue per user (“ARPU”) and adds value for the consumer.  We also believe that bundling leads to increased customer loyalty and retention.

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Network Architecture and Technology

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We have made significant investments in our technologically advanced telecommunications networks and continue to enhance and expand our network by deploying technologies to provide additional capacity to our customers.  As a result, we are able to deliver high-quality, reliable data, video and voice services in the markets we serve.  Our wide-ranging network and extensive use of fiber provide an easy reach into existing and new areas.  By bringing the fiber network closer to the customer premises, we can increase our service offerings, quality and bandwidth services.  Our existing network enables us to efficiently respond and adapt to changes in technology and is capable of supporting the rising customer demand for bandwidth in order to support the growing amount of wireless data devices in our customers’ homes and businesses.

our residential and commercial customers.  Our fiber network utilizes fiber-to-the-home (“FTTH”) and fiber-to-the-node (“FTTN”) networks to offer bundled residential and commercial services.  

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We operate fiber networks which we own or have entered into long-term leases for fiber network access.  At December 31, 2016,2019, our fiber-optic network consisted of approximately 14,16037,500 route-miles, which includes approximately 4,56519,460 route miles of fiber located in the northern New England area, approximately 3,750 miles of fiber network in Minnesota and surrounding areas, approximately 4,1304,270 miles of fiber network in Texas including an expansion into the greater Dallas/Fort Worth market, approximately 1,8001,700 route-miles of fiber-optic facilities in the Pittsburgh metropolitan area, approximately 1,8151,950 miles of fiber network in Illinois, approximately 1,0851,100 route-miles of fiber optic facilities in California that cover large parts of the greater Sacramento metropolitan area and over 765approximately 1,090 route-miles of fiber optic facilities in Kansas City that service the greater Kansas City area, including both Kansas and Missouri.  In 2014,Our remaining network includes approximately 4,190 route-miles spanning across various states including portions of Alabama, Colorado, Florida, Georgia, Massachusetts, New York, Ohio, Pennsylvania and Washington.  

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We intend to continue to make strategic enhancements to our network including improvements in overall network reliability and increases to our broadband speeds.  We offer data speeds of up to 1 Gbps in select markets, and up to 100 Mbps in markets where 1 Gbps is not yet available, depending on the geographical region.  As of December 31, 2019, approximately 58% of the homes we serve on our legacy network had availability to broadband speeds of up to 100 Mbps or greater.  The majority of the homes in our newly acquired northern New England service territories have availability to broadband speeds of 20 Mbps or less.  Over the last two years, we upgraded broadband speeds to more than 750,000 homes and small businesses primarily across the northern New England service area as part of our integration initiatives and in 2019 expanded the availability of our commercial services into the greater Dallas/Fort Worth market, utilizing our existing carrier-class1 Gig fiber network in this area.  This networkselect markets.  The upgrades enable customers to receive broadband speeds up to three times the speeds previously was used to serve our wholesale and carrier customers.  With the expansion of the network, we began offering fiber based services including dedicated Internet access, wide area network services and hosted private branch exchange (iPBX) to commercial customers in this market.    available.

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Through our extensive fiber network, we are also able to support the increased demand on wireless carriers for data bandwidth.  In all the markets we serve, we have launched initiatives to support fiber backhaul services to cell sites.  As of December 31, 2016,2019, we had 1,2713,493 cell sites under contract with 1,119 connectedin service and 152 scheduled for completion in 2017.an additional 380 future sites pending completion.

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Business Strategies

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Diversify revenues and increase revenues per customer

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We continue to transform our business and diversify our revenue streams as we adapt to changes in the regulatory environment and advances in technology.  As a result of acquisitions, our wireless partnerships and increases in the demand for data services, we continue to reduce our reliance on subsidies and access revenue.  Utilizing our existing network and strategic network expansion initiatives, we are able to acquire and serve a more diversified business customer base and create new long-term revenue streams such as wireless carrier backhaul services.  We will continue to focus on growing our broadband and commercial services through the expansion and extension of our fiber network to communities and corridors near our primary fiber routes where we believe we can offer competitive services and increase market share.

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We also continue to focus on increasing our revenue per customer, primarily by improving our data market penetration, increasing the sale of other value-added services and encouraging customers to subscribe to our service bundles.

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Improve operating efficiency

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We continue to seek to improve operating efficiency through technology, better practices and procedures and through cost containment measures.  In recent years, we have made significant operational improvements in our business through the centralization of work groups, processes and systems, which has resulted in significant cost savings and reductions in headcount.  Because of these efficiencies, we are better able to deliver a consistent customer experience, service our

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Pursue selective acquisitions

We havethe payment of quarterly dividends on our stock beginning in the past taken, and expectsecond quarter of 2019 in order to continuefocus on deleveraging by using free cash flow to takereduce our outstanding debt.  During 2019, we utilized the dividend savings to reduce long-term debt through the repurchase in the future,open market of a disciplined approachportion of our unsecured 6.50% Senior Notes due in pursuing company acquisitions. WhenOctober 2022.  Through the capital allocation plan, we evaluate potential transactions, important factors include:

intend to improve our leverage ratio in preparation of our planned refinancing of our outstanding debt in 2021.  We believe allthe change in capital allocation will strengthen our financial position, improve our future cost of capital and create additional financial and strategic flexibility to grow our business in the above criteria will be met in connection with our expected acquisition of FairPoint in 2017.  In the long term, we believe that this transaction will give us additional scale and will better position us financially, strategically and competitively to pursue additional acquisitions.long-term.

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Competition

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The telecommunications industry is subject to extensive competition, which has increased significantly in recent years.  Technological advances have expanded the types and uses of services and products available.  In addition, differences in the regulatory environment applicable to comparable alternative services have lowered costs for these competitors.  As a result, we face heightened competition but also have new opportunities to grow our broadband business.  Our competitors vary by market and may include other incumbent and competitive local telephone companies; cable operators offering video, data and VoIP products; wireless carriers; long distance providers; satellite companies; Internet service providers, online video providers and in some cases new forms of providers who are able to offer a broad range of competitive services.  We expect competition to remain a significant factor affecting our operating results and that the nature and extent of that competition will continue to increase.increase in the future.  See Part I - Item 1A – “Risk Factors – Risks Relating to Our Business”.

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In recent years, competition in our incumbent service areas has increased significantly.  Except for the traditional multichannel video delivery business, which requires significant capital investment to serve customers, the barriers to entry are not high and technology changes force rapid competitive adjustments.  Depending on the market area, we compete against AT&T and a number of other carriers, as well as Comcast, Time Warner, Mediacom, Armstrong, Suddenlink and NewWave Communications, in both the commercial and consumer markets.  Google also recently launchedoffers data and video services in a limited, but growing, number of service areas including the Kansas City market.  Our competitors offer traditional telecommunications services as well as IP-based services and other emerging data-based services. Our competitors continue to add features and adopt aggressive pricing and packaging for services comparable to the services we offer.

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We continue to face significant competition from wireless and other fiber data providers as the demand for substitute communication services, such as wireless phones and data devices, continues to increase.  Customers are increasingly foregoing traditional telephone services and land-based Internet service and relying exclusively on wireless service.  Wireless companies are aggressively developing networks using next-generation data technologies in order to provide increasingly faster data speeds to their customers.  In addition, the expanded availability for free or lower cost services, such as video over the Internet, complimentary Wi-Fi service and other streaming devices has increased competition among other providers including online digital distributors for our video and data services.

In most cases, we have entered the cable television service markets as the operator of a second (or subsequent) cable system.  Therefore, we face the challenge of drawing customers away from the incumbent cable service provider. Similarly, the possession of comparatively greater size and scale can give an incumbent cable competitor an advantage in both access to and pricing of the program content needed to operate a cable television business.  Our competitors, in some cases, possess significantly greater size and scale than we do.  In order to meet the competition, we have responded in part by introducing new services and service bundles, offering services in convenient groupings with package discounts and billing advantages, providing excellent customer service and by continuing to invest in our network and business operations.operations in order to offer new and enhanced services including faster broadband speeds, cloud-enabled video service and providing additional over-the-top video content.

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In our rural markets, services are more costly to provide than serviceservices in urban areas as a lower customer density necessitates higher capital expenditures on a per-customer basis.  As a result, it generally is not economically viable for

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areas.  Revenues from federal and certain states’ USFs totaled $48.4$72.4 million, $56.3$83.4 million and $53.2$62.3 million in 2016, 20152019, 2018 and 2014,2017, respectively.

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In order for an eligible telecommunications carrier (“ETC”) to receive high-cost support, the USF/Intercarrier Compensation (“ICC”) Transformation Order requires states to certify annually that USF support is used only for the provision, maintenance and upgrading of facilities and services for which the support is intended.  States, in turn, require that ETCs file certifications with them as the basis for the state filings with the FCC. Failure to meet the annual data and certification deadlines can result in reduced support to the ETC based on the length of the delay in certification.  Each of our rural telephone companies has been designated as an ETC. For calendar year 2013, the California state certification was due to be filed with the FCC on or before October 1, 2012. We were notified in January 2013 that SureWest Communications (“SureWest”) did not submit the required certification to the California Public Utilities Commission (“CPUC”) in time to be included in its October 1, 2012 submission to the FCC.  In January 2013, we filed a certification with the CPUC and filed a petition with the FCC for a waiver of the filing deadline for the annual state certification. In February 2013, the CPUC filed a certification with the FCC with respect to SureWest. In October 2013, the Wireline Competition Bureau of the FCC denied our petition for a waiver of the annual certification deadline.  In November 2013, we applied for a review of the decision made by the FCC staff by the full Commission.  Management is optimistic that the Company may prevail in its application to the Commission and receive USF funding for the period January 1, 2013 through June 30, 2013 based on the change in SureWest’s USF filing status caused by the change in the ownership of SureWest, the lack of formal notice by the FCC regarding this change in filing status, the fact that SureWest had a previously filed certification of compliance in effect with the FCC for the two quarters for which USF was withheld and the FCC’s past practice of granting waivers to accept late filings in similar situations. However, due to the denial of our petition by the Wireline Competition Bureau and the uncertainty of the collectability of previously recognized revenues, in December 2013 we reversed $3.0 million of previously recognized revenues until such time that the Commission has the opportunity to reach a decision on our application for review.  In October 2016, the FCC denied our request for review and, in December 2016, we filed a petition for review of this denial with the United States Court of Appeals for the District of Columbia Circuit.  The proceeding is currently pending.

FCC Access Charge and Universal Service Reform Order

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In November 2011, the FCC released a comprehensive order on access charge and universal service reform (the “Order”).  The access charge portion of the Order systematically reduces minute-of-use-based interstate access, intrastate access and reciprocal compensation rates over a six to nine year period to an end state of bill-and-keep, in which each carrier recovers the costs of its network through charges to its own subscribers, rather than through intercarrier compensation.ICC.  The reductions apply to terminating access rates and usage, with originating access to be addressed by the FCC in a later proceeding.  To help with the transition to bill-and-keep, the FCC created two mechanisms.  The first is an Access Recovery Mechanism (“ARM”) which is funded from the Connect America Fund (“CAF”), and the second is an Access Recovery Charge (“ARC”) which is recovered from end users.  The universal service portion of the Order redirects support from voice services to broadband services, and is now called the CAF.  

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The initial release of the Order mandated that, in order to receive CAF funding, carriers must agree to provide broadband capability to 100% of their customer base at a minimum speed of 4 Mbps downstream and 1Mbps upstream. 

In the Order, holding companies with price cap study areas andrequires rate of return study areas are mandatedassociated with holding companies to move each of their interstatebe treated as price cap carriers for universal service funding.  For ICC purposes, these rate of return study areas to price cap for universal service purposes only.  The intercarrier compensation rules will keep rate of return study areascarriers fall under the rate of return intercarrier compensation transitions plan and the priceICC transition plan.  Price cap study areas fall under the price cap intercarrier compensation transition.rules for both universal service reform and ICC reform.

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In 2012, CAF Phase I was implemented, which froze USF support to price cap carriers until the FCC implemented a broadband cost model to shift support from voice services to broadband services.  The Order also modified the methodology used for ICC traffic exchanged between carriers.  The initial phase of ICC reform was effective on July 1, 2012, beginning the transition of our terminating switched access rates to bill-and-keep over a seven year period for price cap carriers and a nine year period for rate of return carriers, and as a result, our network access revenue decreased approximately $1.7$1.1 million, $1.3$3.0 million and $1.4$2.8 million during 2016, 20152019, 2018 and 2014,2017, respectively.  

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In December 2014, the FCC released a report and order that addressed, among other things, the transition to CAF Phase II funding for price cap carriers and the acceptance criteria for CAF Phase II funding and the annual reporting requirements, and the introduction of CAF Phase III.funding.  For companies that accept the CAF Phase II funding, there is a three year transition period in instances in whichwhere their current CAF Phase I funding exceeds the CAF Phase II funding.  If CAF Phase II funding

exceeds CAF Phase I funding, the transitional support is waived and CAF Phase II funding begins immediately.  Companies are required to commit to a statewide build out requirement to 10 Mbps downstream and 1 Mbps upstream in funded locations.

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We accepted the CAF Phase II funding in August 2015, which was effective as of January 1, 2015.  The annual funding under CAF Phase I of $36.6 million was replaced by annual funding under CAF Phase II of $13.9 million through 2020.  With the sale of our Iowa ILEC in 2016, this amount was further reduced to $11.5 million through 2020.  Subsequently, with the acquisition of FairPoint in 2017, this amount increased to $48.9 million through 2020.  With the sale of our Virginia ILEC in 2018, this amount was reduced to $48.1 million through 2020.  The acceptance of funding at the lower level for CAF Phase II will transitionfunding at a level lower than the frozen CAF Phase I support results in CAF Phase II transitional funding over a three year period beginning in August 2015,based on the difference between the CAF Phase I funding and the CAF Phase II funding at the rates of 75% of the CAF Phase I funding level in the first year, 50% in the second year and 25% in the third year.  We accepted CAF Phase II support in all of our operating states except Colorado and Kansas where the offered CAF Phase II support was declined.  We continue to receive frozen CAF Phase I support in Colorado and Kansas until such time as the FCC CAF Phase II auction assigns support to another provider.  The FCC auction process for CAF Phase II funding occurred during the third quarter of 2018.  The winners of the auction have been announced and the impact in 2020 is a reduction of $1.0 million in frozen CAF Phase I support.

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The annual reporting requirements include (i) filings of annual certifications that the carrier is both meeting its public interest obligations and is offering comparable broadband rates and (ii) the filing of a Service Quality Improvement plan. The initial plan mustwas required to be filed by July 1, 2016, with progress reports filed every year thereafter.  The plan must include, among other things, the total amount of CAF Phase II funding used to fund capital expenditures in the previous year and certification that the carrier is meeting the required interim deployment milestones.  The CAF Phase II build-out milestone for the end of 2019 was 80%.  This is measured separately by the Company’s operations in each state.  As of December 31, 2019, the Company met this milestone for all states where it operates.

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have pricing discretion with the law.  Although we have franchise agreements for cablerespect to existing and videonew retail telecommunications services in all the towns we serve, this statewide franchising authority will simplify the process in the future.  In July 2016, we notified the ILCC and the municipalities with which we have cable and video franchise agreements that we will be filing with the ILCC for statewide franchising authority in 2017.  In 2010, the Illinois General Assembly passed Public Act 96-0927, which updates the telecommunications statute, allowing ILECs, beginning January 1, 2011, to elect deregulation of local services.  The Governor of Illinois signed the bill into law on June 15, 2010.  CCIL elected this option effective April 1, 2014.  Under this option, CCIL’s rates for local services became “competitive” and no longer subject to rate of return regulation, and certain other service quality obligations are reduced.  CCIL is obligated to make certainthan basic local exchange service packages availableand certain services provided to customers.  Public Act 96-0927 also specified that local exchange carriers may not charge intrastate access rates at levels higher than their interstate access rates.  In June 2013,customers who qualify for the Illinois legislature approved additional amendments making minor changes to the telecommunications statute.  The current telecommunications statute is currently scheduled to sunset July 1, 2017.federal lifeline discount.

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Texas

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Our Texas rural telephone companies are each certified by the PUCT to provide local telephone services in their respective territories.  In addition, our Texas long-distance and transport subsidiaries are registered with the PUCT as interexchange carriers.  The transport subsidiary has also obtained a service provider certificate of operating authority (“SPCOA”) to better assist the transport subsidiary with its operations in municipal areas.  Recently, to assist with expanding services offerings, CCESConsolidated Communications Services, Inc. (“CCES”) also obtained a SPCOA from the PUCT.  While our Texas rural telephone company services are extensively regulated, our other services, such as long-distance and transport services, are not subject to any significant state regulation.

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Our Texas rural telephone companies operate as distinct companies from a regulatory standpoint.  Each is separately regulated by the PUCT in order to preserve universal service, protect public safety and welfare, ensure quality of service

rural areas.  The Texas Universal Service Fund is also used to reimburse telecommunications providers for revenues lost for providing lifeline service.  Our Texas rural telephone companies receive disbursements from this fund.  

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Our Texas ILECs receivehave historically received support from two state funds, the small and rural incumbent local exchange company plan High Cost Fund (“HCF”) and the high cost assistance fund (“HCAF”).  The HCF is a line-based fund used to keep local rates low.  The rate is applied on all residential lines and up to five single business lines.  The amount we receive from the HCAF is a frozen monthly amount that was originally developed to offset high intrastate toll rates.

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In September 2011, the Texas state legislature passed Senate Bill No. 980/House Bill No. 2603 which, among other things, mandated the PUCT to review the Universal Service Fund and issue recommendations by January 1, 2013 with the intent to effectively reduce the size of the Universal Service Fund.  This would be accomplished by implementing an urban floor to offset state funding reductions with a phase-in period of four years.  The PUCT recommended that (i) frozen line counts be lifted effective September 1, 2013 and (ii) rural and urban local rate benchmarks be developed.  The large company fund review was completed in September 2012 and the PUCT addressed the small fund participants in Docket 41097 Rate Rebalancing (“Docket 41097”), as discussed below.

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In June 2013, the Texas state legislature passed Senate Bill No. 583 (“SB 583”).  The provisions of SB 583 were effective September 1, 2013 and froze HCF and HCAF support for the remainder of 2013.  As of January 1, 2014, our annual $1.4 million HCAF support was eliminated and the frozen HCF support returned to funding on a per line basis.  In July 2013, the Company entered into a settlement agreement with the PUCT on Docket 41097, which was approved by the PUCT in August 2013.  In accordance with the provisions of the settlement agreement, the HCF draw will bewas reduced by approximately $1.2 million annually over a four year period beginning June 1, 2014 through 2018.  However, we havehad the ability to fully offset this reduction with increases to residential rates where market conditions allow.

Minnesota Public Utilities Commission (“MPUC”).  Due to the size of our ILEC companies, the MPUC does not regulate our rates of return or profits.  In Minnesota, regulators monitor CCMN and CCMC price and service levels.

Local Government Authorizations

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In the various states we operate in, we operate under a structure in which each municipality or other regulatory agencies may impose various fees, such as for the privilege of originating and terminating messages and placing facilities within the municipality, for obtaining permits for street opening and construction, and/or for operating franchises to install and expand fiber optic facilities.  

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Regulation of Broadband and Internet Services

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Video Services

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Our cable television subsidiaries each require a state or local franchise or other authorization in order to provide cable service to customers.  Each of these subsidiaries is subject to regulation under a framework that exists in Title VI of the Communications Act.

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each of its markets.  As anticipated, fees under retransmission consent agreements generally underwent marked increases for the 2015 through 2017 period.

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Federal law and regulations regulate access to certain programming content that is delivered by satellite.  The FCC has provisions in place that ban certain discriminatory practices and unfair acts, and include a presumption that the withholding of regional sports programming by content affiliates of incumbent cable operators is presumptively unlawful.  The existing FCC complaint process for program access for both satellite and terrestrially-delivered content is governed on a case-by-case basis.  The FCC currently is considering adopting rules that could make it less burdensome for competing multichannel video programming providers who are denied access to cable-affiliated satellite programming on reasonable terms and conditions to pursue and meet evidentiary standards with respect to program access complaints.  This proceeding remains pending before the FCC.

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The FCC adopted an order banning exclusive contracts between affiliates where the programming is sent via terrestrial media, and banning certain other unfair acts, making it clear that the withholding of regional sports programming and high definition television programming by content affiliates of incumbent cable operators would receive special attention.  Unlike the satellite provisions, the new rules will not expire.

In early 2010, Comcast proposed to enter into a joint venture with NBC Universal, through which it would acquire control of numerous NBC properties, including both broadcast and cable television programming operations of NBC.  In early 2011, the FCC and the Department of Justice (“DOJ”) approved the transaction, with a significant number of conditions designed to promote programming diversity, to limit the ability of the combined entity to affect competition adversely, and to protect newly emerging markets such as independent OTT video. These conditions include requirements for program access and carriage, non-discrimination in making programming available, limits on bundling that would affect competition and the relationship of the joint venture to emerging on-line competition.  In addition, conditions were imposed to maintain independence within the NBC unit in dealing with competing cable operators.  The parties agreed to the conditions and the transaction was completed during 2011.  Most of the conditions will have a duration of seven years.

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The contractual relationships between cable operators and most providers of content who are not television broadcast stations generally are not subject to FCC oversight or other regulation.  The majority of providers of content to our subsidiaries, including content providers affiliated with incumbent cable operators such as Comcast, but who are not

framework.  California hasWashington have elected to separately regulate pole attachments and pole attachment rates.  All of the other states in which we operate in follow the FCC regulations and federal formula.  The FCC decision has been appealed, and the ultimate outcome of the appeal cannot be predicted.

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Cable operators are subject to longstanding cable copyright obligations where they pay copyright fees for some types of programming that are considered secondary retransmissions.  The copyright fees are updated from time to time, and are paid into a pool administered by the United States Copyright Office for distribution to qualifying recipients.

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The FCC has so far declined to require that cable operators allow unaffiliated Internet service providers to gain access to customers by using the network of the operator’s cable system. The FCC also has considered the benefits of a requirement that cable operators offer programming on their systems on an a la carte or themed basis, but to date has not adopted regulations requiring such action.  These matters may resurface in the future, particularly as the OTT market grows.  In light of the fact that programming is increasingly being made available through Internet connections, some cable operators have considered their own a la carte alternatives.  Content owners with linear channels continue to provide greater “on demand” programming and offerings that maintain the value of their linear channels for customers.

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The outcome of pending matters cannot be determined at this time but cancould lead to increased costs for the Company in connection with our provision of cable services and cancould affect our ability to compete in the markets we serve.

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Internet Services

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The provision of Internet access services is not significantly regulated by either the FCC or the state commissions.  However, the FCCThe Federal Trade Commission (“FTC”) has been moving toward the imposition of some controls on the provision ofauthority to regulate Internet access. In 2002, in part to place cable modem service and Digital Subscriber Line (“DSL”) service on an equal competitive footing, the FCC asserted jurisdiction over these services as “information services” under Title I of the Communications Act, and removed them from treatment under Title II of the Act, but to date it has not determined what regulatory framework, if any, is appropriate for Internet services under Title I.

The FCC has also adopted policy principles to signal its objectivesService Providers with respect to high-speed Internetprivacy and related services.  These principles are intended to encourage broad customer access tocompetitive practices.  During 2017, the content and applications of their choice, to promote the unrestricted use of lawful equipment by usersFCC adopted an order eliminating its previous classification of Internet services and to promote competition among providers.

In 2009, the FCC proposed to enact rules related to Internet access services, relying in part on the policy principles that it had earlier adopted, but expanding their reach and adding additional provisions.  These rules prohibit discrimination with respect to applications providers, among other things, subject to reasonable network management by an Internet access service provider.

The FCC has asserted that it has jurisdictional authority under the Communications Act for the promotion of an “open Internet” or “net neutrality”.  The FCC elected to adopt these rules in December 2010.  In January 2014, the U.S. Court of Appeals for the D.C. Circuit found that the FCC does have the authority to implement regulation of the Internet if those rules reasonably advance the promotion of broadband deployment and do not violate other statutory requirements.

As a result of the ruling, the FCC intends to reclassify broadband Internet services as a telecommunications service subject to regulationregulated under Title II of the Telecommunications Act of 1996, and in March 2015,1996.  This effectively limits the FCC’s authority over Internet Service Providers.  The FCC released its net neutrality order, which appliesretained rules requiring Internet Service Providers to all wireline and wireless providers of broadband Internet services. The net neutrality order addresses several areas that will be regulated and others that are subject to forbearance.  The regulations disallowdisclose practices associated with blocking, throttling and paid prioritization byof Internet service providers.traffic.  The net neutralityFCC order also requires providers to disclose certain information to consumers regarding rates, fees, data allowanceshas been challenged in court and packet loss. Finally, it gives the FCC codified enforcement authority and it forbears on certain Title II regulations.  We do not believe the net neutrality order will result in significant changes to the services we provide our customers, nor do we believe it will have a material impact on our financial position or results of operations.

The Federal Trade Commission (“FTC”) is currently assessing certain advertising and marketing practices of Internet-related companies, as well as the useoutcome of the Internet in connection with other businesses.  FTC action can affect the mannerchallenge cannot be determined at this time.  

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Item 1A.  Risk Factors.

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Our operations and financial results are subject to various risks and uncertainties, including but not limited to those described below, that could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our common stock.

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Risks Relating to Our Business

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We expect to continue to face significant competition in all parts of our business and the level of competition could intensify among our customer channels.  The telecommunications industry is highly competitive.  We face actual and potential competition from many existing and emerging companies, including other incumbent and competitive local telephone companies, long-distance carriers and resellers, wireless companies, Internet service providers, satellite companies and cable television companies, and, in some cases, from new forms of providers who are able to offer competitive services through software applications requiring a comparatively small initial investment. Due to consolidations and strategic alliances within the industry, we cannot predict the number of competitors we will face at any given time.

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The wireless business has expanded significantly and has caused many subscribers with traditional telephone and land-based Internet access services to give up those services and rely exclusively on wireless service.  Consumers are findingIn addition, consumers’ options for viewing television shows of interest to themhave expanded as content becomes increasingly available through the Internet and are watching content that is downloaded to their computers.alternative sources.  Some providers, including television and cable television content owners, have initiated what are called over-the-topOver-The-Top (“OTT”) services that deliver video content to televisions, computers and computersother devices over the Internet.  OTT services can include episodes of highly-rated television series in their current broadcast seasons.  They can also can include content that is related to broadcast or sports content that we carry, but that is distinct and may be available only through the alternative source.

Finally, the transition to digital broadcast television has allowed many consumers to obtain high-definition local broadcast television signals (including many network affiliates) over-the-air using a simple antenna. Consumers can pursue each of these options without foregoing any of the other options.  We may not be able to successfully anticipate and respond to many of thesethe various competitive factors affecting the industry, including regulatory changes that may affect our competitors and us differently, new technologies, services and applications that may be introduced, changes in consumer preferences, demographic trends, and discount or bundled pricing strategies by competitors.

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The incumbent telephone carriercarriers in the markets we serve enjoysenjoy certain business advantages, including size, financial resources, favorable regulatory position, a more diverse product mix, brand recognition and connection to virtually all of our customers and potential customers.  The largest cable operators also enjoy certain business advantages, including size, financial resources, ownership of or superior access to desirable programming and other content, a more diverse product mix, brand recognition and first-in-field advantages with a customer base that generates positive cash flow for its operations.  Our competitors continue to add features, increase data speeds and adopt aggressive pricing and packaging for services comparable to the services we offer.  Their success in selling services that are competitive with ours among our various customer channels cancould lead to revenue erosion in other related areas.our business.  We face intense competition in our markets for long-distance, Internet access, video service and other ancillary services that are important to our business and to our growth strategy.  If we do not compete effectively we could lose customers, revenue and market share; customers may reduce their usage of our services or switch to a less profitable service; and we may need to lower our prices or increase our marketing efforts to remain competitive.share.

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We must adapt to rapid technological change.changes.  If we are unable to take advantage of technological developments, or if we adopt and implement them at a slower rate than our competitors, we may experience a decline in the demand for our service.  services.  Our industry operates in a technologically complex environment.  New technologies are continually developed and existing products and services undergo constant improvement.  Emerging technologies offer consumers a variety of choices for their communication and broadband needs.  To remain competitive, we will need to adapt to future changes in technology to enhance our existing offerings and to introduce new or improved offerings that anticipate and respond to the varied and continually changing demands of our various customer channels.  Our business and results of operations could be adversely affected if we are unable to match the benefits offered by competing technologies on a timely basis orand at an acceptable cost, andor if we fail to employ technologies desired by our customers before our competitors do so or if we do not successfully execute on our technology initiatives.so.

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for another company to acquire us, and therefore, could limit the price that investors might be willing to pay in the future for shares of our common stock.  In addition, the rights of our common stockholders will beare subject to, and may be adversely affected by, the rights of holders of any class or series of preferred stock that we may issue in the future.

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