After a busy year of acquisitions and integration, Citizens Communications today reported a fall in earnings for the third quarter of 2007 due in large part to higher expenses associated with the acquisitions. The company's third-quarter net income was $47.4 million, down from $128.5 million in the same period a year earlier.

Considering that earnings from last year’s third quarter were augmented by a large gain from the sale of the company’s Electric Lightwave business and that the company also reported a 14% increase in total revenue, the loss did not dampen the rural telecom provider’s optimism.

On a conference call today detailing its earnings, CEO and chairman of Citizens, Maggie Wilderotter, called the third quarter solid and said the company has a very positive outlook for the future of the business. She attributed the decrease in earnings to a $12.1 million severance charge, due to increased expense control and increased capital spending in the second half of year.

Last March, Citizens spend $1.29 billion to acquire Commonwealth Telephone Enterprises in Pennsylvania, giving the company approximately 2.6 million access lines, 388,000 high-speed Internet subscribers and 6,600 employees. This year’s third-quarter revenue increase was attributed primarily to the $80.5 million of revenues related to the operations of Commonwealth Telephone, as well as to a $13.1 million increase in data and Internet services revenue.

Wilderotter said the company has had great progress integrating Pennsylvania properties, streamlining organizational structures, consolidating the two company’s sales teams into one core team, installing a large portion of the equipment business and completing all financial, human resources and billing system conversions.

On the other hand, Commonwealth Telephone was also credited with the 15.3% increase in operating expenses from the third quarter of 2006 to 2007. The company’s opex totaled approximately $23.8 million, in addition to incremental charges for severance and early retirement costs, offset by lower compensation and benefit costs resulting from reduced number of employees and improved expense controls.

To further expand its reach, Citizens announced on Thursday that it closed the deal to acquire 15,000 access lines in three California markets through the acquisition of Global Valley Networks from its parent company Evans Telephone Holdings. Citizens originally entered into the $62 million cash deal in July. In 2008, the company plans to begin incorporating its brand into the markets, on business statements, work trucks and customer products, as well as bring video services to residential markets and enhanced speeds to commercial customers.

Wilderotter noted that the company was able to close the Global Valley deal just three months after the announced acquisition. In addition, Citizens added approximately 17,900 high-speed Internet customers during the third quarter of 2007, totaling more than 497,200 customers by Sept. 30. The company also added approximately 5,400 video customers during the third quarter of 2007.

When asked about the status of Citizens’ plans to offer a Home Zone box for video service, Wilderotter said that the company is waiting for EchoStar’s new generation of the box, which she believes will be ready in the first half of 2008.

“We are really excited about it,” she said. “We think it’s a great opportunity for us to be able to deliver in the home both linear television from the DISH network as well as streaming video and content from the broadband network. By having one box with one user interface, it makes it very easy for the customer to use that appliance for both capabilities.”

Citizens is also an “ancillary team” to AT&T’s Home Zone team and is currently testing several of its boxes, Wilderotter said.

She added that Citizens did some aggressive price plan testing for promotional periods of time in a couple select markets. The company tested price points of $19.99. $24.99 and $29.99. She said that compared to the competition, Citizens is very competitively priced with a premium around $5 in most markets.

“We try to keep the price points very competitive to cable,” she said. “If you look at flow share from a shared percentage, we do very well in our markets against the cable guys. We truly are the leaders in providing high-speed Internet service in all our markets except for Rochester.” Wilderotter noted that Citizens is catching up in Rochester after Time Warner’s 18-month head start back in 2001.

Wilderotter concluded the call by restating Citizens priorities for fourth quarter of 2007, which included, “staying the course, a focus on strong customer retention efforts as well as a strong focus on our employees, integrating our Common Wealth and Global Valley acquisitions, improving and driving sales of high-speed video and packages, are service delivery – completing that, and maximizing our financial returns.”