Commonwealth Telephone Enterprises, Inc.

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Commonwealth Telephone Enterprises, Inc.

100 CTE Drive
Dallas, Pennsylvania 18612-9774
U.S.A.
(717) 674-2700
Fax: (717) 675-0900
Web site: http://www.ct-enterprises.com

Public Company
Incorporated: 1907 as Commonwealth Telephone Co.
Employees: 1,081
Sales: $196.6 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbols: CTCO CTCOB
SICs: 4813 Telephone Communications, Except Radiotelephone; 4841 Cable & Other Pay Television Services; 4899 Communications Services, Not Elsewhere Classified

Commonwealth Telephone Enterprises, Inc. is the 13th-largest independent local-exchange carrier in the United States. Its core market consists of 19 counties in northeastern Pennsylvania, including areas where it has been a monopoly service provider for a century. The company, on a competitive basis, also began in 1997 to offer a variety of telephone services in adjacent areas, including high-speed data transmissions and interactive videoconferencing. It also became an Internet access provider in 1994 and was offering telecommunications engineering and technical services.

Commonwealth Telephone Through the 1970s

The company dates its beginnings to 1897, when Bert Stroh constructed a telephone line linking his home in Center More-land, Pennsylvania, to that of a neighbor. His further linkups resulted in the organization of the Center Moreland Telephone Co. in 1902. Three years later this company merged with the Northern Lackawanna Telephone Co. to form Commonwealth Telephone Co. In 1912 Commonwealth Telephone signed a contract with the Bell Telephone Co. that gave it exclusive territorial rights. In return, Commonwealth was linked to the American Telephone & Telegraph long-distance lines and the New York Telephone Co. In 1924 Commonwealth had assets of $961,393 and net income of $21,353 on gross earnings of $180,876.

Andrew J. Sordoni, a state senator, acquired a controlling interest in Commonwealth Telephone in 1928 through Public Service of Pennsylvania, Inc. and assumed the presidency of the corporation. Headquarters were in Forty Fort, Pennsylvania. In 1930 the company was supplying telephone service in Wyoming, Sullivan, and Susquehanna countries and parts of Luzerne, Lackawanna, and Bradford counties. Commonwealth made money throughout the Great Depression, although it stopped paying dividends in 1932 and net income fell to as low as $1,163 in 1937. In 1940 Commonwealth lost $29,857 on gross earnings of $402,734, but the company thereafter became profitable again. Dividends on common stock resumed in 1950, and stock was sold to the public for the first time in 1952.

By 1953 Commonwealth Telephone was providing service in eight Pennsylvania counties, with 27,186 telephones in service and corporate headquarters in Dallas, Pennsylvania. Sordoni had moved up to chairman, while Andrew J. Sordoni, Jr. had become president in 1950. Commonwealth acquired Tioga County Bell Telephone Co. in 1953, adding more than 6,000 telephones to its system, and Pennsylvania Community Telephone Co., with over 15,000 telephones in service, in 1954. The number of counties covered, in 1960, had reached 16, with 75,046 telephones in service. Net income that year came to $896,551 on operating revenues of $5.9 million.

Commonwealth Telephone was the third-largest independent telephone company in Pennsylvania and about the 15th-largest in the nation in 1966, when it installed its 100,000th telephone in service. Sixty percent of its customers still had only minimum basic service on a four-party line, but the company’s operating area, once predominantly rural, was changing rapidly. With the emergence of the interstate highway system, northeastern Pennsylvania, only three hours from New York City by expressway, had become the site of facilities established by a number of large industrial corporations.

Commonwealth Telephone introduced touch-tone dialing in 1969 and completed nationwide direct distance dialing in the same year for all its subscribers, 60 percent of whom now had one- or two-party service. The number of telephones now had reached 124,102. The company had net income of $2.4 million in 1970 on operating revenues of $14.7 million. Commonwealth acquired Leesport Telephone Co. in 1971, Lewisberry Telephone Co. in 1977, and Sullivan County Telephone Co. in 1980, bringing the number of counties being served to 19 and the number of phones in service to more than 200,000. A digital microwave network was completed in 1976 and the nation’s first commercial fiber-optic application in 1979. Net income in 1980 came to $5.4 million on operating revenues of $45.8 million.

Expanded Services in the 1980s

Although doing well as a telephone company, Commonwealth Telephone was looking at new services for further growth. In 1979 it formed a holding company, Commonwealth Telephone Enterprises Inc. (CTE), to preside over newly created nonregulated communications-related endeavors as well as the traditional telephone business. Established in 1978, the first of these new companies was Commonwealth Telephone Technologies Corp. (CTTC), which began selling business communications systems to markets outside of the telephone company’s franchised service area, as well as management and engineering services to customers who included operating telephone companies and the cable television industry. This enterprise was enhanced by the acquisition of Sterling Telecommunication Supply Co., a leading full-service supplier to telephone, interconnect, and cable-TV companies.

After completion of its fiber-optic system, CTE formed, in 1980, Commonwealth Cable Systems, making available to its customers 52 television channels. This company was not free to operate within the telephone company’s regulated area, but by the end of 1985 it was providing cable television to 27,100 subscribers in 20 New York and New Jersey communities, all within 50 miles of New York City. CTTC introduced cellular mobile telephone service to three Pennsylvania counties in 1984 and soon added radio paging operations. The following year it purchased Business Systems Inc. of Greenville, South Carolina, a supplier of turnkey computer-management systems—especially cable television—with 150 clients worldwide. Between 1981 and 1985 parent CTE almost doubled its revenues and raised its net income by 169 percent.

CTE had moved its headquarters to Wilkes-Barre, Pennsylvania, by the end of 1984, but Commonwealth Telephone remained in Dallas, Pennsylvania. This regulated telephone subsidiary, which added to its operations by acquiring Coopersburg Telephone Co. in 1984, was still responsible for 75 percent of the parent company’s $110 million in revenues in 1985, when it was serving 155,000 customers. The following year, however, CTE changed its name to C-Tec Corp. to underline its commitment to diversification. “In the broadest context, we’re interested in businesses in the information transport field,” a senior executive explained.

In 1989 C-Tec added 108,000 cable subscribers by purchasing the Michigan operations of Centel Corp. for $206.6 million. Also that year, C-Tec’s communications group began offering technical services to third parties. In 1990 a new subsidiary began offering long-distance services.

Major Changes: 1990–97

C-Tec’s expenses were, however, outstripping its expansion. The Michigan acquisition brought its long-term debt to $365 million in 1990, compared to only $100 million two years later. That year C-Tec’s interest expenses reached $31.9 million, and it lost nearly $10 million despite revenues and sales of $200.4 million. In 1991 the company’s long-term debt reached $437 million, its interest payments $37.5 million, and its net loss $12.4 million. C-Tec also lost money in 1992 and 1993. Commonwealth Telephone completed a 15-year project of analog equipment replacement in 1993 and became one of the first telephone companies in the United States to institute a fully digital network.

RCN Corp., a subsidiary of Peter Kiewit Sons Inc., purchased a controlling interest in C-Tec from the Sordoni family in 1993 for $196.5 million. In making the purchase for 34 percent of the stock but 57 percent of the voting power, RCN paid $34.50 a share for the Sordoni stock, double the market price at the time. Some ten percent of the acquired stock was purchased by David McCourt, RCN’s president, who became C-Tec’s chairman and chief executive officer. In 1994 C-Tec sold its deficit-ridden cellular properties to Independent Cellular Network Inc. for $182.5 million in order to focus on its wire-based operating businesses.

McCourt moved the parent company’s cable operation, C-Tec Cable Systems Inc., to Princeton, New Jersey, from where in October 1994 it was offering cable TV to more than 250,000 subscribers in New York, New Jersey, and Michigan. Three months later C-Tec acquired 40 percent of Megacable, the second-largest cable-television operation in Mexico, for $84 million. Megacable was serving 174,000 subscribers in 12 cities, including Guadalajara.

Company Perspectives:

We are a team of passionate, highly effective experts providing advanced solutions to deliver communications, information and entertainment services to both business and residential users in a rapidly expanding set of select U.S. markets.

Parent company C-Tec, which by 1995 also had moved its headquarters to Princeton, raised about $217 million in December 1994 by selling 10.9 million shares of newly issued stock, much of which was purchased by Kiewit. For 1994 C-Tec earned its first profit since 1989, registering net income of $2.8 million on revenues of $269 million. The following year was much better, with revenues rising to $325 million, net income to $22.7 million, and long-term debt (which had reached a high of $432 million in 1991 and was still $409 million in 1993) reduced to $263 million.

The Telecommunications Act of 1996 substantially reduced regulatory barriers to new markets for telecommunications providers, encouraging new service offerings by multiple providers allowing telephone, cable, and television companies to compete and combine more freely. An executive for Commonwealth Telephone said the law would most likely provide the company’s customers with a “one-stop-shop” for all communications needs. Commonwealth also in 1994 introduced Pennsylvania’s first direct Internet service, through its Eastern Pennsylvania Internet Exchange (“epix”). With epix, Commonwealth was providing both business and residential customers toll-free, dial-up, and full-period access to the Internet.

Returning to its Roots in 1997

In February 1997 C-Tec announced it would divide into three companies. Spun off to shareholders was Cable Michigan, Inc. and RCN Corp., the parent company’s unit for a variety of residential telecommunications services on the East Coast and the Megacable investment. These two units had accounted for 53 percent of C-Tec’s revenues of $367.3 million in 1996, when net income came to $12.5 million. After the breakup was completed in September, C-Tec was renamed Commonwealth Telephone Enterprises, Inc. and headquarters returned to Dallas, Pennslyvania. McCourt, who remained the company’s chairman and chief executive officer, said C-Tec’s combination of geographically disparate businesses had kept the stock undervalued by confusing investors who “want to hear a single, straightforward story.”

With the disposition of RCN and Cable Michigan, the new Commonwealth Telephone Enterprises (CTE) was now organized into two principal operating segments: Commonwealth Telephone Co. (CT), a local-exchange carrier still operating as a monopoly service provider in Pennsylvania, and Commonwealth Telecom Services (CTSI), Inc., a competitive local-exchange carrier that began operations in 1997 in markets adjacent to CT’s traditional service area. In addition, CTE was operating three support businesses providing expertise to its two principal operating segments. These businesses were Commonwealth Communications (CC),, epix (TM) Internet Services (epix), and Commonwealth Long Distance (CLD). CC was designing, installing, and managing telephone systems for corporations, hospitals, and universities, mainly in Pennsylvania. CLD was operating only in CT’s service area.

CT was providing service to 258,803 main access lines at the end of 1997 in a 19-county, 5,191-square-mile territory in Pennsylvania. These services including not only local and longdistance telephone services but also complex communications services such as interactive videoconferencing and high-speed data transmission. Under contract with the Northern Tier Rural Distance Learning Consortium, it was providing videoconferencing services to about 36 schools in three states.

CTSI was beginning to provide local and all-distance telephone service, offering flat-rate and bundled telephone packages in a service area including about 2.1 million people. It had 25,890 customer connections at the end of 1997. CC was providing telecommunications engineering and technical services to CT and, since 1989, to third parties. Epix was offering flat-rate access to the Internet and had more than 30,000 customers in Pennsylvania and New York at the end of 1997.

Commonwealth Telephone Enterprises had sales (excluding those of the spinoff businesses) of $196.6 million in 1997. Of this total, CT accounted for 73 percent, CTSI for three percent, and other operations (CC, epix, and CD) for 24 percent. The company reported a net loss of $14 million for the year after taking a $36.1 million charge for discontinued operations. Its long-term debt was $167.3 million at the end of 1997.

Principal Subsidiaries

Commonwealth Long Distance Company; Commonwealth Telecom Services, Inc.; Commonwealth Telephone Company; C-TEC Cable Holdings, Inc.; C-TEC Cellular Centre County, Inc.; epix Internet Services, Inc.; Mobilefone, Inc.; Mobile Plus, Inc.; Mobile Plus of Iowa, Inc.; Mobile Plus Services, Inc.; Mobile Plus Services of PA, Inc.; SRHC, Inc.; TMH, Inc.