UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to              .

Commission File Number 1-8519

CINCINNATI BELL INC.

Incorporated under the laws of the State of Ohio

I.R.S. Employer Identification Number 31-1056105

201 East Fourth Street,Cincinnati, Ohio 45202

Telephone: (513)397-9900

Securities requested pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ X] No [  ]

At June 30, 2003, the aggregate market value of the voting shares owned by non-affiliates was $1,466,732,537.

At March 10, 2004, there were 245,178,489 Common Shares outstanding and 155,250 shares of 6¾% Convertible Preferred Shares outstanding.

TABLE OF CONTENTS

This report contains trademarks, service marks and registered marks of Cincinnati Bell Inc., as indicated.

Part I

its website at the investor relations tab its reports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports) as soon as practicable after they have been electronically filed.

The Company files annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission (“the SEC”) under the Exchange Act. These reports and other information filed by the Company may be read and copied at the Public Reference Room of the SEC, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Information may be obtained about the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy statements and other information about issuers, like the Company, which file electronically with the SEC. The address of this site is http://www.sec.gov.

Local

The Local segment provides local telephone service, network access, data transport, high-speed and dial-up Internet access, inter-lata toll, telecommunications equipment, installation and maintenance and other ancillary products and services to customers primarily in southwestern Ohio, northern Kentucky and southeastern Indiana. This market consists of approximately 2,400 square miles located within approximately a 25-mile radius of Cincinnati, Ohio. Services are provided through the Company’s CBT subsidiary, which has operated as the incumbent local exchange carrier (“ILEC”) in the Greater Cincinnati area for the past 130 years.

The Local segment produced $820.4 million, $833.1 million and $824.7 million, or 53%, 38%, and 37%, of consolidated Company revenue in 2003, 2002, and 2001, respectively. The Local segment produced consolidated operating income of $296.1 million, $285.3 million and $266.5 million in 2003, 2002 and 2001, respectively.

CBT’s service offerings are generally classified into three major categories: local service, network access, including DSL transport, and other services. Local service revenue is primarily from end-user charges for use of the public switched telephone and data network and for value-added services such as custom calling features. These services are provided to business and residential customers and represented 57% of CBT’s revenue in 2003. Network access represented 25% of CBT’s revenue in 2003 and was generated by service provided to interexchange carriers for access to CBT’s local communications network, business customers for customized access arrangements and end user customers for access to long distance networks. Other services provided the remaining 18% of CBT’s revenue in 2003 and consisted of the sale and installation of telecommunications equipment, Internet access, commissions from the sale of broadband services, inside wire installation and maintenance and other ancillary services.

CBT’s network access revenue includes special access, switched access and end user common line revenue. CBT’s special access revenue accounted for 47% of network access revenue in 2003. Special access revenue was $95.5 million, $97.5 million and $94.3 million in 2003, 2002 and 2001, respectively. Special access pricing is regulated by the Federal Communications Commission (“FCC”), which requires annual mandated price reductions equal to inflation, net of a 6.5% productivity offset. Over the past three years, the FCC mandated special access pricing decreases of approximately 5% each year. However, in accordance with Coalition for Affordable Local and Long Distance Service (“CALLS”), CBT will not be required to lower its special access rates on July 1, 2004. CBT’s switched access revenue accounted for 20% of network access revenue in 2003. Switched access revenue was $40.4 million, $39.0 million and $42.6 million in 2003, 2002 and 2001, respectively. End user common line (“EUCL”) revenue accounted for 33% of network access revenue in 2003. EUCL revenue totaled $66.5 million, $67.6 million and $68.4 million in 2003, 2002 and 2001, respectively.

CBT provides voice services over a circuit switch-based network of 47 host switches and 40 optical remote switch modules serving customers in 56 wire centers. In addition, CBT has successfully leveraged its embedded network investment to provide value–added services and product bundling packages, resulting in additional

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revenue with minimal incremental costs. All of the network access lines subscribed to CBT are served by digital switches and have the integrated services digital network (“ISDN”) and Signaling System 7 capability necessary to support enhanced features such as Caller ID, Call Waiting and Call Return. The network also includes approximately 3,500 route miles of fiber-optic cable, with synchronous optical network (“SONET”) rings linking Cincinnati’s downtown with other area business centers. These SONET rings offer increased reliability and redundancy to CBT’s major business customers. CBT has deployed DSL capable electronics in over 252 locations throughout its territory, allowing it to offer DSL services to over 86% of its subscriber base. CBT also has an extensive business-oriented data network, offering native speed Ethernet services over an interlaced asynchronous transfer mode (“ATM”) – Gigabit Ethernet backbone network.

CBT markets and resells telecommunications equipment to business customers primarily in its local service area. CBT also provides installation services and resells maintenance contracts related to this equipment. Equipment sales, installation and maintenance revenue totaled $46.9 million, $54.4 million and $46.0 million in 2003, 2002 and 2001, respectively.

In order to maintain its network, CBT relies on supplies from certain key external vendors and a variety of other sources. Since the majority of CBT’s revenue results from use of the public switched telephone network, its operations follow no particular seasonal pattern. CBT’s franchise area is granted under regulatory authority, and is subject to increasing competition from a variety of companies. CBT is not aware of any regulatory initiative that would restrict the franchise area in which it is currently able to operate. A significant portion of revenue is derived from pricing plans that require regulatory overview and approval. In recent years, these regulated pricing plans have resulted in decreasing or fixed rates for some services, partially offset by price increases and enhanced flexibility for other services.

As of December 31, 2003, approximately 46 companies were certified to offer telecommunications services in CBT’s local franchise area and had interconnection agreements with CBT. In November 2003, Time Warner Cable filed an application with the Public Utilities Commission of Ohio to provide local and interexchange voice service in several market areas including Cincinnati and is expected to begin competing for residential and business customers in mid-2004. In March 2004, the local gas and electric supplier announced that it would begin offering high-speed Internet access over electrical lines to customers in CBT’s operating area. CBT seeks to maintain an advantage over these competitors through its service quality, network capabilities and reach, innovative products and services, creative marketing and product bundling, various customer billing alternatives and value pricing.

CBT had approximately 986,000 network access lines in service on December 31, 2003, a 2.6% and 4.5% reduction in comparison to 1,012,000 and 1,032,000 access lines in service at December 31, 2002 and 2001, respectively. Approximately 69% of CBT’s network access lines serve residential customers and 31% serve business customers. Despite the decline in access lines, the Company has been able to nearly offset the effect of these losses on revenue by increasing DSL penetration. As of December 31, 2003, CBT had approximately 100,000 ZoomTown DSL subscribers, a 33% and 64% increase in comparison to 75,000 and 61,000 subscribers at December 31, 2002 and 2001, respectively. As of December 31, 2003, DSL service was available to approximately 86% of the network access lines served by the Company, which the company refers to as addressable access lines. Of the addressable access lines, the Company’s consumer penetration was 14.9% at the end of 2003, an increase of four percentage points from 10.9% at the end of 2002. Business penetration of addressable lines has grown to 6.5% at end of 2003, up more than one percentage point from 5.3% penetration at the end of 2002. On a combined basis, subscribership of nearly 100,000 represents 12.6% penetration of addressable lines, compared to 9.3% penetration at the end of 2002.

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In March 2004, the Company upgraded its DSL network to provide higher speed internet access – up to four times faster than the existing DSL network and which is comparable to speeds provided by other high-speed internet competitors.

Wireless

The Wireless segment includes the operations of Cincinnati Bell Wireless LLC (“CBW”), a joint venture with AT&T Wireless Services (“AWE”), in which the Company owns 80.1% and AWE owns the remaining 19.9%. The Wireless segment provides advanced digital, voice and data communications services on its own regional wireless network in Greater Cincinnati and Dayton, Ohio and on the AWE national wireless network. CBW offers digital wireless service to postpaid customers, who pay a monthly access fee and usage fees in arrears. Prepaid customers purchase minutes or text messages, in advance, at a fixed price. The segment also sells related telecommunications equipment.

CBW’s digital wireless network operates on 30 MHz of wireless spectrum, of which CBW owns a license for 20MHz in Cincinnati and Dayton, and leases 10MHz licensed to the Company in Cincinnati and 10MHz licensed to AWE in Dayton. Its network consists of switching, messaging and radio base station equipment attached to 287 tower and rooftop structures, which CBW owns or leases from other providers. The network employs both Time Division Multiple Access (“TDMA”) and Global System for Mobile Communications and General Packet Radio Service (“GSM/GPRS”) technology. TDMA provides both voice and short message service (“SMS”) data services. In October 2003, CBW deployed the GSM/GPRS technology, which provides, in addition to voice communication and SMS, enhanced wireless data communication services, such as mobile web browsing, internet access, email and picture messaging. The GSM/GPRS is EDGE compatible, requiring only software upgrades to deliver higher data rates and capacity. As handsets of one technology cannot generally be used on the network of the other technology, CBW plans to operate both technologies simultaneously until its TDMA customer base naturally churns or migrates to GSM/GPRS service. Based on current estimates, the Company expects that it will operate its TDMA network at least through 2006.

CBW’s operating territory includes a licensed population (“licensed pops”) of approximately 3.4 million. As of December 31, 2003, CBW served approximately 474,000 subscribers, of which 312,000 were postpaid subscribers and 162,000 were prepaid, i-wireless ^SM subscribers, representing a licensed pop penetration of 13.9%. In May of 1998 CBW became the fifth wireless carrier to enter the Cincinnati and Dayton market. CBW estimates its market share totaled approximately 26% as of December 31, 2003, based on a total wireless industry penetration rate of 54%. Postpaid declined by 700 subscribers during 2003. CBW maintained an average monthly churn rate of 1.8%, 1.7% and 1.6% for postpaid customers in 2003, 2002 and 2001, respectively and an average monthly churn rate of 4.9%, 4.7% and 3.3% for prepaid customers in 2003, 2002 and 2001, respectively. Wireless local number portability (“WLNP”), which was mandated by the FCC and became effective November 24, 2003, has had an immaterial impact on CBW.

In 2003 and 2002, services generated approximately 95% of the Wireless segment’s revenue whereas equipment sales generated the remaining 5%. This composition of revenue compares to approximately 94% and 6%, respectively, in 2001. In total, the Wireless segment contributed $259.5, $267.2 and $254.4, or 17%, 12% and 11% of consolidated revenue in 2003, 2002 and 2001, respectively. The Wireless segment produced $60.2 million, $69.1 million and $37.7 million in operating income in 2003, 2002 and 2001, respectively.

Postpaid subscribers generate approximately 78% of total service revenue through a variety of rate plans, which typically include a fixed or unlimited number of minutes for a flat monthly rate, with additional minutes for fixed number of minute plans being charged at a per-minute-of-use rate. Prepaid i-wireless ^SM subscribers generate 15% of service revenue whereas subscribers of other telecommunications providers, mainly AWE, generate the remaining 7%

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of service revenue. CBW incurs significant roaming expenses when its own wireless subscribers use their handsets on the networks of other wireless providers. CBW’s roaming expense of $33.2 million, $35.4 million and $34.4 million exceeded its roaming revenue of $16.6 million, $17.5 million and $15.5 million in 2003, 2002 and 2001, respectively.

Sales of handsets and accessories take place primarily at CBW’s retail locations, which consist of stores and kiosks in high-traffic shopping malls and commercial buildings in the Greater Cincinnati and Dayton, Ohio areas. Sales also take place in the retail stores of major electronic retailers pursuant to agency agreements. CBW sells handsets and accessories from a variety of vendors. CBW maintains a supply of equipment and does not envision any shortages that would compromise its ability to add customers. Unlike service revenue (which is a function of wireless handset usage), equipment sales are seasonal in nature, as customers often purchase handsets and accessories as gifts during the holiday season in the Company’s fourth quarter. In order to attract customers, CBW typically sells handsets for less than direct cost, a common practice in the wireless industry.

As the wireless venture is jointly owned with AWE, income or losses generated by the Wireless segment are shared between the Company and AWE in accordance with respective ownership percentages of 80.1% for the Company and 19.9% for AWE. As a result, 19.9% of the net income or loss of the Wireless segment is reflected as minority interest expense or income in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Refer to Note 10 of the Notes to Consolidated Financial Statements for a detailed discussion of AWE’s minority interest in this venture.

Wireless Management

CBW is an Ohio limited liability company. The Company owns its 80.1% interest in CBW through its indirect wholly owned subsidiary, Cincinnati Bell Wireless Holdings LLC, a Delaware limited liability company. AWE owns its 19.9% interest through its indirect wholly owned subsidiary, AT&T Wireless PCS LLC, a Delaware limited liability company. Its operating agreement, governs among other things, the ownership, cash distributions, capital contributions and management of CBW.

The CBW operating agreement provides that a five member committee govern CBW, with AWE having the right to appoint two representatives and the Company having the right to appoint three representatives. Matters requiring the approval by a majority of the representatives include, without limitation, the adoption of any budget, or any business, marketing, financial, operational, strategic or any other material plan, policy or strategy which is expected to materially affect the operations of CBW; the hiring or firing of any key personnel; material contracts; commencing or settling material claims; capital calls; any transaction or other activities which could reasonably be expected to result in the financial performance of CBW materially diverging from the then current budget, business or other plan; and incurring debt.

In addition, as long as AWE holds an interest of at least 15% or has not sold, assigned or otherwise transferred any of its equity interests, the vote of at least two-thirds of the representatives of the member committee is required for the sale, lease, exchange, transfer or other disposition of all or substantially all of CBW’s assets or of any asset that can reasonably be expected to have a material adverse impact on CBW; the merger or consolidation of CBW or the direct or indirect purchase or acquisition of another entity; the substantial elimination of the retail distribution; capital expenditures, capital loan commitments or other expenditures in excess of $5 million annually in the aggregate not previously approved by the member committee as part of CBW’s current budget or business plan; the issuance of any interest in CBW to any person other than wholly owned subsidiaries of AWE or the Company; the appointment of any investment banking or accounting firm for certain fair market value determinations; the amendment or voluntary termination by CBW of certain agreements; any decision that the financial statements of CBW not be audited; expanding or changing the scope of the business; and effecting any transaction, agreement or arrangement which could reasonably be expected to

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materially impair or limit the ability of subscribers to certain cellular and PCS systems and limit the ability of AWE or its affiliates to resell wireless services on CBW’s PCS system.

The Company and AWE must both approve any amendment to the operating agreement of CBW or the dissolution of CBW as a result of the bankruptcy or dissolution of the Company or AWE.

The operating agreement also contains provisions which govern both AWE’s and the Company’s commercial activities both within and outside the joint venture. The member committee must approve Certain Conflict Transactions (as defined in the operating agreement) and the transactions must generally be on an arms-length basis. The operating agreement also contains a restriction on the part of AWE and the Company from operating a business in the Cincinnati and Dayton markets that offers Company Communications Services (as defined in the operating agreement) which compete with those offered by CBW.

Wireless Material Related Party Agreements

License Agreements

AWE and CBW are parties to several commercial agreements governing their relationship. For instance, both AWE and the Company license their respective brand names to CBW under the terms of license agreements.

Roaming Agreements

For TDMA roaming, AWE and CBW are parties to two roaming agreements; the first runs through 2018 and allows the subscribers of each party to roam on the other’s networks, and the second is a year-to-year agreement, which allows CBW subscribers to roam on other carriers’ networks as an affiliate of AWE. GSM roaming on each other’s networks is covered by a separate agreement, which runs through October 2005 and is month-to-month after October 2005. CBW also has entered into GSM roaming agreements with other foreign and domestic carriers and expects to enter into other GSM roaming agreements in the future.

Spectrum Leasing

In addition to spectrum licensed directly to CBW itself, CBW has the ability to use additional spectrum licensed to either AWE or the Company. CBW uses AWE’s 10MHz of A-Block spectrum in Dayton. The use agreement runs through April 2007 and has a right-of-first refusal for CBW to purchase the spectrum license if AWE desires to transfer it to a third-party, unless the spectrum is transferred in a transaction in which the A-Block spectrum represents less than 3% of the total value of the overall transaction. CBW also uses the Company’s 10 MHz of E-Block spectrum in the Cincinnati market. This use agreement runs through March 2010.

Wireless Limitations on Transfer or Encumbrance

As summarized below, the CBW operating agreement contains certain limitations on the ability of AWE or the Company to transfer, directly or indirectly, their interest in CBW. Pursuant to the CBW operating agreement, any sale of AWE would be considered a transfer of interest in CBW subject to the transfer limitations described herein.

The Proposed Sale of AWE

On February 17, 2004, AWE announced that it has agreed to be acquired by Cingular Wireless. The ultimate impact on the Company of this transaction is unclear. Refer to Risk Factor “The purchase of AWE by Cingular Wireless could have a significant impact on the composition and operations of our wireless subsidiary”.

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Right of First Refusal

The Company and AWE may sell their interests pursuant to a third party offer provided that the selling party gives the other party a right of first refusal to purchase the interest being sold. The non-selling party has the right to purchase the selling party’s interest, exercisable by written notice of acceptance to the selling party within twenty-one days of receipt of the selling party’s offer notice. If the non-selling party does not exercise its right to purchase the interests of the selling party, or the non-selling party does not consummate the purchase, the selling party may accept the third party offer, provided that the sale is at the same price and on the same terms and conditions as specified in the offer notice to the non-selling party.

The Company and AWE are not permitted to transfer their respective interests to certain competitors (as defined in the operating agreement), unless such transfer of a selling party’s interest is part of a transaction or series of transactions in which the fair market value of such selling party’s interest in CBW to be transferred is less than 25% of the aggregate fair market value to be transferred in such transaction.

Notwithstanding the right of first refusal as described above, if any transfer of a selling party’s interest is part of a transaction or series of transactions in which the fair market value of such selling party’s interest in CBW to be transferred is less than 25% of the aggregate fair market value to be transferred in such transaction, the limitations on sale described herein shall not apply except for sales to certain competitors.

Tag Along Right

AWE at its option, instead of exercising its right of first refusal in the event of a third party offer for the Company’s interest in CBW, may elect to participate in such sale by including all of its interest in CBW, provided, that in the event that the offer notice is not for 100% of CBW, the sale of the Company’s and AWE interest in CBW shall be pro rata.

Encumbrance

The Company and AWE may not directly pledge, hypothecate or otherwise encumber all or any portion of their interest in CBW without the consent of the other and cannot pledge, hypothecate or otherwise encumber any interest in any entity which owns all or any portion of their interest in CBW unless the pledgee acknowledges the restrictions on transfer of such interest.

Wireless Put Right

On or after December 31, 2006, or if at any time the member committee shall call for additional capital contributions (unless such capital calls have been approved by the representatives of AWE), and upon written demand from AWE, the Company shall purchase at fair market value all of the interest of AWE in CBW for cash. Such sale shall be consummated not less than 30 and no more than 60 days following the determination of the fair market value of the AWE interest.

Other

The Other segment combines the operations of CBAD and Public. CBAD markets and sells voice long distance service to residential and business customers in the Greater Cincinnati and Dayton, Ohio areas, while Public provides public payphone services in a thirteen state area in the midwestern and southern United States. The Other segment produced revenue of $81.1 million, $82.8 million and $79.0 million, in 2003, 2002 and 2001, respectively. The Other segment revenue constituted approximately 5%, 4% and 4% of consolidated revenue in 2003, 2002 and 2001, respectively. The Other segment produced operating income of $6.5 million and $1.7 million in 2003 and 2002, respectively, and an operating loss of $3.7 million in 2001.

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Cincinnati Bell Any Distance

CBAD primarily resells long distance services to businesses and residential customers in the Greater Cincinnati and Dayton, Ohio areas. At December 31, 2003, CBAD had approximately 539,000 subscribers in comparison to 555,000 and 550,000 long distance subscribers at December 31, 2002 and 2001, respectively. With regard to Local segment access lines for which a long distance carrier is chosen, CBAD’s market share within the greater Cincinnati area increased in 2003, with residential and business market share growing to approximately 71% and 45%, respectively, from 69% and 43%, respectively, at the end of 2002. Of CBT’s 986,000 access lines in the greater Cincinnati area, approximately 407,000 residential access lines and 118,000 business access lines subscribed to “Any Distance” as of December 31, 2003. In 2003, CBAD produced $68.2 million in revenue for the Other segment, representing approximately 4% of consolidated revenue compared to $68.8 million and 3% of consolidated revenue in 2002 and $63.6 million and 3% of consolidated revenue in 2001.

Cincinnati Bell Public Communications Inc.

Public provides public payphone services to customers in a regional area consisting of thirteen states. Public had approximately 8,100, 7,700 and 9,200 stations in service and generated approximately $12.8 million, $13.7 million and $15.4 million in revenue in 2003, 2002 and 2001, respectively, or less than 1% of consolidated revenue in each year. The revenue decrease is a result of reduced calls per line caused by continued penetration of wireless communications and a targeted reduction in unprofitable lines.

Broadband

As discussed above, on February 22, 2003, certain of the Company’s subsidiaries entered into a definitive agreement to sell substantially all of the operating assets of the Broadband segment, excluding the information technology (“IT”) consulting assets, for up to $129 million in cash and the assumption of certain long-term operating contractual commitments. On June 6, 2003 and June 13, 2003, the purchase agreement was amended to, among other things, reduce the initial purchase price to $108.7 million (an estimated $91.5 million in cash and $17.2 million preliminary working capital promissory note, which was ultimately reduced to zero based on the final working capital position of the broadband business). The buyer paid the initial cash purchase price of $91.5 million, of which $29.3 million was placed into escrow to support certain potential purchase price adjustments and the remaining purchase price payable. On June 13, 2003, the Company effectively transferred control of the broadband business to the buyer. In accordance with Statement of Financial Accounting Standards No. 144 (“SFAS 144”), the Company ceased depreciating the assets to be sold upon entering into the definitive agreement.

Broadband revenue was $448.7 million, $1,075.4 million and $1,169.6 million, or 29%, 49% and 52% of consolidated revenue in 2003, 2002, 2001, respectively. Broadband generated operating income of $348.6 million in 2003, or 51% of consolidated operating income, and operating losses of $2,437.6 million and $547.9 million in 2002 and 2001, respectively.

Subsequent to the closing of the asset sale, the Broadband segment consists of CBTS, an information technology consulting, data collocation and managed services business, and certain liabilities not assumed by the buyers. Prior to the sale of the broadband assets, revenue for the Broadband segment was generated from broadband transport (which included non-cash revenue from indefeasible right of use agreements (“IRU’s”)), switched voice services, data and Internet services (including data collocation and managed services), information technology consulting and other services. These transport and switched voice services were generally provided over BRCOM’s national optical network, which comprised approximately 18,700 route miles of fiber-optic transmission facilities. Due to the sale of the broadband business, the Company expects Broadband segment revenue related to broadband transport and switched voice services to be zero going forward.

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In the second half of 2003, the Broadband segment included only the revenue of the Company’s CBTS subsidiary, which contributed revenue of $116.8 million in 2003, consisting of $64.9 million of equipment hardware sales, $30.4 million of IT consulting services and $21.5 million of data collocation and managed services. In 2002, CBTS contributed revenue of $163.9 million consisting of $113.4 million of equipment hardware sales, $30.3 million of IT consulting services and $20.2 million of data collocation and managed services.

Broadband transport services consisted of long-haul transmission of data, voice and Internet traffic over dedicated circuits. Revenue from the broadband transport category was primarily generated by private line monthly recurring revenue. However, approximately 36%, 44% and 29% of the broadband transport revenue in 2003, 2002 and 2001, respectively, was provided by IRU agreements, which cover a fixed period of time and represent the lease of capacity or network fibers. The buyer of IRU services typically pays cash or other consideration upon execution of the contract. The Company’s policy and practice was to amortize these payments into revenue over the life of the contract. In the event the buyer of an IRU terminated a contract prior to the contract expiration and released the Company from the obligation to provide future services, the remaining unamortized unearned revenue was recognized in the period in which the contract was terminated. Broadband transport services produced 36%, 43% and 40% of Broadband segment revenue in 2003, 2002 and 2001, respectively.

Switched voice services consisted of billed minutes of use, primarily for the transmission of voice long distance services on behalf of both wholesale and retail customers. Switched voice services provided 25%, 31% and 33% of Broadband segment revenue in 2003, 2002 and 2001, respectively.

Network construction and other services consisted of large, joint-use network construction projects. The Company typically gained access to rights-of-way or additional fiber routes through its network construction activities. In November 2001, the Company announced its intention to exit the network construction business upon completion of one remaining contract as discussed in Note 6 of the Notes to Consolidated Financial Statements. That contract to build a fiber route system was in dispute before the interested parties reached a final settlement in February 2004 as discussed in Note 11 of the Notes to Consolidated Financial Statements.

BUSINESS OUTLOOK

There is substantial competition in the telecommunications industry. Competition may intensify due to the efforts of existing competitors to address difficult market conditions through reduced pricing, bundled offerings or otherwise, as well as a result of the entrance of new competitors and the development of new technologies, products and services. If the Company cannot offer reliable, value-added services on a price competitive basis in any of its markets, it could be adversely impacted by competitive forces. In addition, if the Company does not keep pace with technological advances or fails to respond timely to changes in competitive factors in the industry, the Company could lose market share or experience a decline in revenue and profit margins.

Excluding the Broadband segment, the Company expects revenue to decline in the low single-digits compared to 2003, and operating income to be in the range of $295 million to $310 million, as a result of higher sales and marketing expense related to the Company defending its market position through incremental wireless and DSL customer acquisitions particularly into service bundles that include an access line. In support of these expectations, in February 2004 the Company launched an aggressive marketing campaign titled “You Add, We Subtract”, designed to promote further bundled suites of communications services on a single bill for a reduced flat monthly fee. The Company also expects greater depreciation expense related to shortening the estimated depreciable life of its TDMA network assets to the end of 2006. The Company expects capital expenditures to remain at approximately 10% to 12% of future revenue.

The Company has substantial state and federal operating loss tax carryforwards. As a result, the Company expects cash payments of less than $5 million related to income taxes in 2004. The Company expects its effective tax rate to be approximately 50%.

CBT faces competition from other local exchange carriers, wireless services providers, interexchange carriers, cable and satellite providers and Internet service providers. The Company believes CBT will face greater

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competition as more competitors emerge and focus resources on the Greater Cincinnati metropolitan area. In November 2003, Time Warner Cable filed an application with the Public Utilities Commission of Ohio to provide local and interexchange voice service in several market areas in Ohio, including Cincinnati, and expects to begin offering residential service in 2004. In March 2004, the local gas and electric supplier announced that it would begin offering high-speed Internet access over electrical lines to customers in CBT’s operating area. Also, the emerging voice over internet protocol (“VoIP”) providers offering service in other areas of the country may begin offering service in CBT’s operating territory.

CBW is one of six active wireless service providers in the Cincinnati and Dayton, Ohio metropolitan market areas, including Cingular, Sprint PCS, T-Mobile, Verizon and Nextel, all of which are nationally known and well funded. The Company anticipates that continued competition will likely continue to cause the market prices for wireless products and services to decline in the future. CBW’s ability to compete will depend, in part, on its ability to anticipate and respond to various competitive factors affecting the telecommunications industry. Furthermore, as evidenced by AWE’s recent announcement that it has agreed to be acquired by Cingular, there has been a trend in the wireless communications industry towards consolidation through joint ventures, reorganizations and acquisitions. The Company expects this consolidation to lead to larger competitors with greater resources and more service offerings than CBW. At this time it is not completely clear what impact the Cingular/AWE merger will have on the operations of CBW or on Cingular’s/AWE’s desire to remain in the CBW venture. However, CBW’s implementation of GSM/GPRS should improve the Company’s ability to compete through preservation and enhancement of existing revenue streams, lower incremental capital expenditures per gross subscriber addition, lower network cost per minute of use, and minimal additional investment in the legacy TDMA network.

The Company’s other subsidiaries operate in a largely local or regional area, and each of these subsidiaries faces significant competition. CBAD’s competitors include resellers, competitive local exchange providers and large national long distance carriers such as AT&T Corp., MCI and Sprint Corporation, in addition to emerging VoIP providers. Public competes with several other public payphone providers, some of which are national in scope and offer lower prices for coin-based local calling services. Public has also continued to be adversely impacted by the growing penetration of wireless communications.

BRCOM’s CBTS subsidiary competes against numerous other information technology consulting, computer system integration and managed-service providers, many of which are larger, national in scope and better financed.

The Company intends to continue to utilize its investment in its local wireline communications network and its regional wireless network to provide new and incremental product and service offerings to its customers in the Greater Cincinnati and Dayton, Ohio markets and utilize its well-regarded brand name to enter new markets near its current operating territory.

Risk Factors

The Company’s substantial debt could limit its ability to fund operations, expose it to interest rate volatility, limit its ability to raise additional capital and have a material adverse effect on its ability to fulfill its obligations and on its business and prospects generally.

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The Company has a substantial amount of debt and has significant debt service obligations. As of December 31, 2003, the Company had outstanding indebtedness of $2,287.8 million and a total shareowners’ deficit of $679.4 million. In addition, the Company had the ability to borrow an additional $299.5 million under its revolving credit facility, subject to compliance with certain conditions. The Company may incur additional debt from time to time, subject to the restrictions contained in its credit facilities and other debt instruments.

The Company’s substantial debt could have important consequences, including the following:

•		the Company will be required to use a substantial portion of its cash flow from operations to pay principal and interest on its debt, thereby reducing the availability of cash flow to fund working capital, capital expenditures, strategic acquisitions, investments and alliances and other general corporate requirements;
•		the Company’s interest expense could increase if interest rates in general increase because approximately one-quarter of its debt bears interest at floating rates;
•		the Company’s substantial debt will increase its vulnerability to general economic downturns and adverse competitive and industry conditions and could place the Company at a competitive disadvantage compared to those of its competitors that are less leveraged;
•		the Company’s debt service obligations could limit its flexibility to plan for, or react to, changes in its business and the industry in which it operates;
•		the Company’s level of debt may restrict it from raising additional financing on satisfactory terms to fund working capital, capital expenditures, strategic acquisitions, investments and joint ventures and other general corporate requirements;
•		the Company’s level of debt may prevent it from raising the funds necessary to repurchase all of its debt upon the occurrence of a change of control, which would constitute an event of default under the notes;
•		the Company’s level of debt may impact the ability of the Company to obtain, on commercially favorable terms, any funds which may be needed to honor AWE’s right to put its ownership interests in CBW to the Company, which right is exercisable beginning on December 31, 2006; and
•		a potential failure to comply with the financial and other restrictive covenants in the Company’s debt instruments, which, among other things, require it to maintain specified financial ratios could, if not cured or waived, have a material adverse effect on the Company’s ability to fulfill its obligations and on its business or prospects generally.

The Company has the ability to incur substantial additional debt, which may intensify the risks associated with the Company’s substantial debt, including the ability to service debt.

The credit facilities and other debt instruments will permit the Company, subject to compliance with certain covenants, to incur a substantial amount of additional indebtedness. As of December 31, 2003 aggregate outstanding indebtedness was $2,287.8 million, and the Company had the ability to borrow an additional $299.5 million under the revolving credit facility subject to compliance with certain conditions. If the Company incurs additional debt, the risks associated with the Company’s substantial debt, including the ability to service the debt, could intensify.

The servicing of the Company’s indebtedness requires a significant amount of cash, and its ability to generate cash depends on many factors beyond its control.

The Company’s ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors, many of which are beyond its control. The Company cannot provide assurance that its business will generate sufficient cash flow from operations, additional sources of debt financing will be available or that future borrowings will be available under its credit facilities, in each case, in amounts sufficient

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to enable the Company to service its indebtedness, or to fund other liquidity needs. If the Company cannot service its indebtedness, it will have to take actions such as reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures, selling assets, restructuring or refinancing indebtedness or seeking additional equity capital, which may adversely affect its customers and affect their willingness to remain customers. The Company cannot provide assurance that any of these remedies could, if necessary, be effected on commercially reasonable terms, or at all. In addition, the terms of existing or future debt instruments may restrict the Company from adopting any of these alternatives.

The Company depends on the receipt of dividends or other intercompany transfers from its subsidiaries.

If a payment default occurs under the credit facilities, the Company’s subsidiaries will be prohibited from paying dividends and making other distributions to the Company to service its debt while such payment default continues. In addition, if a bankruptcy, insolvency or similar default or a non-payment event of default occurs under the credit facilities, the Company’s subsidiaries will be prohibited from paying such dividends or making other distributions to the Company for up to 179 days after the credit facilities’ agent delivers a blockage notice to it. In addition, certain of our material subsidiaries are subject to debt obligations or regulatory issues that potentially restrict their ability to distribute funds or assets to the Company. If the Company’s subsidiaries were to be prohibited from paying dividends and making distributions to the Company, it would have a material adverse effect on the Company and the trading price of the Cincinnati Bell common stock, preferred stock and debt instruments.

The Company’s creditors and preferred stockholders will have claims to the assets and earnings of these subsidiaries that are superior to claims of the holders of Cincinnati Bell common stock. Accordingly, in the event of the Company’s dissolution, bankruptcy, liquidation or reorganization, amounts may not be available for payments to Cincinnati Bell common stock holders until after the payment in full of the claims of creditors of the Company’s subsidiaries and preferred stockholders.

The Company depends upon its credit facilities to provide for its financing requirements in excess of amounts generated by operations.

The Company depends on the credit facilities to provide for financing requirements in excess of amounts generated by operations. As of December 31, 2003, the Company had the ability to borrow an additional $299.5 million under its credit facilities. However, the ability to borrow from the credit facilities is predicated on the Company’s and its subsidiaries’ compliance with covenants. Failure to satisfy these covenants could severely constrain its ability to borrow under the credit facilities. As of December 31, 2003, the Company was in compliance with all of the covenants of its credit facilities. As a result of the restatement of the Company’s previously issued financial statements, discussed in Note 2 of the Notes to Consolidated Financial Statements, the Company was in default on its Credit Agreement and 16% Senior Subordinated Discount Notes (“16% Notes”) Indenture, and as a result of cross-default provisions, the Cincinnati Bell Telephone Notes. In March 2004, the Company’s Credit Agreement and 16% Notes Indenture were amended to provide that the restatement does not constitute an event of default, which eliminated the cross-default of the Cincinnati Bell Telephone Notes.

The credit facilities and other indebtedness impose significant restrictions on the Company.

The Company’s debt instruments impose, and the terms of any future debt may impose, operating and other restrictions on the Company. These restrictions affect, and in many respects limit or prohibit, among other things, the Company’s and its subsidiaries’ ability to:

•		incur additional indebtedness;
•		create liens;

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•		make investments;
•		enter into transactions with affiliates;
•		sell assets;
•		guarantee indebtedness;
•		declare or pay dividends or other distributions to shareholders;
•		repurchase equity interests;
•		redeem debt that is junior in right of payment to such indebtedness;
•		enter into agreements that restrict dividends or other payments from subsidiaries;
•		issue or sell capital stock of certain of its subsidiaries; and
•		consolidate, merge or transfer all or substantially all of its assets and the assets of its subsidiaries on a consolidated basis.

In addition, the Company’s credit facilities include other more restrictive covenants that may materially limit the Company’s ability to prepay other debt and preferred stock while debt under the credit facilities is outstanding. The agreements governing the credit facilities also require the Company to achieve specified financial results and maintain compliance with specified financial ratios.

The restrictions contained in the terms of the credit facilities and its other debt instruments could:

•		limit the Company’s ability to plan for or react to market conditions or meet capital needs or otherwise restrict the Company’s activities or business plans;
•		limit the means by which the Company may fund AWE’s right to put its interests in CBW to the Company, which right begins on December 31, 2006; and
•		adversely affect the Company’s ability to finance its operations, strategic acquisitions, investments or alliances or other capital needs or to engage in other business activities that would be in its interest.

A breach of any of these restrictive covenants or the Company’s inability to comply with the required financial ratios and financial results could result in a default under the credit facilities. If a default occurs, the lenders under the credit facilities may elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable. The lenders will also have the right in these circumstances to terminate any commitments they have to provide further borrowings. Additionally, the Company’s debt instruments contain cross-acceleration provisions, which generally cause each instrument to accelerate upon a qualifying acceleration of any other debt instrument.

The Company operates in a highly competitive industry and its customers may not continue to purchase services, which could result in reduced revenue and loss of market share.

There is substantial competition in the telecommunications industry. Competition may intensify due to the efforts of existing or new competitors to address difficult market conditions through reduced pricing, bundled offerings or otherwise, as well as a result of the entrance of new competitors and the development of new technologies, products and services. If the Company cannot offer reliable, value-added services on a price-competitive basis in any of its markets, it could be adversely impacted by competitive forces. In addition, if the Company does not keep pace with technological advances or fails to respond timely to changes in competitive factors in the industry, it could lose market share or experience a decline in its revenue and profit margins.

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Maintaining the Company’s networks requires significant capital expenditures and its inability or failure to maintain its networks would have a material impact on its market share and ability to generate revenue.

During the year ended December 31, 2003, capital expenditures totaled $126 million. The Company may incur significant additional capital expenditures as a result of unanticipated expenses, regulatory changes and other events that impact the business. If the Company is unable or fails to adequately maintain or expand its networks to meet customer needs, there could be a material adverse impact on the Company’s market share and its ability to generate revenue.

Maintenance of CBW’s wireless network, growth in the wireless business or the addition of new wireless products and services may require CBW to obtain additional spectrum, which may not be available or be available only on less than favorable terms.

The TDMA wireless network currently operates on spectrum, which the FCC has licensed to CBW. For its GSM network, CBW uses spectrum licensed to the Company or to AWE. Introduction of new wireless products and services, as well as maintenance of the existing wireless business, may require CBW to obtain additional spectrum in the Cincinnati or Dayton markets, either to supplement or to replace the existing spectrum. There can be no assurance that such spectrum will be available to CBW, or will be available on commercially favorable terms. Failure to obtain any needed new spectrum or to retain existing spectrum could have a materially adverse impact on the wireless business as a whole, the quality of the wireless networks, and the ability to offer new competitive products and services.

The regulation of the businesses by federal and state authorities may, among other things, place the Company at a competitive disadvantage, restrict its ability to price its products and services and threaten its operating licenses.

Several of the Company’s subsidiaries are subject to regulatory oversight of varying degrees at both the state and federal levels. Pricing plans that require regulatory overview and approval produce a significant portion of CBT’s revenue. Different interpretations by regulatory bodies may result in adjustments to revenue in future periods. In recent years, these regulated pricing plans have resulted in decreasing or fixed rates for some services. In the future, regulatory initiatives that would put CBT at a competitive disadvantage or mandate lower rates for its services could result in lower profitability and cash flow for the Company.

At the federal level, CBT is subject to the Telecommunications Act of 1996, including the rules subsequently adopted by the FCC to implement the 1996 Act, which the Company expects to impact Cincinnati Bell Telephone’s in-territory local exchange operations in the form of greater competition.

At the state level, CBT conducts local exchange operations in portions of Ohio, Kentucky and Indiana and, consequently, is subject to regulation by the Public Utilities Commissions in those states. In Ohio, the Public Utility Commission has concluded a proceeding to establish permanent rates that CBT can charge to competitive local exchange carriers for unbundled network elements, although some elements will remain subject to interim rates indefinitely. The Kentucky commission recently initiated a similar case to establish rates for unbundled network elements in Kentucky. The establishment of these rates is intended to facilitate market entry by competitive local exchange carriers. CBT is also subject to an Alternative Regulation Plan in Ohio. The current plan gives CBT pricing flexibility in several competitive service categories in exchange for its commitment to freeze certain basic residential service rates during the term of the plan. The term of the current plan will expire on June 30, 2004.

CBW’s FCC licenses to provide wireless services are subject to renewal and revocation. Although the FCC has routinely renewed wireless licenses in the past, the Company cannot be assured that challenges will not be

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brought against those licenses in the future. Revocation or non-renewal of CBW’s licenses would result in lower operating results and cash flow for the Company.

There are currently many regulatory actions under way and being contemplated by federal and state authorities regarding issues that could result in significant changes to the business conditions in the telecommunications industry. Changes in current or future regulations adopted by the FCC, or state regulators, or other legislative, administrative, or judicial initiatives relating to the telecommunications industry, could have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows.

Terrorist attacks and other acts of violence or war may affect the financial markets and the Company’s business, financial condition, results of operations and cash flows.

Terrorist attacks may negatively affect the Company’s operations and financial condition. There can be no assurance that there will not be further terrorist attacks against the United States of America, U.S. businesses or armed conflict involving the United States of America. Further terrorist attacks or other acts of violence or war may directly impact the Company’s physical facilities or those of its customers and vendors. These events could cause consumer confidence and spending to decrease or result in increased volatility in the United States and world financial markets and economy. They could result in an economic recession in the United States or abroad. Any of these occurrences could have a material adverse impact on the Company’s business, financial condition, results of operations and cash flows.

The Company expects to experience significant change in the wireless communications industry.

The wireless communications industry is experiencing technological change. This includes digital upgrades, evolving industry standards, ongoing improvements in the capacity and quality of digital technology, shorter development cycles for new products and changes in customer needs and preferences. CBW currently offers its services over a digital wireless network using Time Division Multiple Access, or TDMA, technology. In October 2003, the Company implemented GSM/GPRS technology, which several competitors, as well as the Company’s wireless partner AWE, have already implemented. This new technology is currently running concurrent with the TDMA technology and will continue to do so through at least December 31, 2006 under the Company’s current estimates. However, the prospects of the Company’s wireless business will depend on the success of its conversion to GSM/GPRS technology and its ability to anticipate and adapt to future changes in the wireless communications industry.

The purchase of AWE by Cingular Wireless could have a significant impact on the composition and operations of our wireless subsidiary.

AWE announced in February 2004 that it agreed to be purchased by Cingular Wireless. AWE owns 19.9% of CBW, which comprises the substantial portion of the Wireless segment. In connection with the sale, Cingular/AWE announced their intention to accelerate their migration away from TDMA technology. In addition to being a part owner of CBW, AWE provides roaming services for TDMA and GSM, and allows CBW to use spectrum, under the terms of various commercial agreements. The parties also have reciprocal non-competition obligations (as specified in the operating agreement between the Company and AWE). At this time it is not completely clear what impact the Cingular/AWE merger will have on the operations of CBW or on Cingular’s/AWE’s desire to remain in the CBW venture. However, a decision by Cingular/AWE to exit or limit its involvement in CBW, or to not renew the commercial roaming and spectrum use arrangements beyond their current terms could have a material impact on the business unless CBW were able to obtain alternative commercial arrangements on commercially reasonable terms. In addition, it is unclear whether a decision by Cingular/AWE to accelerate their migration away from TDMA would impact the schedule of the Company’s

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own TDMA migration. The Company currently anticipates completing its migration by the end of 2006. An acceleration before then could require additional capital expenditures, costs, expenses and asset impairments and could result in the loss of revenue.

The Company is subject to laws and regulations relating to the protection of the environment and health and human safety.

The Company’s operations are subject to laws and regulations relating to the protection of the environment and health and human safety, including those governing the management and disposal of, and exposure to, hazardous materials and the cleanup of contamination, and the emission of radio frequency. While the Company believes its operations are in substantial compliance with environmental and health and human safety laws and regulations, as an owner or operator of property and in connection with the current and historical use of hazardous materials, underground storage tanks and other operations at its sites, the Company could incur significant costs resulting from violations or liabilities under such laws, the imposition of cleanup obligations, and third-party suits.

The Company’s share price may be volatile.

The Company’s share price may fluctuate substantially as a result of periodic variations in the actual or anticipated financial results of the Company’s business or other companies in the telecommunications industry or markets served by the Company. In addition, the stock market has experienced price and volume fluctuations that have affected the market price of many telecommunications stocks and have often been unrelated or disproportionate to the operating performance of some of these companies. Fluctuations such as these have affected and are likely to continue to affect the share price of the Company’s common stock. In addition, many of the risks described in this section could materially and adversely affect the Company’s share price.

During 2002 and 2003, a number of putative class action and derivative lawsuits were filed against the Company and certain of its current and former officers and directors. Additionally, the Audit Committee of the Company’s Board of Directors completed an investigation into allegations that were contained in an amended class action securities lawsuit filed in December 2003. In connection with that investigation, adjustments have been identified related to the manner that the Company recorded a particular broadband network construction agreement entered into in 2000. These adjustments related to the timing of revenue recognition resulting from the inappropriate inclusion of certain costs that had not been fully incurred and use of estimates regarding the extent to which the construction contract had been completed. The Company restated its financial statements to reflect the revised accounting for this contract. In investigating plaintiffs’ other allegations, the Audit Committee did not identify any information that warranted any modification or change to the Company’s financial statements. Such litigation could result in substantial costs and have a material impact on the financial condition, results of operation and cash flow of the Company. The Company could be required to pay substantial damages, if the Company were to lose any of these lawsuits.

The Company’s operations are focused on a limited geographic area.

Substantially all of the Company’s revenue is generated by serving customers in the Greater Cincinnati and Dayton, Ohio areas. An economic downturn or natural disaster occurring in this limited operating territory could have a disproportionate effect on the Company’s business, financial condition, results of operations and cash flow compared to similar companies of a national scope and similar companies operating in different geographic areas. Refer to Note 23 of Notes to Consolidated Financial Statements, included in Item 8 on this Form 10-K.

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Employees

At December 31, 2003, the Company had approximately 3,300 employees. CBT had approximately 1,800 employees covered under a collective bargaining agreement with the Communications Workers of America, which is affiliated with the AFL-CIO. This collective bargaining agreement expires in May 2005.

Business Segment Information

The amount of revenue, intersegment revenue, operating income (loss), assets, capital additions and depreciation and amortization attributable to each of the Company’s business segments for the years ended December 31, 2003, 2002 and 2001 is set forth in Note 19 of the Notes to Consolidated Financial Statements contained in Item 8 of this Report on Form 10-K.

Fiber-optic transmission facilities consist largely of fiber-optic cable, conduit, optronics, rights-of-way and structures to house the equipment. The wireless infrastructure consists primarily of transmitters, receivers, towers, and antennae.

The gross investment in property, plant and equipment, at December 31, 2003 and 2002 is comprised of the following (dollars in millions):

The gross investment in property, plant, and equipment includes $34.7 million and $27.2 million of assets accounted for as capital leases in 2003 and 2002, respectively. These assets are included in the captions “Buildings and leasehold improvements”, “Telephone plant”, “Transmission facilities” and “Furniture, fixtures, vehicles and other”.

Properties of the Company are divided between operating segments as follows:

PART II

Item 6. Selected Financial Data

The Selected Financial Data should be read in conjunction with the Consolidated Financial Statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this document. The information contained in the table below has been recast to give effect to the sale of substantially all of the assets of Cincinnati Bell Directory in 2002 and the assets of Cincinnati Bell Supply in 2000. Refer to Note 17 of the Notes to Consolidated Financial Statements for a detailed discussion of the reporting of discontinued operations. In addition, certain amounts for 2002, 2001, and 2000 have been restated as discussed in Note 2 of the Notes to Consolidated Financial Statements.

(a)		See Note 1, 5, and 6 of Notes to Consolidated Financial Statements.
(b)		See Note 8 of Notes to Consolidated Financial Statements.
(c)		See Note 7 of Notes to Consolidated Financial Statements.
(d)		See Note 13 of Notes to Consolidated Financial Statements.
(e)		See Note 1 and 5 of Notes to Consolidated Financial Statements.
(f)		Total long-term obligations comprise long-term debt, other noncurrent liabilities that will be settled in cash, redeemable preferred stock and the BRCOM Preferred Stock, which was classified as minority interest in the consolidated financial statements.
(g)		See Note 10 of Notes to Consolidated Financial Statements.
(h)		See Note 3 of Notes to Consolidated Financial Statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” which follows should be read in conjunction with the “Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement”, “Risk Factors,” and Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements.

Cincinnati Bell Inc. (“the Company”), f/k/a Broadwing Inc., provides diversified telecommunications services through businesses in four segments: Local, Wireless, Other and Broadband. A further discussion of these segments and their operating results is discussed in Item 1, “Business”, and in the individual segment discussions which begin on page 35 of this Report on Form 10-K.

Introductory Note

As previously disclosed, the Company has been investigating the allegations contained in an amended class action securities lawsuit filed in December 2003. These allegations relate primarily to the manner in which the Company recognized revenue, and wrote down assets, with respect to its former broadband business. The Audit Committee of the Company’s Board of Directors has now completed its investigation of those matters. In connection with that investigation, adjustments have been identified related to the manner in which the Company recorded a particular broadband network construction agreement entered into in 2000. These adjustments related to the timing of revenue recognition resulting from the inappropriate inclusion of certain costs that had not been fully incurred and use of estimates regarding the extent to which the construction contract had been completed. The Company has restated its financial statements to reflect the revised accounting for this contract. In investigating plaintiffs’ other allegations, the Audit Committee did not identify any information that warranted any modification or change to the Company’s financial statements.

In connection with the restatement relating to the construction contract, the Company’s revenue for the nine month period ended September 30, 2003 was unchanged compared to amounts previously reported, cost of services and products for the nine month period decreased by $50.5 million, or 8.39%, and net income for the nine month period increased by $50.5 million, or 11.52%; revenue and cost of services and products were unchanged in 2002 and the net loss for 2002 increased by $18.0 million, or 0.43%; revenue for 2001 decreased by $30.6 million, or 1.34%, cost of services and products for 2001 increased by $15.1 million, or 1.31%, and the net loss for 2001 increased by $29.4 million, or 10.27%; and revenue for 2000 decreased by $22.7 million, or 1.14%, cost of services and products for 2000 decreased by $17.9 million, or 1.85%, and the net loss for 2000 increased by $3.1 million, or 0.82%. Thus, there was no cumulative change to net income or shareowners’ equity from 2000 through 2003 as a result of the restatement. A summary of the effects of the restatement on the Company’s financial statements follows:

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The Company’s restatement includes the reversal of a related unbilled account receivable of $50.5 million that was previously written off in the second quarter of 2003, as the account receivable was eliminated as a result of the adjustments to revenue in 2001 and 2000.

In November 2001, the Company publicly announced its intention to exit the broadband network construction business. Thereafter, the Company did not enter into any new network construction agreements and no revenue was recognized in either 2002 or 2003 on the broadband network construction contract referenced above. As previously disclosed, the Company effectively completed the sale of substantially all of the assets of its broadband business in June 2003. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Broadband – Costs and Expenses.”

As a result of the restatement of the Company’s previously issued financial statements, the Company was in default on its Credit Agreement and 16% Notes Indenture, and as a result of cross-default provisions, the Cincinnati Bell Telephone Notes. In March 2004, the Company’s Credit Agreement and 16% Notes Indenture were amended to provide that the restatement does not constitute an event of default, which eliminated the cross-default of the Cincinnati Bell Telephone Notes.

The Company will file amended Form 10-Qs to restate its financial statements for the quarters ended March 31, 2003, June 30, 2003 and September 30, 2003.

The restated consolidated financial statements for the years ended December 31, 2002 and 2001 and the restated selected financial data for the year ended December 31, 2000 contained in this Form 10-K supercede the financial statements and selected financial data for such periods in the Company’s Form 10-K for the year ended December 31, 2002 and for the year ended December 31, 2001.

For a further discussion of the restatement, see Note 2 of the Notes to Consolidated Financial Statements.

During the second and third quarter of 2003, the Company sold substantially all of the assets of its broadband business, which is reported in the Broadband segment. These assets were held by the Company’s wholly owned subsidiary, BRCOM (f/k/a Broadwing Communications Inc.). Refer to Note 3 of the Notes to the Consolidated Financial Statements for a detailed discussion of the sale. During the first quarter of 2002, the Company sold substantially all of the assets of Cincinnati Bell Directory (“CBD”), which was previously reported in the Other segment. The disposition of CBD has been accounted for as a discontinued operation in accordance with SFAS 144.

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Executive Summary

Cincinnati Bell Inc., is a full-service local provider of data and voice communications services and equipment and a regional provider of wireless and long distance communications services. The Company provides telecommunications service on its owned local network with a well-regarded brand name and reputation for service. The Company operates in four business segments: Local, Wireless, Other and Broadband.

For Cincinnati Bell, 2003 was a year of transition. The Company reached an agreement to sell substantially all of its broadband business in February 2003 and completed the sale in the second and third quarters of the year. In March of 2003, the Company raised $350 million in new capital and renegotiated its credit facility in a challenging capital market for telecommunications companies. In May of 2003 the Company changed its name to Cincinnati Bell in a return to the roots of the Company’s success over the past 130 years. In August of 2003, the Company exchanged the debt and preferred stock assumed in the acquisition of the broadband business for common shares of Cincinnati Bell Inc., reducing debt without sacrificing liquidity or utilizing cash. In July and November of 2003, the Company again accessed the capital markets, this time as the Company focused on generating cash flow and reducing debt, raising $500 million from the issuance of senior notes and $540 million from the issuance of senior subordinated notes. These transactions, combined with cash flow generated from operations, allowed the Company to decrease its debt and minority interest obligations by $675 million during 2003, to $2,328 million, and enter 2004 focused on generating cash flow to reduce debt and defend its market position.

The Company expects 2004 to be challenging as it continues to reduce debt and defend its core businesses from new and current competitors. In October 2003, the Company launched a GSM/GPRS wireless network in order to improve its cost structure and to offer enhanced wireless data services. In December 2003, the Company announced management reporting changes intended to focus resources on its key products — local access, wireless, high-speed internet access and long distance and to reduce its expense structure to generate more cash and pay down debt. In March 2004, the Company upgraded its DSL network to provide even higher speed internet access — up to four times faster than the existing DSL network. In February 2004, the Company also launched an aggressive marketing campaign titled “You Add, We Subtract.” The marketing campaign is designed to introduce a bundled suite of communications services offering unlimited local, unlimited long distance, unlimited wireless and high-speed internet service on a single bill for a reduced flat monthly fee. This marketing campaign expands on the Company’s bundling strategy which has been successful in increasing monthly consumer revenue per household to $74.80 in 2003 from $72.84 and $71.59 in 2002 and 2001, respectively, which represents year over year increases of 3% and 2%, respectively.

Excluding the Broadband segment, the Company expects revenue to decline in the low single-digits compared to 2003, and operating income to be in the range of $295 million to $310 million as a result of higher sales and marketing expense related to incremental wireless and DSL customer acquisitions particularly into service bundles that include an access line. The Company believes its strategy to defend its local market and make targeted entry into adjacent operating territories while, at the same time, reducing debt is the best approach to maintain and enhance shareholder value. The Company also intends to maintain its reputation for quality service established over the course of its 130-year history in the Greater Cincinnati area.

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Critical Accounting Policies and Estimates

The preparation of consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. The Company continually evaluates its estimates, including but not limited to, those related to revenue recognition, bad debts, income taxes, fixed assets, depreciation, access line costs, restructuring, pensions, other postretirement benefits and contingencies. The Company bases its estimates on historical experience and on various other assumptions believed to be reasonable under the facts and circumstances. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies impact the more significant judgments and estimates used in the preparation of its consolidated financial statements. Additionally, the Company’s senior management has discussed the critical accounting policies and estimates with the Audit and Finance Committee. For a more detailed discussion of the application of these and other accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition – The Company recognizes revenue as services are provided. Local access fees are billed monthly, in advance, while revenue is recognized as the services are provided. Postpaid wireless, switched voice and data and Internet product services are billed monthly in arrears, while the revenue is recognized as the services are provided. Equipment revenue is generally recognized upon performance of contractual obligations, such as shipment, delivery, installation or customer acceptance.

Prior to the sale of the broadband assets in the second and third quarter of 2003 (refer to Note 3 of the Notes to the Consolidated Financial Statements), broadband transport services were billed monthly, in advance, while revenue was recognized as the services were provided. In addition, the Company had entered into indefeasible right-of-use (“IRU”) agreements, which represent the lease of network capacity or dark fiber, recording unearned revenue at the earlier of the acceptance of the applicable portion of the network by the customer or the receipt of cash. The buyer of IRU services typically paid cash or other consideration upon execution of the contract, and the associated IRU revenue was recognized over the life of the agreement as services were provided, beginning on the date of customer acceptance. In the event the buyer of an IRU terminated a contract prior to the contract expiration and released the Company from the obligation to provide future services, the remaining unamortized unearned revenue was recognized in the period in which the contract was terminated. Concurrent with the broadband asset sale, substantially all of the remaining IRU obligations were assumed by the buyer.

Cost of Providing Service – Prior to the sale of the broadband assets (refer to Note 3 of the Notes to Consolidated Financial Statements), the Company maintained an accrued liability related to the broadband business for the cost of circuits leased from other carriers and access minutes of use not yet invoiced in order to appropriately record such costs in the period incurred. The Company determined the estimate of the accrued cost of service liability based on a variety of factors including circuits added or disconnected during the period, expected recovery of disputed amounts and the mix of domestic and international access minutes of use. If the actual amounts recovered from disputes were less than expected or other charges were greater than expected, an additional accrual and related expense was recorded. Concurrent with the broadband asset sale, the accrued liability for cost of providing service was assumed by the buyer.

Income Taxes - The income tax provision consists of an amount for taxes currently payable and an expense (or benefit) for tax consequences deferred to future periods. The ultimate realization of the deferred income tax assets depends upon the Company’s ability to generate future taxable income during the periods in which basis

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differences and other deductions become deductible and prior to the expiration of its net operating loss carryforwards.

In the fourth quarter of 2003, the Company reversed $823.0 million of deferred tax asset valuation allowance previously established primarily due to the uncertainties surrounding BRCOM’s liquidity that were substantially mitigated. In 2004 the Company expects its effective tax rate to be approximately 50%.

As of December 31, 2003, the Company had net deferred tax assets of $739.3 million, which included a valuation allowance of $262.0 million related to certain state and local net operating loss carryforwards. The Company concluded, due to the sale of the broadband business and the historical and future projected earnings of the remaining businesses, that the Company will utilize future deductions and available net operating loss carryforwards prior to their expiration. The Company also concluded that it was more likely than not that certain state tax net operating loss carryforwards would not be realized based upon the analysis described above and therefore provided a valuation allowance.

Allowances for Uncollectible Accounts Receivable – The Company establishes the allowances for uncollectible accounts using both percentages of aged accounts receivable balances to reflect the historical average of credit losses and specific provisions for certain large, potentially uncollectible balances. The Company believes its allowance for uncollectible accounts is adequate based on the methods previously described. However, if one or more of the Company’s larger customers were to default on its accounts receivable obligations, or general economic conditions in the Company’s operating area deteriorated, the Company could be exposed to potentially significant losses in excess of the provisions established.

Depreciation of Property, Plant and Equipment — The Company’s provision for depreciation of telephone plant is determined on a straight-line basis using the whole life and remaining life methods. Provision for depreciation of other property is based on the straight-line method over the estimated economic useful life. Repairs and maintenance expense items are charged to expense as incurred. Beginning in 2003, in connection with the adoption of Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS 143”), the cost of removal for telephone plant was included in costs of products and services as incurred. In connection with this accounting change, on January 1, 2003, the Company recorded a benefit of $85.9 million as a cumulative effect of a change in accounting principle, net of taxes, related to the adoption of SFAS 143. Refer to Note 1 of the Notes to Consolidated Financial Statements.

During the fourth quarter of 2003, the Company revised the estimated economic useful life of its wireless TDMA network due to the implementation of and expected migration to its GSM/GPRS network. The Company shortened its estimate of the economic useful life of its TDMA network to December 31, 2006. The Wireless segment recorded additional depreciation expense of $5.2 million to reflect the acceleration of depreciation for the TDMA network. If the migration to GSM/GPRS technology occurs more rapidly than the Company’s current estimates, the Company may be required to revise its estimate further or record an impairment charge related to its TDMA network. In 2003, the change in estimate reduced operating income and net income by $5.2 million and $3.4 million, respectively. In 2003, basic and diluted earnings per share were decreased by $0.02 and $0.01, respectively, as a result of this change in estimate.

Goodwill and Indefinite-Lived Intangible Assets — Goodwill represents the excess of the purchase price consideration over the fair value of assets acquired recorded in connection with purchase business combinations. Indefinite-lived intangible assets consist primarily of Federal Communications Commission (“FCC”) licenses for spectrum of the Wireless segment. The Company determined that its wireless licenses met the definition of indefinite-lived intangible assets under Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) as the Company believes the need for wireless spectrum will continue independently of technology and the Company may renew the wireless licenses in a routine manner every ten

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years for a nominal fee, provided the Company continues to meet the service and geographic coverage provisions required by the FCC. Upon the adoption of SFAS 142 on January 1, 2002, the Company recorded a goodwill impairment charge of $2,008.7 million, net of tax, as a cumulative effect of change in accounting principle, related to the Broadband segment and ceased amortization of remaining goodwill and indefinite-lived intangible assets as discussed in Note 5 of the Notes to the Consolidated Financial Statements.

Pursuant to SFAS 142, goodwill and intangible assets not subject to amortization are tested for impairment annually, or when events or changes in circumstances indicate that the asset might be impaired. For goodwill, a two-step impairment test is performed. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying value of a reporting unit exceeds its fair value, the second step of the impairment test is performed to measure the amount of impairment loss. The second step compares the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value is determined by allocating the fair value of a reporting unit to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill. If the carrying amount of the reporting unit goodwill is in excess of the implied fair value of that goodwill, then an impairment loss is recognized equal to that excess. For indefinite-lived intangible assets, the impairment test consists of a comparison of the fair value of the intangible asset with its carrying value. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Impairment of Long-lived Assets, Other than Goodwill and Indefinite-Lived Intangibles - The Company reviews the carrying value of long-lived assets, other than goodwill and indefinite-lived intangible assets discussed above, when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the estimated future undiscounted cash flows expected to result from the use of an asset (or group of assets) and its eventual disposition are less than its carrying amount. An impairment loss is measured as the amount by which the asset’s carrying value exceeds its estimated fair value.

During the fourth quarter of 2002, the Company performed an impairment assessment of its Broadband segment long-lived assets as a result of the restructuring plan implemented during the quarter and the strategic alternatives being explored, including the potential sale of the Broadband business. This assessment considered all of the contemplated strategic alternatives for the Broadband segment, including a potential sale of assets, using a probability-weighted approach. Based on this assessment, the Company determined that the long-lived assets of Broadband segment were impaired and recorded a $2,200.0 million non-cash impairment charge to reduce the carrying value of these assets. Of the total charge, $1,901.7 million related to tangible fixed assets and $298.3 million related to finite-lived intangible assets.

The Company recorded a $3.4 million asset impairment in the fourth quarter of 2003 to write-down the value of its public payphone assets to fair value. The Company calculated the fair value of the assets utilizing a discounted cash flow analysis based on the best estimate of projected cash flows from the underlying assets.

Pension and Postretirement Benefits – The Company calculates net periodic pension and postretirement expenses and liabilities on an actuarial basis under the provisions of Statement of Financial Accounting Standards No. 87, “Employers’ Accounting for Pensions” (“SFAS 87”), Statement of Financial Accounting Standards No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (“SFAS 106”) and Statement of Financial Accounting Standards No. 112, “Employers’ Accounting for Postretirement Benefits (“SFAS 112”). The key assumptions used in determining these calculations are disclosed in Note 15 of the Notes to Consolidated Financial Statements. The actuarial assumptions attempt to anticipate future events and are used in calculating the expenses and liabilities related to these plans.

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The most significant of these numerous assumptions, which are reviewed annually, include the discount rate, expected long-term rate of return on plan assets and health care cost trend rates. The discount rate is selected based on current market interest rates on high-quality, fixed-income investments at December 31 of each year. The health care cost trend rate is based on actual claims experience and future projections of medical cost trends. The actuarial assumptions used may differ materially from actual results due to the changing market and economic conditions and other changes. Revisions to and variations from these estimates would impact assets, liabilities, costs of services and products and selling, general and administrative expenses.

The following table represents the sensitivity of changes in certain assumptions related to the Company’s pension and postretirement plans:

The expected long-term rate of return on plan assets, developed using the building block approach, is based on the following: the participant’s benefit horizons; the mix of investments held directly by the plans, which is generally 60% equities and 40% bonds; and, the current view of expected future returns, which is influenced by historical averages. The required use of an expected versus actual long-term rate of return on plan assets may result in recognized pension expense or income that is greater or less than the actual returns of those plan assets in any given year. Over time, however, the expected long-term returns are designed to approximate the actual long-term returns. To the extent the Company changed its estimate of the expected long-term rate of return on plan assets, there would be an impact on pension expense or income and the associated net liability or asset.

In its pension calculations, the Company utilizes the market-related value of plan assets, which is a calculated asset value that recognizes changes in asset fair values in a systematic and rational manner. Differences between actual and expected returns are recognized in the market related value of plan assets over five years.

Changes in actual asset return experience and discount rate assumptions can impact the Company’s operating results, financial position and cash flows. Actual asset return experience results in an increase or decrease in the asset base and this effect, in conjunction with a decrease in the pension discount rate, may result in a plan’s assets being less than a plan’s accumulated benefit obligation (“ABO”). The ABO is the present value of benefits earned to date and is based on past compensation levels. The Company is required to show in its consolidated balance sheet a net liability that is at least equal to the ABO less the market value of plan assets. This liability is referred to as an additional minimum pension liability (“AML”). An AML, which is recorded and updated on December 31 each year, is reflected as a long-term pension liability with the offset recorded as an intangible asset, to the extent the Company has unrecognized prior service costs, with the remainder recorded in accumulated other comprehensive income (loss) in the equity section of the consolidated balance sheet, net of tax.

The actuarial expense calculation for the postretirement health plan is based on numerous assumptions, estimates and judgments including health care cost trend rates and cap-related cost sharing. Certain of the Company’s non-management labor contracts contain an annual dollar value cap for the purpose of determining postretirement health care contributions required from retirees. The Company has waived cost sharing in excess of the cap during the current contract period, but will begin collecting certain cost sharing payments from certain non-management employees beginning in 2004. The caps for certain contracts are set during each bargaining cycle in connection with the negotiation of the overall contract. In accordance with the provisions of

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SFAS 106, the Company accounts for non-management retiree health benefits in accordance with the terms of each individual contract.

The Company made the one-time election under FASB Staff Position (“FSP”) No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”) to defer accounting for any effects of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. The Company has elected to defer the accounting effects of the Act until the FASB issues guidance on how to account for the federal subsidy. The Company expects the Act to reduce its annual non-cash postretirement health expense by approximately $1 million and reduce its postretirement health liability by up to $12 million, assuming no plan design changes are implemented.

Due to the sale of the broadband assets and termination of approximately 1,052 BRCOM employees in the second quarter of 2003, the Company was required to remeasure its pension liability as of June 30, 2003 and record a curtailment loss. The net impact to the financial statements was a decrease in the gain on sale of the broadband assets of $2.4 million and a corresponding increase in the pension liability.

Results of Operations

Consolidated Overview

The financial results for 2003, 2002 and 2001 referred to in this discussion should be read in conjunction with the Consolidated Statements of Operations and Comprehensive Income (Loss) on page 62 of this Report on Form 10-K .

2003 Compared to 2002

Revenue

Consolidated revenue totaled $1,557.8 million in 2003, which was $620.8 million, or 28%, less than 2002. The primary reason for the revenue decline was the sale of substantially all the broadband assets on June 13, 2003 (refer to Note 3 of the Notes to Consolidated Financial Statements). As a result of the sale, the Broadband segment will no longer generate revenue for broadband transport and switched voice services and will experience significant reductions in data and Internet revenue. The Company expects a reduction in consolidated revenue going forward of approximately 19% of 2003 revenues due to the sale of the broadband assets. Excluding the Broadband segment, the Company expects 2004 revenue to decline in the low single-digits compared to 2003, as the Company defends its market position from advancing competition.

Refer to Discussion of Operating Segment Results on page 62 of this Report on Form 10-K for detailed discussion of revenue by segment.

Costs and Expenses

Cost of services and products totaled $681.5 million in 2003 compared to $1,035.6 million in 2002, a decrease of $354.1 million or 34%. The majority of the decrease, or $316.8 million, was the result of the sale of substantially all of the broadband assets. The 2002 costs included $13.3 million of construction contract termination costs not repeated in 2003. The remaining decline of $37.3 million was primarily the result of lower CBTS costs related to decreased equipment sales.

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Selling, general and administrative (“SG&A”) expenses of $353.1 million in 2003 decreased $149.1 million, or 30%, compared to 2002. The decrease was primarily due to the sale of substantially all the broadband assets in the second quarter of 2003, lower payroll costs as a result of the October 2002 restructuring further discussed in Note 6 of the Notes to Consolidated Financial Statements and cost reductions of $4.7 million as the Wireless segment assumed responsibility for network management services previously outsourced to AWE. The SG&A decrease associated with the broadband assets sold was $159.3 million. The decrease was offset by an increase in SG&A expense of $11.2 million which was primarily the result of success-based contractual incentives and termination benefits for certain senior executives pursuant to the sale of the broadband assets (Refer to Note 4 of the Notes to Consolidated Financial Statements). The termination benefits included $0.8 million of non-cash charges related to the accelerated vesting of stock options. Going forward, the Company expects a significant decrease in SG&A due to the disposition of broadband assets, partially offset by increasing sales and marketing expenses related to defending its markets from increased competition.

Depreciation expense decreased by 64%, or $301.9 million, to $169.1 million in 2003 compared to $471.0 million in 2002. The decrease was primarily driven by the Broadband segment as the Company recorded a non-cash impairment charge of $1,901.7 million in the fourth quarter of 2002 related to the Broadband segment’s tangible assets (refer to Note 1 of the Notes to Consolidated Financial Statements). Additionally, due to the definitive agreement to sell substantially all of the assets of its Broadband segment, the broadband assets were classified as “held for sale” and the Company ceased depreciation, in accordance with SFAS 144 on March 1, 2003 (refer to Note 3 of the Notes to Consolidated Financial Statements). The adoption of SFAS 143 on January 1, 2003 (refer to Note 1 of the Notes to Consolidated Financial Statements) also contributed to the reduction in depreciation expense as removal costs previously recorded as depreciation expense in the Local segment ceased, accounting for $6.4 million of the decrease.

Amortization expense of $0.6 million in 2003 relates to roaming and trade name agreements acquired by the Wireless segment. Amortization expense in 2003 decreased by $24.7 million compared to 2002. The decrease was due to the write-down of approximately $298.3 million of intangible assets in 2002 in association with the $2,200.0 million non-cash asset impairment charge recorded at the Broadband segment as discussed in Note 1 of the Notes to Consolidated Financial Statements. As such, the Company expects annual amortization expense going forward to be less than a million dollars.

Restructuring charges (credits) during 2003 of ($2.6) million were $39.7 million lower than 2002. Results in 2003 include $7.2 million in reversals of previously established reserves due to the settlement of terminated contract obligations and a change in the estimate of the termination costs of remaining contractual obligations. In December 2003, the Company initiated a restructuring in order to reduce future cash operating costs by approximately $9.1 million. This restructuring resulted in a charge of $4.6 million related to employee separation benefits for 106 employees. The $37.1 million of restructuring charges in 2002 were comprised of $16.5 million recorded in the first quarter of 2002 for employee termination benefits, the termination of a contractual commitment with a vendor related to the November 2001 restructuring, $9.6 million recorded in the third quarter of 2002 primarily for employee termination benefits related to the September 2002 restructuring, and $14.7 million recorded in the fourth quarter of 2002 related to the October 2002 restructuring. A detailed discussion of each restructuring charge is provided in Note 6 of the Notes to Consolidated Financial Statements.

In 2003, the Company recorded $8.8 million of asset impairments and other charges, which consisted of $3.6 million in asset impairments related to a write-down of the value of its public payphone assets to fair value and a $5.2 million charge in 2003 as a result of a settlement reached with a customer related to a contract dispute. Based on certain indicators, including a potential asset sale, the Company performed an impairment analysis of the assets of its Broadband segment in the fourth quarter of 2002. The Company’s impairment analysis indicated the carrying value of the assets was not recoverable. Accordingly, the Company wrote down the

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assets to estimated fair market value, resulting in a non-cash impairment charge of $2.2 billion. Refer to Note 1 of the Notes to Consolidated Financial Statements.

Also included in the Company’s operating income in 2003 was a $336.7 million gain related to the sale of broadband assets. Refer to Note 3 of the Notes to Consolidated Financial Statements.

Operating income increased by $2,777.5 million to $684.0 million in 2003 compared to an operating loss of $2,093.5 million in 2002. The increase was principally due to reduced expenses as a result of the sale of the broadband assets and the related gain, in addition to the asset impairment charge in 2002 of $2,200.0 million related to the Broadband segment. Excluding the Broadband segment, an increase in operating expenses is expected to decrease operating income in 2004 to the range of $295 million to $310 million, as the Company defends its market position.

Minority interest expense of $42.2 million and $57.6 million in 2003 and 2002, respectively, includes the accrual of dividends and accretion on the 12½% Junior Exchangeable Preferred Stock of BRCOM (the “12½% Preferreds”) and the 19.9% minority interest of AT&T Wireless Services Inc. (“AWE”) in the net income of CBW. Although the Company announced the deferral of the August 15, 2002, November 15, 2002, February 15, 2003, May 15, 2003, and August 15, 2003 cash dividend payment on the 12½% Preferreds, the Company continued to accrue the dividends in accordance with the terms of the security. On September 8, 2003 the Company completed the exchange of all of the 12½% Preferreds for approximately 14.1 million shares of Cincinnati Bell Inc. common stock. As a result of this exchange, minority interest expense in 2003 decreased $13.8 million compared to 2002, to $32.0 million. Under the terms of the exchange, holders of the 12½% Preferreds were not paid any accumulated or unpaid dividends. A detailed discussion of minority interest is provided in Note 10 of the Notes to Consolidated Financial Statements.

Interest expense and other financing costs of $234.2 million in 2003 increased $70.0 million, or 43%, compared to $164.2 million in 2002. The increase is the result of the issuance of the 16% Senior Subordinated Discount Due 2009 (the “16% notes”), the increase in the interest rate on the convertible subordinated notes in March 2003, the issuance of the 7¼% Senior notes due 2013 in July 2003, the $16.4 million write-off of deferred financing costs related to the prepayment and amendments of the Company’s credit facilities, and an increase in the interest rate on the Company’s credit facilities. These increases were partially offset by a decline in interest expense on the Company’s credit facilities resulting from the significant reduction in outstanding borrowings under these facilities. As a result of the above and the issuance of the 8 3/8% Senior subordinated notes due 2014 and the extinguishment of the convertible subordinated notes, the Company expects a decrease in interest expense of approximately $25.0 million in 2004 compared to 2003. A detailed discussion of indebtedness is presented in Note 8 of the Notes to Consolidated Financial Statements.

The following table summarizes the components of the expected decrease in interest expense in 2004 compared to 2003:

(dollars in millions)

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On September 8, 2003, the Company retired the remaining $46.0 million of BRCOM 9% notes (“9% notes”) and satisfied $1.6 million in accrued interest in exchange for approximately 11.1 million shares of common stock of the Company, which had a fair value of $65.0 million at the exchange date. As a result, the Company recorded a loss on extinguishment of debt, in other non-operating expense, of $17.4 million during the third quarter of 2003.

On November 19, 2003, the Company purchased all of the outstanding Convertible Subordinated Notes due 2009, which bore interest at a rate of 9%, at a discounted price equal to 97% of their accreted value. As a result, the Company recorded other non-operating income of $16.2 million from the extinguishment of debt.

In the fourth quarter of 2003, the Company recorded a gain of $10.0 million from the modification of a capital lease at the Company’s headquarters in other non-operating income. This modification required the lease to be reclassified from a capital lease to an operating lease. The gain primarily represents the difference between the carrying value of the capital lease assets and the related lease obligation at the date of modification.

The Company recorded a $10.7 million non-cash loss on investments in 2002 due to an other than temporary decline in value of one of the Company’s cost-based investments.

The Company reported an income tax benefit of $828.8 million in 2003. This compares to an expense of $123.7 million reported in 2002. The income tax benefit recorded in 2003 relates substantially to the reversal of a previously recorded deferred tax valuation allowance due to the uncertainties surrounding the liquidity of the Company’s subsidiary, BRCOM Inc. In the fourth quarter of 2003, the Company reversed $823.0 million of the valuation allowance as the uncertainties surrounding BRCOM’s liquidity were substantially mitigated. In 2002, the Company had income tax expense of $123.7 million, due substantially to the establishment of a valuation allowance of $1,110.7 million against certain federal and state deferred tax assets (including net operating loss carryforwards), offset substantially by the tax effect of the $2.2 billion asset impairment. The effective rate of negative (198.7%) in 2003 was 193.4 points lower than the effective rate of negative (5.3%) in the same period of 2002. The decrease in the rate was due to reversal of a previously recorded deferred tax valuation allowance. In 2004 the Company expects its effective tax rate to be approximately 50%. Refer to Note 14 of the Notes to Consolidated Financial Statements.

As a result of the items previously discussed, income from continuing operations before discontinued operations and cumulative effect of change in accounting principle increased $3,695.2 million in 2003 to $1,246.0 million compared to a loss of $2,449.2 million in 2002. In addition, the corresponding diluted earnings per share from continuing operations totaled $5.02 in 2003 compared to the diluted loss per share from continuing operations of $11.27 in 2002.

Substantially all of the assets of CBD were sold on March 8, 2002 for $345.0 million cash and a 2.5% equity interest in the newly formed company. Income from discontinued operations totaled zero in 2003 compared to $217.6 million in 2002. The net gain from the sale of substantially all of the assets of CBD of $211.8 million was recorded in 2002 and the remaining income was related to the operations of CBD from January 1 through March 8, 2002. A detailed discussion of discontinued operations is provided in Note 17 of the Notes to Consolidated Financial Statements.

Effective January 1, 2003, the Company recorded a benefit of $85.9 million as a cumulative effect of a change in accounting principle, net of taxes, related to the adoption of SFAS 143. The benefit principally related to the estimated telephone plant removal costs previously included in accumulated depreciation, which were reversed. Refer to Note 1 of the Notes to Consolidated Financial Statements for a detailed discussion of the adoption of SFAS 143.

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Effective January 1, 2002, the Company recorded a $2,008.7 million charge as a cumulative effect of a change in accounting principle, net of taxes, related to the adoption of SFAS 142. The write-down of goodwill, finalized in the second quarter of 2002, was related to the fair value of goodwill associated with the broadband business acquired in 1999. See Note 5 of the Notes to Condensed Consolidated Financial Statements for a detailed discussion of the adoption of SFAS 142.

2002 Compared to 2001

Revenue

Consolidated revenue totaled $2,178.6 million in 2002, which was $73.7 million, or 3%, less than 2001. Approximately $56.8 million of the decrease was attributable to network construction, as the Company decided to exit that business as part of the November 2001 restructuring plan discussed in Note 6 of the Notes to Consolidated Financial Statements. The decline of switched voice services of $51.9 million contributed much of the remaining decrease, as rates and volume fell due to intense competition. The decreases were partially offset by non-cash revenue of $58.7 million resulting from the termination of two IRU contracts in conjunction with two customers’ bankruptcies and a reduction in uncollectible revenue due to tighter credit and collection policies.

Refer to Discussion of Operating Segment Results on page 62 of this Report on Form 10-K for detailed discussion of revenue by segment.

Costs and Expenses

Cost of services and products totaled $1,035.6 million in 2002 compared to $1,169.3 million in 2001, a decrease of $133.7 million, or 11%. Costs of services and products of the Broadband segment decreased nearly $119.7 million due the exit of network construction and a decrease in switched voice services usage consistent with the decline in revenue. The decreases were offset partially by a charge of $13.3 million for costs associated with the termination of an uncompleted network construction contract. The termination of the uncompleted network construction project is discussed in further detail in Note 11 of the Notes to Consolidated Financial Statements. Local segment costs decreased $9.3 million in 2002 compared to 2001, due to efficiencies gained through the merger of the DSL and dial-up Internet operations of ZoomTown with CBT. The remainder of the increase in cost of services and products over 2001 was incurred by the Other segment, which experienced higher costs associated with increased minutes of use from the Company’s long distance business.

SG&A expenses of $502.2 million in 2002 decreased $47.4 million, or 9%, compared to 2001. The Broadband segment’s SG&A decreased nearly $23.9 million, primarily due to lower employee headcount resulting from the November 2001 restructuring (discussed in Note 6 of the Notes to Consolidated Financial Statements) and a decrease in marketing expenses, partially offset by an increase in bad debt expense of $9.0 million due to continued industry deterioration. SG&A in the Wireless segment decreased $9.6 million in 2002 compared to 2001, primarily due to a reduction in advertising and promotional spending of $7.0 million as postpaid gross subscriber additions were 37% below 2001. The remaining decrease was the result of cost reductions from the November 2001 restructuring and a decrease in customer acquisition costs in the Other segment.

Depreciation expense increased by 7%, or $29.8 million, to $471.0 million in 2002 compared to $441.2 million in 2001. The increase was primarily driven by the Broadband segment and reflects the completion of the build out of its national optical network and placement of those assets into service. The Local and Wireless segments generated the remainder of the increase as they continued to maintain and enhance their networks. In the fourth quarter of 2002, the Company recorded a non-cash asset impairment charge of $2,200.0 million related to the

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Broadband unit’s tangible and intangible assets (refer to Note 1 of the Notes to Consolidated Financial Statements).

Amortization expense of $25.3 million in 2002 related to intangible assets acquired in connection with various acquisitions. Amortization expense in 2002 decreased by $88.3 million compared to 2001 due to the Company ceasing amortization of goodwill upon the adoption of SFAS 142 on January 1, 2002. An adjusted presentation of amortization expense and the impact on net income is provided in Note 5 of the Notes to Consolidated Financial Statements. Additionally, the Company wrote-down approximately $298 million of intangible assets in 2002 in association with the $2.2 billion non-cash asset impairment charge recorded at the Broadband segment discussed in Note 1 of the Notes to Consolidated Financial Statements.

In October 2002, the Company initiated a restructuring of the Broadband segment that was intended to reduce annual expenses in 2003 by approximately $200 million compared to 2002 and enable the Broadband segment to become cash flow positive. The plan included initiatives to reduce the workforce by approximately 500 positions; reduce line costs through network grooming, optimization, and rate negotiations; and exit the wholesale international voice business. In addition, the Local segment initiated a restructuring to realign sales and marketing to better focus on enterprise customers. The plan included initiatives to reduce the workforce by 38 positions. The Company recorded a cash restructuring charge of $14.7 million during the fourth quarter of 2002 related to these initiatives.

In September 2002, the Company recorded restructuring charges of $9.6 million. The restructuring charges consisted of $4.6 million related to employee separation benefits and $5.0 million related to contractual terminations associated with the Company’s exit of a product line. The restructuring costs included the cost of employee separation benefits, including severance, medical and other benefits, related to three employees, including the former CEO, of the Company. As of December 31, 2002, the restructuring had been completed. Total cash expenditures in connection with the restructuring during 2002 amounted to $9.1 million.

In 2002, the restructuring activities for the November 2001 Restructuring Plan were completed, except for certain lease obligations, which are expected to continue through December 31, 2015. An additional $16.5 million in restructuring costs were incurred in the first quarter of 2002 relating to costs for employee termination benefits and termination of a contractual commitment with a vendor, which were actions contemplated in the original plan for which an amount could not be reasonably estimated in 2001. Additionally, during the fourth quarter of 2002, $1 million of previously recorded restructuring charges were reversed due to a change in estimate related to the termination of contractual obligations. Refer to Note 6 of the Notes to Consolidated Financial Statements for a detailed discussion of the November 2001 Restructuring Plan.

In February 2001, the Company initiated a reorganization of the activities of several of its Cincinnati-based subsidiaries, including CBT, CBAD, CBW and Public in order to create one centralized “Cincinnati Bell” presence for its customers. Total restructuring costs of $9.4 million were recorded in the first quarter of 2001. During the third quarter of 2002, the Company reversed $2.1 million of restructuring expense previously recorded due to an expected lease termination that did not occur. This restructuring plan resulted in cash outlays of $6.4 million and non-cash items of $0.9 million. As of December 31, 2002, the restructuring was completed.

In the third quarter of 2002, the restructuring activities for the 1999 Restructuring Plan were completed. Refer to Note 6 of the Notes to Consolidated Financial Statements for a detailed discussion on the 1999 Restructuring Plan. The remaining reserve balance of $0.5 million related to facility closure costs was reversed in the third quarter of 2002, as it was not required.

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Based on certain indicators, including a potential asset sale, the Company performed an impairment analysis of the assets of its Broadband segment in the fourth quarter of 2002. The Company’s impairment analysis indicated the carrying value of the assets was not recoverable. Accordingly, the Company wrote down the assets to estimated fair market value, resulting in a non-cash impairment charge of $2,200.0 million. Refer to Note 1 of the Notes to Consolidated Financial Statements. In 2001, the Company recorded non-cash asset impairment charges of $152.0 million, which primarily related to the November 2001 restructuring. Refer to Note 6 of the Notes to Consolidated Financial Statements.

The operating loss increased by $1,826.7 million to $2,093.5 million in 2002 compared to $266.8 million in 2001. The increase in the loss was due to the asset impairment charge of $2,200.0 million related to the Broadband segment. Excluding the asset impairment charges of $2,200.0 million in 2002 and $152.0 million in 2001, operating income increased to $107.4 million from an operating loss of $114.8 million recorded in 2001. The increase was primarily due to a reduction of $88.3 million in amortization expense related to the adoption of SFAS 142, a reduction of $56.3 million in restructuring expenses, a reduction of $33.5 million in SG&A expenses at the Broadband and Wireless segments and a reduction in network construction revenue, partially offset by an increase in depreciation expense of $29.8 million.

Minority interest expense includes the accrual of dividends and accretion on the 12 ½% preferred stock of BRCOM and the 19.9% minority interest of AT&T Wireless Services Inc. (“AWE”) in the net income of the Company’s CBW subsidiary. Because AWE’s minority interest in the net income of CBW is recorded as an expense, the improved profitability of CBW increased minority interest expense from $51.3 million in 2001 to $57.6 million in 2002. Although the Company announced the deferral of the August 15, 2002 and November 15, 2002 cash dividend payments on the 12 ½% preferred stock of BRCOM, the Company continued to accrue the dividends in accordance with the terms of the security.

Interest expense and other financing costs of $164.2 million in 2002 decreased $3.9 million, or 2%, compared to $168.1 million recorded in 2001. The decrease was the result of lower interest rates, as the London Interbank Offering Rate (“LIBOR”) decrease more than offset increases due to credit downgrades. In addition, lower outstanding debt, substantially as a result of a pay down from the proceeds received from the sale of CBD, contributed to the decrease in interest expense. These decreases were partially offset by a reduction of $14.5 million in the amount of interest capitalized due to the completion of the optical network and an increase of $8.7 million in other financing costs related to several amendments to the credit facility consummated during 2002.

The Company recorded a $10.7 million non-cash loss on investments in 2002, reflecting a $22.5 million decrease compared to an $11.8 million net gain on investments in 2001. The non-cash net loss recorded in 2002 was due to an other than temporary decline in value of one of the Company’s cost-based investments. The net gain in 2001 was comprised of a $17.0 million gain from the sale of the Company’s investment in PSINet, a $23.9 million gain from the Company’s investment in Corvis, and a $3.0 million mark-to-market adjustment of Anthem Inc. shares. These gains were offset by $26.1 million in impairment write-downs of the Company’s cost-based investments and $5.9 million of mark-to-market adjustments and losses on the sale of Applied Theory shares. Refer to Note 7 of the Notes to Consolidated Financial Statements for a detailed discussion of investments.

Other income of less than $1 million in 2002 decreased $20.4 million compared to 2001. Other income in 2001 was primarily due to the receipt of $19.7 million of common shares of Anthem Inc. as the result of Anthem’s demutualization.

The Company had income tax expense of $123.7 million in 2002 compared to a $112.8 million benefit recorded in 2001, due substantially to the establishment of a valuation allowance of $1,110.7 million against certain federal and state deferred tax assets (including net operating loss carryforwards), offset substantially by the tax

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effect of the $2.2 billion asset impairment. The effective rate of negative (5.3%) in 2002 was 29.9 points lower than the effective rate of 24.6% in the same period of 2001. The decrease in the rate was due to the net effect of the cessation of amortization of goodwill in 2002 and the establishment of a valuation allowance against certain federal and state deferred tax assets. Refer to Note 14 of the Notes to Consolidated Financial Statements.

Income from discontinued operations reflects the net income of CBD in 2002 and 2001. Substantially all of the assets of this business were sold on March 8, 2002 for $345.0 million cash and a 2.5% equity interest in the newly formed company. Income from discontinued operations totaled $217.6 million in 2002 compared to $29.6 million in 2001, as the net gain from the sale of substantially all of the assets of CBD of $211.8 million was recorded in 2002. A detailed discussion of discontinued operations is provided in Note 17 of the Notes to Consolidated Financial Statements.

Effective January 1, 2002, the Company recorded a $2,008.7 million expense as a cumulative effect of a change in accounting principle, net of taxes, related to the adoption of SFAS 142. The write-down of goodwill, finalized in the second quarter of 2002, was related to the fair value of goodwill associated with the Broadband business acquired in 1999. Refer to Note 5 of the Notes to Consolidated Financial Statements for a detailed discussion of the adoption of SFAS 142.

The Company reported a net loss of $4,240.3 million in 2002 compared to a net loss of $315.6 million in 2001. The diluted loss per share of $19.47 in 2002 was $17.97 larger than the loss per share of $1.50 in 2001. The 2002 period included a loss per share of $9.20 related to the cumulative effect of a change in accounting principle, net of taxes, for the adoption of SFAS 142. The 2002 and 2001 periods included income from discontinued operations per share of $1.00 and $0.14, respectively. Excluding discontinued operations and the cumulative effect of a change in accounting principle, the Company reported a loss per share from continuing operations of $11.27 in 2002 compared to a loss per share from continuing operations of $1.64 for 2001.

The $9.63 increase in loss per share from continuing operations was due to the increase in asset impairment charges, which contributed $6.10 per share, an increase in the deferred tax asset valuation allowance, which contributed $4.84 per share and higher depreciation expense of $0.09 per share. These increases in loss per share from continuing operations were partially offset by the cessation of goodwill amortization resulting from the adoption of SFAS 142, which contributed $0.40 per share; and the decrease in restructuring expenses, which contributed $0.17 per share.

Discussion of Operating Segment Results

Prior to the sale of substantially all of the Company’s broadband assets on June 13, 2003, CBT sold the broadband products and services of its BRCOM subsidiary to customers in its operating territory. Historically, CBT recognized the customer-invoiced amount on such sales as revenue and the related intercompany cost of providing services as expense within its Local segment operating results. Accordingly, the BRCOM subsidiary recognized intercompany revenue equal to the costs of providing services recorded by the Local segment and the costs to provide such services in the operating results of the Broadband segment.

Pursuant to an agreement negotiated as part of the sale of broadband assets, the Company has recast the historical operating results of the Local and Broadband segments to reflect an agency agreement whereby CBT earns a sales commission and the BRCOM subsidiary records the remaining revenue and associated costs of providing services in its operating results. CBT will continue to market these broadband products and services on behalf of the buyers’ of the broadband assets and will purchase capacity on the buyers’ national network in order to sell long distance services under the CBAD brand to residential and business customers in the Greater Cincinnati area market.

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Local

The Local segment provides local telephone service, network access, data transport, high-speed and dial-up Internet access, inter-lata toll, telecommunications equipment, installation and maintenance and other ancillary products and services to customers in southwestern Ohio, northern Kentucky and southeastern Indiana. These services are provided by the Company’s CBT subsidiary. As of January 1, 2002, the DSL and dial-up Internet operations of ZoomTown, formerly reported in the Other segment, were merged with the operations of CBT and are reflected in the Local segment in all periods presented.

2003 Compared to 2002

Revenue

Local segment revenue decreased $12.7 million, or 2%, in 2003 compared to 2002. Declines in access line and equipment revenue and related installation and maintenance were greater than revenue growth from value-added services such as custom calling features, DSL transport and internet service provider revenue.

Local service revenue of $466.4 million during 2003 decreased less than 1%, or $1.7 million, in comparison to the prior year. Revenue decreased due to fewer access lines, which were down 2.6% from 1,012,000 lines in service at December 31, 2002 to 986,000 as of December 31, 2003. The Company expects access lines to continue to decrease in 2004 by approximately 2% to 4% compared to access lines in service at December 31, 2003. The Company has been able to substantially offset the decrease in revenue from access line losses by capturing a greater share of revenue per consumer household through product bundling offers and increasing DSL penetration. Product bundling and, in particular, the bundling of DSL transport with internet access, was the key driver behind the increase in revenue per household to $46.61 in 2003 compared to $45.04 in 2002.

The Company’s Complete Connections® bundled services offering added 23,600 subscribers during 2003, bringing total subscribership to 312,500 and penetration of residential access lines to 44%. In the first quarter of 2003, CBT also introduced Custom Connections ^SM , a bundled suite of services that leverages the Company’s local, long

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distance, wireless and DSL products and enables consumers to customize packages that meet their personal communication needs. Custom Connections ^SM added 54,700 subscribers in 2003. The favorable bundled pricing associated with Custom Connections ^SM has driven increased demand for the Company’s ZoomTown DSL offering, which added 24,700 customers in 2003, growth of 33% from December 31, 2002. As a result of this growth, total lines to the consumer (defined as consumer access lines plus DSL subscribers) increased slightly on a year-over-year basis. At of December 31, 2003, 86% of CBT’s access lines were loop-enabled for DSL transport with a penetration of approximately 12.6% of these addressable network access lines, up from 9.3% at December 31, 2002.

Network access revenue consists of special access, switched access and end user common line ("EUCL") revenue, with 2003 revenue of $202.4 million representing a $1.7 million, or 1%, decline compared to 2002. Special access revenue of $95.5 million in 2003 represented 47% of the revenue in the network access category, while the $40.4 million in switched access and $66.5 million in EUCL charges represented 20% and 33%, respectively, of the 2003 network access revenue total. Special access revenue of $95.5 million was $2.0 million, or 2%, less than in 2002, while switched access revenue increased $1.4 million, or 4%, in comparison to 2002. EUCL charges of $66.5 million declined slightly from the prior year, with a $1.1 million, or 2%, decline representing the net effect of a small, midyear rate increase, offset by decreased access lines on which to apply this charge.

Other services revenue of $151.6 million during 2003 decreased $9.3 million, or 6%, compared to 2002. Other services revenue declines were substantially due to a combined decrease of $7.5 million from the sale of equipment and associated installation and maintenance. These declines were partially offset by a $2.0 million increase in commission revenue from the sale of broadband products.

Costs and Expenses

Cost of services and products decreased $1.8 million, or 1%, to $260.0 million in 2003 compared to 2002. The decreases were primarily due to a decrease in cost of products of $6.9 million related to lower equipment revenue, partially offset by an increase in employee expenses of $5.0 million. The increases in employee expenses was a net result of a 7% reduction in headcount offset by normal wage increases and an increase in actuarially determined employee benefit expenses.

SG&A expenses decreased 4%, or $6.0 million, compared to 2002, as the Local segment experienced decreases in bad debt, advertising, promotional and contract services expenses. These expense reductions were partially offset by higher payroll and related expenses of $1.9 million, which was the net effect of a reduction in headcount, offset by normal wage increases and higher benefits expense.

Depreciation expense of $125.7 million decreased $21.0 million, or 14%, in 2003 compared to 2002. A decrease in depreciable assets, reduced capital spending, regulatory depreciation rate decreases and the adoption of SFAS 143 on January 1, 2003 (refer to Note 1 of the Notes to Consolidated Financial Statements) contributed to the reduction in depreciation expense.

Restructuring charges of $4.5 million during 2003 were $5.0 million higher than the $0.5 million in restructuring credits in 2002. In December 2003, the Company initiated a restructuring intended to reduce future cash operating costs by approximately $9.1 million. The Local segment’s charge was $4.5 million related to employee separation benefits associated with the elimination of approximately 90 positions.

Operating Income

As a result of the above, operating income increased by $10.8 million, or 4%, to $296.1 million in 2003 compared to $285.3 million in 2002. Operating margin showed similar improvements, increasing two points

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from a margin of 34.2% in 2002 to a margin of 36.1% in 2003. As the Company expects to incur increased sales and marketing expenses to defend its market position in 2004, it expects the Local segment’s operating income to decrease by 1% to 3% compared to 2003.

2002 Compared to 2001

Revenue

Local revenue increased $8.4 million, or 1%, compared to 2001, to $833.1 million in 2002. Revenue growth was attributable to high-speed data and Internet services such as DSL and value-added services such as custom calling features, partially offset by a decrease in residential and business revenue as access lines decreased in 2002 compared to 2001.

Local service revenue increased $2.8 million, or 1%, in 2002 compared to 2001. In 2002, revenue growth from value-added services and DSL was offset by declining business and residential access line revenue. Access lines decreased to 1,012,000 as of December 31, 2002, a 1.9% decrease from the 1,032,000 lines in service as of December 31, 2001. The Company’s Complete Connections® bundled service offering added 53,000 subscribers in 2002, bringing total subscribership to 289,000 and penetration of residential access lines to 39%. Of the 289,000 total Complete Connections® subscribers, nearly 30,000 had chosen CBT’s all-inclusive product bundling offer, Complete Connections Universal®, which includes a combination of local services and custom calling features, long distance, wireless, dial-up and high-speed Internet access, and home security as chosen by the subscriber. CBT continued to expand the Company’s DSL high-speed data transport service with subscribership growing to 75,000, a 23% increase over 2001.

Network access revenue decreased by $1.2 million, or 1%, to $204.1 million in 2002 compared to 2001 as carrier customers continued to reduce their capacity requirements.

Other services revenue grew 4%, or $6.8 million, to $160.9 million in 2002 compared to 2001. The increase was due to commissions earned from the sale of broadband services and equipment and related installation and maintenance revenue. Revenue attributable to the sale of broadband services totaled $7.1 million and $2.3 million in 2002 and 2001, respectively.

Costs and Expenses

Cost of services and products of $261.8 million in 2002 decreased $9.3 million, or 3%, compared to 2001. These decreases were primarily due to efficiencies gained through the merger of the DSL and dial-up Internet operations of ZoomTown with CBT.

SG&A expenses increased 4%, or $4.8 million, in 2002 compared to 2001, primarily due to increases in bad debt expense and advertising of $12.6 million, which was offset by a 7% reduction in headcount and improved cost management.

Depreciation expense of $146.7 million increased $6.4 million, or 5%, in 2002 compared to 2001 as a result of asset additions related to the continued construction of the network infrastructure.

In October 2002, CBT initiated a restructuring to realign sales and marketing to better focus on enterprise customers. The plan included initiatives to reduce the workforce by approximately 38 positions and resulted in restructuring charges of $1 million related to employee separation benefits. In November 2001, the Company’s management approved a restructuring plan which included initiatives to consolidate data centers, reduce the expense structure, exit the network construction business, eliminate other nonstrategic operations and merge

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certain dial-up Internet and DSL operations into other operations. The Local segment recorded restructuring costs of $4 million in 2001 related to these initiatives. In February 2001, the Company initiated a reorganization of the activities of several of its Cincinnati-based subsidiaries, CBT, CBAD, CBW and Public in order to create one centralized “Cincinnati Bell” presence for its customers. The Local segment recorded restructuring costs of $8 million pertaining to the February 2001 restructuring plan which consisted of $2 million related to lease terminations and $6 million related to involuntary employee separation benefits (including severance, medical insurance and other benefits) for 114 employees. In 2002, the restructuring activities for the February 2001 Restructuring Plan were completed and the remaining reserve balance of $2 million related to a lease termination that did not occur was reversed. Refer to Note 6 of the Notes to Consolidated Financial Statements.

Operating Income

As a result of above, operating income increased $18.8 million, or 7%, to $285.3 million in 2002 and operating margin increased two points over 2001 to 34.2%.

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*		The Company has presented certain information regarding monthly average revenue per user (“ARPU”) because the Company believes ARPU provides a useful measure of the operational performance of the wireless business. ARPU is calculated by dividing service revenue by the average subscriber base for the period.
**		The Company has presented certain information regarding cost per gross addition (“CPGA”) because the Company believes CPGA provides a useful measure of the initial cost to add a wireless subscriber. CPGA is calculated by adding incentives for handsets sold to subscribers (costs have historically exceeded the related revenue) to selling expenses (which excludes bad debt) and dividing the sum by total gross subscriber acquisitions during the period.

2003 Compared to 2002

Revenue

Wireless segment revenue decreased $7.7 million, or 3%, to $259.5 million during 2003 compared to 2002.

This revenue decline was primarily driven by postpaid services. In 2003, revenue from postpaid customers decreased $10.0 million, or 5%, to $209.3 million. Postpaid ARPU decreased from $58.75 in 2002 to $55.98 in 2003, or $2.77 per user, per month, due to pricing pressure from increasing competition and a marketing strategy employed through the first three quarters of 2003 to retain lower usage, higher margin customers. Through September 30, 2003, postpaid subscribers had declined by 12,000 compared to the December 31, 2002.

Beginning in September 2003, the Company introduced more competitive rate plans in order to reduce churn and to build momentum in front of its GSM/GPRS network launch in October 2003. The Company expects the new rate plans, in combination with its GSM/GPRS network to increase postpaid subscribers, which will offset revenue from declining ARPU. In the fourth quarter of 2003, net adds totaled 13,000, which reversed a declining subscriber trend for the first three quarters of 2003 and allowed CBW to end the year with approximately the same number of postpaid subscribers as at the end of 2002, or nearly 312,000. This subscribership represents an estimated 9% penetration of the population within the Company’s licensed service area in the Greater Cincinnati and Dayton, Ohio metropolitan markets.

In the first three quarters of 2003, the Company also focused its marketing efforts on prepaid subscribers. These subscribers require less growth capital on the Company’s TDMA network, which the Company attempted to minimize because it curtailed TDMA capital expenditures, while it completed construction of its GSM/GPRS network.

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As mandated by the FCC, wireless local number portability (“WLNP”) was effective November 24, 2003 and allows customers the ability to change service providers within the same local area and retain the same phone number. However, average monthly customer churn remained low in the face of aggressive competition and WLNP at 1.81% for postpaid subscribers in 2003 compared to 1.73% in 2002.

The postpaid revenue decline is being partially offset by the prepaid product, which experienced subscriber growth in 2003 of 2% compared to subscribers as of December 31, 2002. The Company had approximately 162,000 prepaid subscribers at December 31, 2003, or nearly 3,300 more than at December 31, 2002, which represents an estimated penetration of approximately 5% of the population in the Company’s licensed service area. Prepaid revenue of $37.1 million represented growth of $3.0 million, or 9%, compared to 2002 due to increased revenue from text messaging services, which increased ARPU. ARPU for prepaid subscribers increased from $18.32 in 2002 to $19.24 in 2003, or $0.92 per user. The Company’s text messaging services, comprising a growing proportion of total prepaid revenue, increased by $2.2 million versus 2002 to $6.0 million, which represents 16% of total prepaid service revenue.

Costs and Expenses

Cost of services and products consists largely of incollect expense (whereby CBW incurs costs associated with its subscribers using their handsets while in the territories of other wireless service providers), network operations costs, interconnection expenses and cost of equipment sold. These costs were $110.5 million during 2003, or 43% of revenue, compared to $119.5 million, or 45% of revenue in 2002. In total, cost of services and products decreased $9.0 million, or 8%, during 2003 compared to 2002. These declines were due primarily to decreased incollect charges of $2.1 million related to postpaid subscribership, decreased operating taxes of $4.1 million and $4.7 million from cost reductions because the Wireless segment assumed responsibility for network management services previously outsourced to AWE.

SG&A expenses include the cost of customer acquisition, which consists primarily of advertising, distribution and promotional expenses. These expenses increased by $2.7 million in 2003 compared to 2002 due to an increase in advertising of $2.1 million and employee-related expenses of $3.5 million. These increases were partially offset by a decrease in bad debt expense of $2.7 million.

CPGA, a measure of the Company’s cost to acquire new customers, was $389 for 2003, a $25, or 7%, increase over 2002. The increase is due to higher advertising and handset subsidies cost in 2003 compared to 2002. The increase in handset subsidies per gross addition was driven by an increase in handset upgrades by existing subscribers and the initial sale of GSM handsets to large resellers. In both instances, equipment sales increased handset subsidy costs, without a corresponding

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activation, driving CPGA higher. The prepaid CPGA was $64 in 2003, which was equal to the prior year amount.

Depreciation expense of $38.3 million increased $7.7 million, or 25%, in 2003 compared to 2002 as a result of $5.2 million in accelerated depreciation related to the change in estimated economic useful life of the TDMA network to December 31, 2006. The Company expects depreciation expense to increase approximately $21.0 million in 2004 compared to 2003 related to the accelerated depreciation of the TDMA network.

Operating Income

As a result of the above, operating income decreased $8.9 million, or 13%, to $60.2 million and operating margin decreased 3 points to 23.2% in 2003 compared to 2002. The Company expects operating income declines in 2004 as a result of accelerated subscribership growth and its related sales and marketing expense and increased depreciation of its TDMA network.

2002 Compared to 2001

Revenue

Wireless segment revenue increased 5%, or $12.8 million, to $267.2 million in 2002 compared to 2001. Postpaid service revenue contributed approximately $16.1 million to revenue growth as the average subscriber base grew 16% in 2002. The increase was offset by a decrease in prepaid service revenue and lower equipment sales.

Postpaid subscribership remained flat at 311,000 as of December 31, 2002, compared to December 31, 2001 and represented 18% of the total postpaid market share within the Greater Cincinnati and Dayton, Ohio metropolitan areas. ARPU from postpaid subscribers of $58.75 in 2002 decreased $2.48 compared to 2001 due to pricing pressure from increasing competition, higher penetration rates among lower usage subscribers and reduced usage as a result of the difficult economic environment. Average monthly customer churn remained low in the face of aggressive competition at 1.73% for postpaid subscribers in 2002 compared to 1.56% in 2001. Postpaid service revenue decreased 5% in the fourth quarter of 2002 compared to the third quarter of 2002, due to a decrease in minutes of use, decrease in subscribership, and decrease in market share. Postpaid services experienced net deactivations totaling 5,200 subscribers during the second half of 2002. Subscribership declined from 314,000 at the end of the third quarter of 2002 to 311,000 at the end of the fourth quarter of 2002.

Prepaid service revenue declined 5%, or $1.8 million, in 2002 compared to 2001 due to a decline in minutes of use. Subscribership to CBW’s i-wireless ^SM prepaid product grew from approximately 151,000 subscribers at the end of 2001 to approximately 159,000, or approximately 9% of the prepaid wireless market, at the end of 2002. i-wireless ^SM represents an efficient use of CBW’s wireless network, as these subscribers generally make use of the network during off-peak periods. In addition, the CPGA of $64 for i-wireless ^SM subscribers during 2002 was only 18% of the CPGA for postpaid subscribers during 2002.

Equipment revenue declined nearly $1.5 million, or 10%, in 2002 due to a decrease in gross activations compared to 2001.

Costs and Expenses

Cost of services and products consists largely of incollect expense (whereby CBW incurs costs associated with its subscribers using service while in the territories of other wireless service providers), network operations costs, interconnection expenses and cost of equipment sold. These costs were $119.5 million

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during 2002, or 45% of revenue. In total, cost of services and products decreased 9% during 2002, or $12.0 million, compared to 2001. The decrease resulted from a decrease in handset subsidies due to fewer handset promotions in 2002 than in 2001 and a decrease in gross activations.

SG&A expenses include the cost of customer acquisition, which consists primarily of advertising, distribution and promotional expenses. These costs decreased by $9.6 million, or 17%, in 2002, compared to 2001. The decrease resulted from a decrease in advertising of $3.7 million, promotional spending of $3.3 million and employee-related expenses of $0.9 million. SG&A expenses continued to decrease significantly as a percentage of total revenue, declining from 22% of revenue in 2001 to 17% of revenue in 2002 as the Company continued to focus on profitability and cash flow.

Depreciation expense of $30.6 million increased $5.3 million, or 21%, in 2002 compared to 2001 as a result of asset additions related to the continued construction of the regional wireless TDMA network infrastructure.

Operating Income

The Wireless segment continued significant operating income improvements as the Company optimized its network investment and benefited from an embedded customer base and low customer churn. In 2002, operating income of $69.1 million represented a $31.4 million, or 83%, improvement over 2001. Additionally, operating margin in 2002 increased 11 points from 2001 to 25.9%.

Other

The Other segment is comprised of the operations of the CBAD and Public subsidiaries. CBAD markets voice long distance service to residential and business customers in the Greater Cincinnati and Dayton, Ohio areas, while Public provides public payphone services in a thirteen state area in the midwestern and southern United States.

2003 Compared to 2002

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Revenue

Other segment revenue of $81.1 million in 2003 decreased $1.7 million, or 2%, compared to 2002.

CBAD’s revenue declined $0.6 million, or 1%, in 2003 as price increases initiated in 2003 on its “Any Distance” long distance service offering were more than offset by a 10% decline in minutes of use in response to intense competition, including further penetration of wireless plans with free long distance. CBAD had 539,000 subscribed access lines as of December 31, 2003 in the Cincinnati and Dayton, Ohio operating areas, representing a decrease of 15,800 lines, or 3%, versus December 31, 2002, which the Company believes is primarily related to its access line loss in its local businesses. In spite of subscriber line decreases, the Company’s market share has increased as a function of the Local segment’s lines in service for which a long distance carrier has been chosen for residential and business access lines. CBAD’s residential and business market share increased in 2003 to approximately 71% and 45%, respectively, from 69% and 43%, respectively at the end of 2002. Public revenue declined $1.1 million, or 8%, compared to 2002 in response to further penetration of wireless communications offset partially by a favorable $0.4 million settlement with a major interexchange carrier.

Costs and Expenses

Cost of services and products totaled $54.1 million in 2003, representing a decrease of 15% compared to 2002. The decrease in cost of services was due primarily to decreased access charges at CBAD of $4.2 million as minutes of use declined. In 2003, CBAD purchased its wholesale minutes from the buyer of the broadband assets, based on an agreement signed in conjunction with the asset sale. Public also contributed decreases of $4.2 million in 2003, as a result of a favorable settlement with a major interexchange carrier and removal of unprofitable stations.

SG&A expenses decreased $1.0 million, or 7%, in 2003 compared to 2002. These decreases were incurred primarily at CBAD as a result of a decrease in payroll and related expenses partially offset by an increase in billing and collection expenses.

Public incurred a $3.6 million asset impairment in 2003 to write-down the value of its public payphone assets to fair value.

Operating Income

As a result of the above, the Other segment reported operating income of $6.5 million in 2003, an increase of $4.8 million compared to 2002. Operating margin showed similar improvements, increasing six points from a margin of 2.1% in 2002 to 8.0% in 2003.

2002 Compared to 2001

Revenue

Other segment revenue increased 5% to $82.8 million in 2002 compared to $79.0 million in 2001. CBAD revenue increased by 8%, or $5.2 million, in 2002 compared to 2001 based primarily on the growth of its “Any Distance” long distance service offering. Any Distance had 555,000 subscribed access lines as of December 31, 2002 compared to 550,000 as of December 31, 2001 in the Cincinnati and Dayton, Ohio operating area, representing residential and business market shares of approximately 69% and 43% of total access lines, respectively. Revenue from Public declined 11%, or $1.7 million in 2002, versus 2001, partially offsetting the

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revenue increase from CBAD, as payphone usage continued to decline as a result of continued penetration of wireless communications.

Costs and Expenses

Cost of services and products totaled $63.4 million in 2002, representing an 8% increase over 2001. The increase in cost of services was due primarily to increased access charges related to an 8% increase in minutes of use, and personnel costs of CBAD as volume continued to grow. In 2002, approximately $43.2 million, or 89%, of CBAD costs were for access charges compared to approximately $41.4 million, or 93%, in 2001.

SG&A expenses decreased $5.8 million, or 27%, during 2002 compared to 2001. Nearly all of the decrease was due to the relatively high advertising costs of $3.3 million incurred to acquire approximately 4,400 net customers at CBAD during 2001, which was not repeated in 2002.

Operating Income

Operating income improved to $1.7 million in 2002, a $5.4 million increase compared to the operating loss reported in 2001. Operating margin experienced a similar improvement, increasing from negative 4.7% in 2001 to positive 2.1% in 2002, a seven point increase. Improvements during 2002 were primarily the result of decreased advertising and other marketing expenses at CBAD.

Broadband

On February 22, 2003, the Company entered into a definitive agreement to sell substantially all of its broadband assets. In accordance with SFAS 144, the Company ceased depreciating the assets to be sold upon entering into the definitive agreement. On June 6, 2003 and June 13, 2003, the purchase agreement was amended to, among other things, reduce the purchase price, subject to certain purchase price adjustments and other post-closing obligations and eliminate certain of the conditions to the consummation of the first stage closing of the sale.

On June 13, 2003, the first (and most significant) stage closing was consummated. At the first stage closing, the Company had received regulatory approval in states where approximately 75% of 2002 broadband revenue was generated and effectively transferred control of the broadband business to the buyer. The buyer paid the initial cash purchase price of $91.5 million, of which $29.3 million was placed into escrow to support certain purchase price adjustments and the portion of the purchase price payable upon the consummation of the second and third stage closings.

During the third quarter ended September 30, 2003, the second and third (final) stage closings were consummated as all remaining regulatory approvals had been received. In connection with these closings, the Company received $20.5 million of the $29.3 million escrowed funds. Subsequently, the Company returned $0.5 million of the purchase price and released the remaining escrowed funds of $8.8 million to the buyer in satisfaction of the working capital and receivables post-closing purchase price adjustments pursuant to an agreement between the Company and the buyer to settle such amounts.

Subsequent to the closing of the asset sale, the Broadband segment consists of Cincinnati Bell Technology Solutions (“CBTS”) (an IT consulting, data collocation and managed services business), together with certain liabilities not transferred to the buyers. Prior to the sale of the broadband assets, revenue for the Broadband segment was generated from broadband transport (which included revenue from IRU’s), switched voice services, data and Internet services (including data collocation and managed services), information technology consulting and other services. These transport and switched voice services were generally provided over the

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Broadband segment’s national optical network, which comprised approximately 18,700 route miles of fiber-optic transmission facilities.

2003 Compared to 2002

Revenue

Broadband segment revenue decreased significantly in 2003 due to the sale of substantially all of the Company’s broadband assets on June 13, 2003. In the second half of 2003, the Broadband segment included only the revenue of CBTS. CBTS contributed revenue of $116.8 million in 2003, consisting of $95.3 million for IT consulting and $21.5 million in data and Internet services such as collocation and managed services compared to revenue of $163.9 million in 2002, consisting of $143.7 million for IT consulting and $20.2 million in data and Internet services. IT consulting revenue was $48.4 million, or 34%, lower than in the prior year due to difficult economic conditions and decreases in capital spending by CBTS’ customers. CBTS’ data and Internet revenue was $21.5 million, or 6%, higher in 2003 compared to 2002. CBTS revenue from services and hardware sales comprised 44% and 56%, respectively in 2003, compared to 31% and 69%, respectively, in 2002. On March 10, 2004, CBTS entered into a definitive agreement to sell certain of its assets. The Company expects CBTS revenue to decrease approximately $60.0 million in 2004 compared to 2003 due to the sale of these assets.

Prior to the aforementioned sale of the broadband assets, the Broadband segment also had revenue from broadband transport, voice long distance and other data and Internet products and service such as ATM/frame relay and dedicated and dial-up IP. As a result, all of the year-to-date variances discussed below are affected by the disposition of these assets, as 2002 amounts included a full year of revenue related to these products and services. Variances are also affected by other external factors, which are mentioned specifically below.

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Broadband transport revenue was $159.3 million in 2003, or $302.3 million lower than in 2002, due to the sale and lower demand for dedicated optical and digital circuits from both established and emerging carriers. In addition, as a result of an IRU contract termination in 2002, $58.7 million of non-cash revenue was recognized in broadband transport revenue in 2002, which did not recur in 2003. Switched voice services revenue of $111.9 million in 2003 was $224.0 million lower than 2002, due to the sale and the Company’s exit of the international switched wholesale voice business as part of its October 2002 restructuring. Due to the sale of the broadband business, the Company expects Broadband segment revenue related to broadband transport and switched voice services to be zero going forward.

Data and Internet revenue decreased $52.4 million, or 39%, in 2003 compared to 2002. These decreases were partially due to an anticipated decline in revenue related to the exit of the bundled Internet access services. Refer to Note 6 of the Notes to Consolidated Financial Statements. The remaining decrease was due to the sale of the underlying assets of the data and internet products in connection with the sale of the broadband assets on June 13, 2003.

Costs and Expenses

Cost of services and products primarily reflects access charges paid to local exchange carriers and other providers, transmission lease payments to other carriers, costs incurred for network construction projects and personnel and hardware costs for IT consulting. In the second half of 2003, the Broadband segment included only the cost of services and products of CBTS. CBTS incurred $93.5 million of cost of services and products in 2003, which represented a decrease of $42.6 million compared to 2002 due to the related decrease in revenue discussed above.

Excluding CBTS, cost of services and products decreased $316.8 million compared to 2002. The majority of the decreases were the result of the sale of substantially all of the broadband assets. The remaining decreases were driven primarily by lower broadband transport and switched voice services and include cost reductions implemented as part of the October 2002 restructuring plan. In addition, a charge of $13.3 million in construction contract termination costs was recorded in 2002 and not repeated in 2003. The decreases were also partially offset by an increase in local access charges associated with the Company’s continued penetration of enterprise customer accounts. Costs of services and products incurred by the Broadband segment are expected to decrease significantly going forward as a substantial portion of the underlying assets were sold in connection with the sale of the broadband assets on June 13, 2003.

SG&A expenses decreased 53% to $144.5 million in 2003 compared to 2002. The SG&A expenses decrease associated with the sale of substantially all of the broadband assets was $159.3 million. The remaining decrease was attributable to lower transmission operating expenses of $26.6 million, lower property taxes of $14.6 million and lower bad debt expense of $10.5 million. These decreases were partially offset by an increase in contract services related to outsourcing of certain invoice processing of $5.6 million, an increase in pension expense and a decrease in capitalized overhead costs associated with the completion of the national optical network of $7.5 million. Legal and other expenses associated with retained liabilities of the broadband business amounted to approximately $7.9 million in second half of 2003. SG&A expenses incurred by the Broadband segment are expected to decrease significantly going forward as a substantial portion of the underlying assets were sold in connection with the sale of the broadband assets on June 13, 2003.

Depreciation expense has been effectively eliminated, dropping 99% to $2.5 million in 2003 compared to 2002. The decrease was due to a non-cash impairment charge of $2,200.0 million in the fourth quarter of 2002 related

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to the Broadband segment’s tangible and intangible assets (refer to Note 1 of the Notes to Consolidated Financial Statements). Additionally, due to the definitive agreement to sell substantially all of the assets of the Broadband segment, the Broadband assets were classified as held for sale as of March 1, 2003 and the Broadband segment ceased depreciating the assets held for sale in accordance with SFAS 144 (refer to Note 3 of the Notes to Consolidated Financial Statements). As such, the Company expects an immaterial amount of depreciation expense from the Broadband segment going forward.

Amortization expense, which related to intangible assets acquired as part of the purchase of the broadband business in 1999, decreased to zero in 2003, versus $24.8 million in the prior year. This is due to the write- down of $298.3 million of intangible assets in the fourth quarter of 2002 as part of the $2,200.0 million non-cash asset impairment charge recorded by the Broadband segment as discussed in Note 1 of the Notes to Consolidated Financial Statements.

Restructuring charges during 2003 were $43.6 million lower than in 2002. Restructuring charges in 2003 consist of an $11.0 million reversal of previously recorded restructuring expense due to settlements related to contract terminations and a reversal due to a change in estimate related to terminations of contractual obligations. The $32.6 million of restructuring charges in 2002 were comprised of $15.9 million recorded in the first quarter of 2002 for employee termination benefits and the termination of a contractual commitment with a vendor related to the November 2001 restructuring, $5.5 million recorded in the third quarter of 2002 primarily for restructuring charges associated with the exit of bundled Internet access services and $12.8 million during the fourth quarter of 2002 for employee severance and contract termination costs. Refer to Note 6 of the Notes to Consolidated Financial Statements.

In February 2004, the Company settled an arbitration proceeding between a customer and the Company’s subsidiary Broadwing Communications Services Inc. (“BCSI”) regarding a broadband network construction contract entered into in 2000. As part of the settlement, both parties agreed to drop their respective claims for monetary damages. In 2003, the Company recorded a $5.2 million charge in “Asset impairments and other charges” as a result of this settlement.

In conjunction with the sale of substantially all of the broadband assets, the Broadband segment recorded a gain of $336.7 million during 2003. A detailed discussion of the sale of the broadband assets is provided in Note 3 of the Notes to Consolidated Financial Statements.

Operating Income

As a result of the above, operating income in 2003 increased by $2,786.2 million compared to 2002, from a loss of $2,437.6 million in 2002 to operating income of $348.6 million in 2003. Operating income (loss) from the Broadband segment is expected to be immaterial going forward.

2002 Compared to 2001

Revenue

Broadband transport services consisted of long-haul transmission of data, voice and Internet traffic over dedicated circuits. Revenue from the broadband transport category was mainly generated by private line monthly recurring revenue. However, approximately 44% and 29% of broadband transport revenue in 2002 and 2001, respectively, was provided by IRU agreements.

Broadband transport revenue decreased $4.9 million in 2002, or 1%, to $461.6 million compared to 2001. The decrease was due to lower dedicated optical and digital circuit revenue as demand from both established and

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emerging carriers continued to decline. This decrease was substantially offset by $58.7 million in non-cash revenue from the termination of IRU contracts with two of the Company’s customers who filed for Chapter 11 bankruptcy protection.

Switched voice services revenue decreased 12% in 2002 compared to 2001, from $383.1 million to $335.9 million. The decrease in revenue was the result of the Company’s continued focus on higher margin business and declining rates and volume due to intense competition, partially offset by a reduction in uncollectible revenue due to tightened credit policies. CBAD resells voice long distance in its local franchise area, which contributed switched voice revenue to the Broadband segment of $43 million in 2002 and $41 million in 2001. The Company initiated a restructuring plan in the fourth quarter of 2002, which included exiting the international switched wholesale voice business. The international switched wholesale voice business accounted for $75 million and $94 million of revenue during 2002 and 2001, respectively.

Data and Internet revenue increased $11.0 million, or 9%, over 2001 on the strength of demand for dedicated IP and ATM/frame relay services. These increases were partially offset by a decrease in equipment sales, a decrease in revenue related to the exit of the bundled Internet access product, and a decrease in data collocation revenue, as the Company closed eight of its eleven data centers as part of its November 2001 restructuring.

IT consulting revenue grew $2.4 million, or 2%, during 2002 compared to 2001. The growth was attributable to increased sales of hardware and consulting services. Revenue from services and hardware sales comprised 21% and 79%, respectively, of total IT consulting revenue during both 2002 and 2001.

Network construction and other services revenue decreased $55.5 million, or 98%, during 2002 compared to 2001. As further discussed in Note 6 of the Notes to Consolidated Financial Statements, the Company’s November 2001 restructuring plan included plans to exit the network construction business upon completion of a large project. The contract for that project was in dispute but was subsequently settled as discussed in Note 11 of the Notes to Consolidated Financial Statements.

Costs and Expenses

Cost of services and products primarily reflects access charges paid to local exchange carriers and other providers, transmission lease payments to other carriers, costs incurred for network construction projects and personnel and hardware costs for IT consulting. In 2002, cost of services and products amounted to $655.6 million, a 15% decrease compared to the $775.3 million incurred during 2001. The decrease was driven primarily by lower switched voice services and network construction activity and cost reductions implemented as part of the November 2001 restructuring plan. The decreases were partially offset by an increase in local access charges associated with the Company’s continued penetration of enterprise customer accounts and a charge of $13.3 million for costs associated with the termination of the Company’s uncompleted network construction contract. Refer to Note 11 of the Notes to Consolidated Financial Statements for a detailed discussion of this contract.

SG&A expenses decreased 7% to $308.3 million in 2002 compared to 2001. The decrease was due primarily to a decrease in employee costs of $61.9 million, as headcount was approximately 660 lower at December 31, 2002 than at December 31, 2001, and lower marketing expenses of $41.8 million. These decreases were offset by a decrease in capitalized overhead costs associated with the completion of the Company’s national optical network.

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Depreciation expense of $291.1 million increased $17.7 million, or 6% in 2002 compared to 2001 as a result of placing assets related to the optical network overbuild into service.

Amortization expense, which in 2001 primarily related to the amortization of goodwill as a result of the merger, decreased 78% to $24.8 million in 2002 from $110.7 million in 2001. Upon adoption of SFAS 142 as required on January 1, 2002, the Company stopped amortizing goodwill.

During the first quarter of 2002, the Broadband segment recorded restructuring charges of $15.9 million resulting from employee separation benefits and costs to terminate contractual obligations, which were actions contemplated in the November 2001 restructuring plan for which an amount could not be reasonably estimated at that time. During the fourth quarter of 2002, a $1 million reversal was made to the restructuring reserve due to a change in estimate related to the termination of contractual obligations. In total, the Company expects the November 2001 restructuring plan to result in cash outlays of $88.1 million and non-cash items of $148.8 million. The Company completed the plan as of December 31, 2002, except for certain lease obligations, which are expected to continue through December 31, 2015. Refer to Note 6 of the Notes to Consolidated Financial Statements.

During the third quarter of 2002, the Broadband segment recorded restructuring charges of $5.5 million. In October 2002, the Company initiated a restructuring of the Broadband segment that was intended to reduce annual expenses by approximately $200 million compared to 2002 and enable the Broadband segment to become cash flow positive. The plan included initiatives to reduce the workforce by approximately 500 positions; reduce line costs through network grooming, optimization, and rate negotiations; and exit the international wholesale voice business. The Broadband segment recorded a cash restructuring charge of approximately $12.8 million during the fourth quarter of 2002 for employee severance and contract termination costs.

Based on certain indicators, including the potential sale of substantially all of the broadband assets, the Company performed an impairment analysis of the assets of its Broadband segment in the fourth quarter of 2002. The impairment analysis indicated that the carrying value of the assets was not recoverable. Accordingly, the Broadband segment wrote down the assets to estimated fair market value, resulting in a non-cash impairment charge of $2.2 billion.

Operating Loss

The operating loss of $2,437.6 million recorded in 2002 represents a $1,889.7 million increase over the $547.9 million operating loss in 2001. The increase in the operating loss is due to the asset impairment charge of approximately $2.2 billion, offset slightly by the decrease in amortization and restructuring charges noted above.

Financial Condition, Liquidity, and Capital Resources

Capital Investment, Resources and Liquidity

As the Company’s businesses mature, investments in its local, wireless, and DSL networks will be focused on maintenance, strategic expansion, incremental revenue-generating penetration of these services with the bundle, cost and productivity improvements and technology enhancement initiatives undertaken to add and retain customers on the Company’s networks.

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Background

As of December 31, 2003, the Company had $2,287.8 million of outstanding indebtedness (net of unamortized discount) and an accumulated deficit of $3,604.2 million.

In November of 1999, the Company acquired IXC Communications, Inc. (IXC) for approximately $3,200.0 million. IXC, subsequently renamed BRCOM (f/k/a Broadwing Communications Inc.), provided long haul voice, data, and internet service over an 18,700 mile optic network. In connection with the acquisition, the Company assumed approximately $1,000.0 million of debt. Also in November 1999, the Company obtained credit facilities totaling $1,800.0 million from a group of lending institutions. These credit facilities were increased to $2,100.0 million in January 2001 and again to $2,300.0 million in June 2001. Borrowings under these facilities were used to redeem approximately $404.0 million of BRCOM 9% Senior Subordinated Notes assumed as part of the acquisition through a tender offer as a result of the change of control terms of the bond indenture. Additionally, in July of 1999, the Company issued $400.0 million of convertible subordinated notes (the “Convertible Subordinated Notes”) to Oak Hill Capital Partners, L.P. The proceeds were used to pay down IXC commercial paper outstanding and to purchase shares of IXC stock. From the acquisition of BRCOM through June 2003, the Company used a total of approximately $2,300.0 million of both cash flow from its other businesses and borrowings under its credit facilities, to finance the buildout of BRCOM’s national optical network and to meet BRCOM’s other cash needs. In 2001, the business environment for BRCOM and the broader telecommunications industry deteriorated rapidly and significantly.

As a result of the acquisition of BRCOM, the Company incurred substantial operating and net losses. In 2000 and 2001, BRCOM had operating losses of $230.5 million and $547.9 million, respectively, and net losses of $467.7 million and $417.8 million, respectively. In 2002, BRCOM had an operating loss of $2,437.6 million and a net loss of $4,560.4 million, which included an asset impairment charge of $2,200.0 million and a non-cash goodwill impairment charge of $2,008.7 million recorded upon the adoption of SFAS 142.

In response to BRCOM’s deteriorating financial results and concerns over liquidity, in October 2002, the Company announced a five-point restructuring plan intended to strengthen the Company’s financial position, maintain the strength and stability of its local telephone business, reduce capital expenditures at BRCOM, facilitate the evaluation of strategic alternatives related to BRCOM and reduce debt. Throughout 2003, as result of the execution of this plan, the Company completed the sale of BRCOM’s broadband business, secured additional sources of capital, amended its credit facilities and completed the exchange of debt and preferred stock at BRCOM, as further discussed below.

Broadband Asset Sale

On February 22, 2003, the Company entered into a definitive agreement to sell substantially all of its broadband assets. On June 6, 2003 and June 13, 2003, the purchase agreement was amended to, among other things, reduce the initial purchase price to $108.7 million ($91.5 million in cash and an estimated $17.2 million preliminary working capital promissory note, which was ultimately reduced to zero based on the final working capital position of the broadband business).

On June 13, 2003, the first (and most significant) stage closing was consummated. At the first stage closing, the Company had received regulatory approval in states where approximately 75% of 2002 broadband revenue was generated and effectively transferred control of the broadband business to the buyer. The buyer paid the initial cash purchase price of $91.5 million, of which $29.3 million was placed into escrow to support certain potential purchase price adjustments and the portion of the purchase price payable upon the consummation of the second and third stage closings.

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During the third quarter of 2003, the second and third (final) stage closings were consummated as all remaining regulatory approvals were received. In connection with these closings, the Company received $20.5 million of the $29.3 million escrowed funds. Subsequently, the Company released the remaining escrowed funds of $8.8 million to the buyer along with an additional $0.5 million in cash in satisfaction of the working capital and receivables post closing purchase price adjustments pursuant to the purchase agreement between the Company and the buyer.

The Company has indemnified the buyer of the broadband business against certain potential claims. In order to determine the fair value of the indemnification obligation, the Company performed a probability-weighted discounted cash flow analysis, utilizing the minimum and maximum potential claims and several scenarios within the range of possibilities. Such analysis resulted in an estimated fair value of the indemnification obligation of $7.8 million, which is included in other liabilities and has been reflected as a reduction of the gain on sale of broadband assets in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the period ended December 31, 2003.

Not more than 30 days after July 1, 2004, the buyer will provide the BRCOM selling subsidiaries with a calculation of cash EBITDA (as defined in the asset purchase agreement) minus capital expenditures for the broadband business for the period from July 1, 2003 to July 1, 2004. If annual cash EBITDA minus capital expenditures for such period is negative $48 million or less, the BRCOM selling subsidiaries will pay to the buyers an amount equal to 35% of the difference between negative $48 million and the amount of annual cash EBITDA minus capital expenditures, provided that the obligation for such reimbursement will not exceed $10 million. The Company has recorded a $10 million liability related to this purchase price adjustment. The BRCOM selling subsidiaries will have no obligation to make the foregoing payment if the buyers sell 51% or more of the equity or voting control of the acquiring entity or the assets acquired in the broadband sale.

Exchange and Retirement of BRCOM Debt and Preferred Stock

In March 2003, the Company reached agreements with holders of more than two-thirds of BRCOM’s 12½% Preferred Stock (the “12½% Preferreds”) and 9% notes to exchange these instruments for common stock of the Company. On September 8, 2003, the Company exchanged these instruments for 25.2 million shares of common stock of the Company. These exchanges resulted in the retirement of $458.4 million of long-term debt and minority interest liabilities of the Company. The exchanges also resulted in the non-cash settlement of $66.5 million in accrued interest and dividends as the Company had deferred the August 15, 2002, November 15, 2002, February 15, 2003, May 15, 2003, and August 15, 2003 cash dividend payments on the 12½% Preferreds, in accordance with the terms of the security. Upon completion of the exchange and a related subsidiary merger, the indenture related to the 9% notes was terminated and there were no longer any shares of the 12½% Preferreds outstanding.

On June 16, 2003, the Company permanently retired BRCOM’s remaining $0.8 million outstanding 12½% Senior Notes due 2005.

Financing Transactions and Credit Facilities

On March 26, 2003, the Company received $350.0 million of gross cash proceeds from the issuance of the 16% notes. Proceeds from the 16% notes, net of fees, were used to pay down borrowings under the Company’s credit facilities. Interest on the 16% notes is payable semi-annually on June 30 and December 31, whereby 12% is paid in cash and 4% is accreted on the aggregate principal amount. In addition, purchasers of the 16% notes received 17.5 million common stock warrants, each to purchase one share of Cincinnati Bell Inc. common stock at $3.00 each, which expire in March 2013. Of the total gross proceeds received, $47.5 million was allocated

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to the fair value of the warrants using the Black-Scholes option-pricing model and was recorded as a discount on the 16% notes. The 16% notes are expected to increase annual interest expense by approximately $17.5 million in 2004 compared to 2003, of which approximately $11.8 million is cash.

In conjunction with the issuance of the 16% notes, the Company’s credit facilities were also amended to, among other things, extend the revolving credit commitment, revise the financial covenants, accelerate a portion of the term debt, increase interest rate spreads and allow for the sale of substantially all of the assets of the Broadband segment.

Also, in March 2003, the Company entered into a supplemental indenture amending certain terms governing the Convertible Subordinated Notes Due 2009. The supplemental indenture allowed for the previously discussed sale of substantially all of the assets of the Company’s Broadband segment, provided that a bankruptcy of BRCOM would not constitute an event of default, amended the definition of change in control by increasing the ownership threshold deemed to be a change in control from 20% of outstanding shares to 45% of outstanding shares and included covenants restricting the ability of the Company to incur debt and consummate certain asset dispositions. The supplemental indenture also increased the paid-in-kind interest by 2¼% from March 2003 through scheduled redemption in July 2009, resulting in a per annum interest rate of 9%. In November 2003, the Company purchased and retired all of the outstanding Convertible Subordinated Notes due 2009, at a discounted price equal to 97% of their accreted value. The retirement of the Convertible Subordinated Notes due 2009 is expected to decrease annual non-cash interest expense in 2004 compared to 2003 by $38.1 million.

On July 11, 2003, the Company issued $500.0 million of 7¼% senior unsecured notes due 2013 (the “7¼% Senior notes due 2013”). Net proceeds of $488.8 million were used to prepay term credit facilities and permanently reduce commitments under the Company’s revolving credit facility. Interest on the 7¼% Senior notes due 2013 will be payable in cash semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2004. The 7¼% Senior notes due 2013 are unsecured obligations and will rank equally with all of the Company’s existing and future senior unsecured debt and will rank senior to all existing and future subordinated debt. The Company’s subsidiaries, excluding Cincinnati Bell Telephone, Cincinnati Bell Wireless, and BRCOM and all of its subsidiaries except CBAD, unconditionally guarantee the 7¼% Senior notes due 2013 on a senior unsecured basis. The indenture governing the 7¼% Senior notes due 2013 contains customary covenants for notes of this type, including limitations on the following: dividends and other restricted payments; dividend and other payment restrictions affecting subsidiaries; indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock of subsidiaries; redemption of debt that is junior in right of payment; issuances of senior subordinated debt; restrictions on dealing with BRCOM and its subsidiaries; and, mergers and consolidations. The 7¼% Senior notes due 2013 are expected to increase interest expense in 2004 by approximately $19.2 million compared to 2003. In conjunction with issuing the 7¼% Senior Notes due 2013, the Company also amended its credit facility to allow for the issuance of the notes and to reset the interest coverage covenants.

On November 19, 2003, the Company issued $540.0 million of 8 3/8% Senior Subordinated Notes (“the 8 3/8% notes”). The net proceeds, after deducting the initial purchasers’ discounts and fees and expenses, totaled $528.2 million. The Company used $524.6 million of the net proceeds to purchase all of the Company’s outstanding Convertible Subordinated Notes due 2009, which bore interest at a rate of 9%, at a discounted price equal to 97% of their accreted value. The remaining proceeds were used to pay fees related to a credit facility amendment discussed below and to reduce outstanding borrowings under the revolving credit facility. Concurrently with the issuance of the 8 3/8% notes, the Company amended its credit facilities to provide for a new term loan facility of $525.0 million and to reset the interest coverage ratio covenants. The net proceeds of the new term loan facility were used to prepay all outstanding term loans under the Company’s credit facilities and to permanently pay down a portion of the Company’s revolving credit facility. The new term loan matures

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in June 2008 and bears interest at a rate of 250 basis points over LIBOR. The 8 3/8% notes are expected to increase interest expense in 2004 by approximately $40.1 million compared to 2003.

The Company believes that its borrowing availability under the credit facilities and cash generated from operations will provide sufficient liquidity for the foreseeable future. As a result of the issuance of the 16% notes, the 7¼% Senior notes due 2013 and scheduled repayments, the credit facilities were reduced from $1,825.0 million as of December 31, 2002 to $920.5 million as of December 31, 2003. The remaining credit facilities as of December 31, 2003 consist of $396.8 million in revolving credit maturing on March 1, 2006, and having four equal quarterly scheduled commitment reductions during 2005 in an aggregate amount equal to $123.3 million, and $523.7 million in term loans, maturing on June 30, 2008. As of December 31, 2003, the Company had drawn approximately $608.4 million from its credit facilities, and had outstanding letters of credit totaling $12.6 million, leaving $299.5 million in additional borrowing availability under its revolving credit facility.

The terms of the 16% notes, the 7¼% Senior notes due 2013, the 8 3/8% notes and the credit facilities limit the Company’s ability to make future investments in or fund the operations of BRCOM and its subsidiaries. Specifically, the Company and its other subsidiaries may not make investments in or fund the operations of BRCOM and its subsidiaries beyond an aggregate amount of $118.0 million after October 1, 2002. As of December 31, 2003, the Company had the ability to invest an additional $79.8 million in BRCOM and its subsidiaries based on these provisions. In addition, as of December 31, 2003, the Company’s unrestricted BRCOM subsidiaries had assets of $570.2 million ($26.8 million excluding deferred tax assets and intercompany accounts receivable) and liabilities of $275.9 million ($90.6 million excluding intercompany accounts payable). The Company believes that BRCOM’s available liquidity is sufficient to meets its remaining obligations.

Upon completion of the previously referenced amendment to the credit facilities in November 2003, interest rates charged on borrowings under the revolving and term credit facilities were 425 and 250 basis points above the London Interbank Offered Rate (“LIBOR”), respectively, or 5.40% and 3.65%, respectively, based on the LIBOR rate as of December 31, 2003. Based on the Company’s variable rate indebtedness as of December 31, 2003, if the Company’s credit facility were fully drawn, a 1% increase in the average borrowing rate would result in approximately $9.2 million in annual incremental interest expense. The commitment fees applied to the unused amount of revolving credit facility borrowings are 62.5 basis points. Due to this amendment and repayments with respect to the outstanding credit facilities in 2003, the Company expects annual interest expense related to the credit facilities to decrease interest expense by approximately $48.8 million in 2004 compared to 2003, of which approximately $28.0 million will be a decrease in cash interest.

The Company is subject to financial covenants in association with the credit facilities. These financial covenants require that the Company maintain certain debt to EBITDA (as defined in the credit facility agreement), senior secured debt to EBITDA and interest coverage ratios as well as limit its capital expenditures. The facilities also contain certain covenants which, among other things, may restrict the Company’s ability to incur additional debt or liens, pay dividends, repurchase Company common stock, sell, transfer, lease, or dispose of assets and make investments or merge with another company. If the Company were to violate any of its covenants and was unable to obtain a waiver, it would be considered a default. If the Company were in default under its credit facilities, no additional borrowings under the credit facilities would be available until the default was waived or cured. The Company was in compliance with all financial covenants set forth in its credit facilities and the indentures governing its other debt as of December 31, 2003. As a result of the restatement of the Company’s previously issued financial statements, discussed in Note 2 of the Notes to Consolidated Financial Statements, the Company was in default on its Credit Agreement and 16% Notes Indenture, and as a result of cross-default provisions, the Cincinnati Bell Telephone Notes. In March 2004, the Credit Agreement and 16% Notes Indenture were amended to provide that the restatement does not constitute an event of default, which

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eliminated the cross-default of the Cincinnati Bell Telephone Notes. Refer to Note 8 of the Notes to Consolidated Financial Statements contained in this report for a discussion of the Company’s debt and the related covenants.

Subject to certain limited exceptions, borrowings under the credit facilities are required to be prepaid:

	(1)		in an amount equal to 75% of excess cash flow (as defined in the credit facility agreement) for each fiscal year commencing with the fiscal year ended December 31, 2003. Excess cash flow is calculated on an annual basis, and 75% of the excess cash flow is payable to the credit facility lenders on the 90th day following the end of each fiscal year;
	(2)		in an amount equal to 100% of net cash proceeds of certain sales, leases, transfers or other dispositions of assets by the Company or its subsidiaries subject to reinvestment rights in certain cases;
	(3)		in an amount equal to 100% of net cash proceeds from the issuance of certain debt obligations by the Company or any Subsidiary Guarantor (as defined in the credit facilities); and
	(4)		in an amount equal to 50% of the net cash proceeds in excess of $50 million from issuances of Cincinnati Bell common stock or preferred stock.

Voluntary prepayments of borrowings under the credit facilities and voluntary reductions of the unutilized parts of the credit facilities’ commitments are, subject to proper notice, permitted at any time. The Company expects to use any cash flows generated by its operations and in excess of investing activities, to reduce outstanding indebtedness.

Capital Investment

As the Company approached completion of the buildout of BRCOM’s national optical network, capital expenditures of $648.5 million in 2001 decreased in 2002 to $175.9 million. During the year ended December 31, 2003, capital expenditures totaled $126.4 million. In 2003, the Company began its build-out of the Global System for Mobile Communications and General Packet Radio Service (“GSM/GPRS”) technology. GSM/GPRS technology provides enhanced wireless data communication in addition to voice communication. Capital expenditures required to implement this new technology were approximately $24.5 million. The Company expects to spend approximately 10% to 12% of revenue on capital expenditures in future periods.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of December 31, 2003:

* Amount includes $3.3 million and $8.4 million of expected cash funding contributions to the pension trust and postretirement trust, respectively. These amounts are included in 2004 as the Company is obligated to make these cash funding contributions. The Company has not included obligations beyond 2004, as the amounts are not estimable.

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The buyer of substantially all of the broadband assets assumed capital lease commitments and certain operating contractual commitments, including the network related commitments, upon the closing of the first stage sale on June 13, 2003, thus reducing certain contractual obligations.

Current maturities of long-term debt in the Consolidated Balance Sheet of $13.3 million at December 31, 2003 consisted of approximately $5.3 million of principal payments on long-term debt related to the credit facilities, $5.3 million related to the current portion of capital leases and $2.7 million related to other current debt. The Company expects to have the ability to meet its current obligations through borrowings from its revolving credit facility and cash flows generated by its operations.

AWE maintains a 19.9% ownership in the Company’s CBW subsidiary. Under the terms of the related operating agreement, AWE has the right to require CBW to purchase its 19.9% ownership interest for a cash price equal to fair market value. Such right is exercisable beginning on December 31, 2006 and at any time thereafter, or if at any time there is a call for additional capital contributions that has not been approved by AWE.

Other

As of the date of this filing, the Company maintains the following credit ratings:

The Company does not have any downgrade triggers that would accelerate the maturity dates of its debt or increase the interest rate on its debt.

Commitments and Contingencies

Commitments

In 1998, the Company entered into a ten-year contract with Convergys Corporation (“Convergys”), a provider of billing, customer service and other services, which remains in effect until June 30, 2008. The contract states that Convergys will be the primary provider of certain data processing, professional and consulting, technical support and customer support services for the Company. In return, the Company will be the exclusive provider of local telecommunications services to Convergys. In 2003, the Company signed a letter of intent to revise the contract, which would extend the contract through December 31, 2010 and reduce the Company’s annual commitment in 2004 and 2005 to $35.0 million from $45.0 million. Beginning in 2006, the minimum commitment would be reduced 5% annually. The Company expects to finalize this agreement in the second quarter of 2004. If the Company does not execute the final agreement, the Company could be obligated to make a payment to Convergys of 40% of the difference between the commitment and actual amount of services purchased, or approximately $1.6 million in 2004 based on a projected shortfall of $4.0 million.

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The broadband business had contractual obligations to utilize network facilities from various interexchange and local exchange carriers. These contracts were based on a fixed monthly rate with terms extending on certain contracts through 2021. The buyer of substantially all of the broadband assets assumed capital lease commitments and certain liabilities of $390.2 million and operating contractual commitments of approximately $271.1 million, including the obligations associated with network utilization, upon the first stage closing of the sale on June 13, 2003.

AWE maintains a 19.9% ownership in the Company’s CBW subsidiary. The CBW operating agreement provides that a five member committee govern CBW, with AWE having the right to appoint two representatives and the Company having the right to appoint three representatives. On or after December 31, 2006, or if at any time the member committee shall call for additional capital contributions (unless such capital calls have been approved by the representatives of AWE), and upon written demand from AWE, the Company shall purchase at fair market value all of the interest of AWE in CBW for cash. Such sale shall be consummated not less than 30 and no more than 60 days following the determination of the fair market value of the AWE interest.

Contingencies

In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters. Such matters are subject to many uncertainties and outcomes that are not predictable with assurance.

In re Broadwing Inc. Securities Class Action Lawsuits, (Gallow v. Broadwing Inc., et al), U.S. District Court, Southern District of Ohio, Western Division, Case No. C-1-02-795.

Between October and December 2002, five virtually identical class action lawsuits were filed against Broadwing Inc. and two of its former Chief Executive Officers in U.S. District Court for the Southern District of Ohio.

These complaints were filed on behalf of purchasers of the Company’s securities between January 17, 2001 and May 20, 2002, inclusive, and alleged violations of Section 10(b) and 20(a) of the Securities and Exchange Act of 1934 by, inter alia, (1) improperly recognizing revenue associated with Indefeasible Right of Use (“IRU”) agreements; and (2) failing to write-down goodwill associated with the Company’s 1999 acquisition of IXC Communications, Inc. The plaintiffs seek unspecified compensatory damages, attorney’s fees, and expert expenses.

On December 30, 2002, the “Local 144 Group” filed a motion seeking consolidation of the complaints and appointment as lead plaintiff. By order dated October 29, 2003, Local 144 Nursing Home Pension Fund, Paul J. Brunner and Joseph Lask were named lead plaintiffs in a putative consolidated class action.

On December 1, 2003, lead plaintiffs filed their amended consolidated complaint on behalf of purchasers of the Company’s securities between January 17, 2001 and May 21, 2002, inclusive. This amended complaint contained a number of new allegations. Cincinnati Bell Inc. was added as defendant in this amended filing. The Company’s motion to dismiss was filed on February 6, 2004. Plaintiffs have until April 2, 2004 to file their opposition, and the Company is required to file its reply by May 17, 2004. The timing and outcome of these matters are not currently predictable. An unfavorable outcome could have a material effect on the financial condition, results of operations and cash flows of the Company.

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In re Broadwing Inc. Derivative Complaint, (Garlich v. Broadwing Inc., et al.), Hamilton County Court of Common Pleas, Case No. A0302720.

This derivative complaint was filed against Broadwing Inc. and ten of its current and former directors on April 9, 2003 alleging breaches of fiduciary duty arising out of the same allegations discussed in In re Broadwing Inc. Securities Class Action Lawsuits above. Pursuant to a stipulation between the parties, defendants are not required, absent further order by the Court, to answer, move, or otherwise respond to this complaint until 30 days after the federal court renders a ruling on defendants’ motion to dismiss in In re Broadwing Inc. Securities Class Action Lawsuits. The timing and outcome of these matters are not currently predictable. An unfavorable outcome could have a material effect on the financial condition, results of operations and cash flows of the Company.

In re Broadwing Inc. ERISA Class Action Lawsuits, (Kurtz v. Broadwing Inc., et al), U.S District Court, Southern District of Ohio, Western Division, Case No. C-1-02-857.

Between November 18, 2002 and January 10, 2003, four putative class action lawsuits were filed against Broadwing Inc. and certain of its current and former officers and directors in the United States District Court for the Southern District of Ohio. Fidelity Management Investment Trust Company was also named as a defendant in these actions.

These cases, which purport to be brought on behalf of the Cincinnati Bell Inc. Savings and Security Plan, the Broadwing Retirement Savings Plan, and a class of participants in the Plans, generally allege that the defendants breached their fiduciary duties under the Employee Retirement Income Security Act of 1974 (“ERISA”) by improperly encouraging the Plan participant-plaintiffs to elect to invest in the Company stock fund within the relevant Plan and by improperly continuing to make employer contributions to the Company stock fund within the relevant Plan.

On October 22, 2003, a putative consolidated class action complaint was filed in the U.S. District Court for the Southern District of Ohio. The Company filed its motion to dismiss on February 6, 2004. Plaintiffs have until April 2, 2004 to file their opposition, and the Company is required to file its reply by May 17, 2004. The timing and outcome of these matters are not currently predictable. An unfavorable outcome could have a material effect on the financial condition, results of operations and cash flows of the Company.

El Paso Global Networks Arbitration Proceeding

In June 2000, BRCOM entered into a long-term construction contract to build a fiber route system. During the second quarter of 2002, the customer alleged a breach of contract and requested the Company to cease all construction activities, requested a refund of $62.0 million in progress payments previously paid to the Company, and requested conveyance of title to all routes constructed under the contract. Subsequently, the Company notified the customer that such purported termination was improper and constituted a material breach under the terms of the contract, causing the Company to terminate the contract. As a result of the contract termination, the Company expensed $13.3 million in both costs incurred under the contract and estimated shutdown costs during the second quarter of 2002. In February 2004, the Company and El Paso Global Networks reached a final settlement of the arbitration proceeding. Under the terms of the settlement, both parties agreed to release their respective claims for monetary damages. As a result of the settlement, the Company recorded a $5.2 million charge included in “Asset Impairments and Other Charges (Credits)” in the Statement of Operations and Comprehensive Income (Loss) in the fourth quarter of 2003. The operating expenses were related to the increase in obligations assumed, indemnities granted and warranties provided under the terms of the settlement agreement over what had been previously recorded.

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Indemnifications

During the normal course of business, the Company makes certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (a) intellectual property indemnities to customers in connection with the use, sales and/or license of products and services,(b) indemnities to customers in connection with losses incurred while performing services on their premises (c) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct of the Company and (d) indemnities involving the representations and warranties in certain contracts. In addition, the Company has made contractual commitments to several employees providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential for future payments that the Company could be obligated to make. Except for amounts recorded in relation to insured losses, the Company has not recorded a liability for these indemnities, commitments and other guarantees in the Consolidated Balance Sheets, excepted as described below.

The following table summarizes the Company’s indemnification obligations as of December 31, 2003:

The Company has indemnified the buyer of the broadband assets against certain potential claims, including environmental, tax, title and authorization, broker, and other general claims. The title and authorization indemnification is capped at 100% of the purchase price of the broadband assets, which initially was $91.5 million, subject to reductions under the terms of the purchase agreement. The environmental and general indemnifications are capped at 50% of the purchase price of the broadband assets.

In order to determine the fair value of the indemnification obligations and warranties provided to the buyer of the broadband assets, the Company performed a probability-weighted discounted cash flow analysis, utilizing the minimum and maximum potential claims and several scenarios within the range of possibilities. The analysis resulted in a $7.8 million estimated fair value of the indemnification obligations, which is included in other liabilities and has been reflected as a reduction of the gain on sale of broadband assets in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2003.

In February 2004, the Company reached a final settlement with a customer related to a disputed construction contract, discussed above. As a result of the terms of the settlement, the Company recorded $3.2 million related to indemnities granted and warranties provided under the terms of the settlement agreement.

In order to determine the fair value of the indemnification obligations and warranties provided under the settlement agreement, the Company utilized a best estimates approach when possible and for certain indemnifications performed a probability-weighted discounted cash flow analysis, utilizing the minimum and maximum potential claims and certain scenarios within the range of possibilities. The analysis resulted in a $3.2 million estimated fair value of the indemnification obligations, which is included in other liabilities and has been reflected as an other operating expense in the Consolidated Statement of Operations and Comprehensive Income (Loss) for the year ended December 31, 2003.

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Off-Balance Sheet Arrangements

The Company does not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as special purpose entities (“SPEs”) or variable interest entities (“VIEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other limited purposes. As of December 31, 2003 the Company is not involved in any unconsolidated SPEs or VIEs.

Balance Sheet

The following comparisons are December 31, 2003 balances relative to December 31, 2002.

The change in cash and cash equivalents is explained in the preceding discussion of capital investment, resources and liquidity or in the cash flow discussion below. The decrease in accounts receivable of $99.6 million was primarily the result of $73.8 million of BRCOM receivables sold in connection with the broadband sale. The increase in total deferred income tax assets of $692.5 million was primarily due to the reversal of the valuation allowance related to uncertainties surrounding BRCOM’s liquidity, which were substantially mitigated in 2003. The increase of $30.9 million in net property, plant and equipment was primarily due to the adoption of SFAS 143 as accumulated depreciation of $134.0 million related to estimated removal cost in the Local segment was reversed as a change in accounting principle and by capital expenditures of $126.4 million. This was partially offset by $49.0 million of broadband assets sold and depreciation expense of $169.1 million. The increase in other noncurrent assets related to an increase in deferred financing costs of $34.2 million, which was primarily the result of additional financing costs incurred related to the issuance of the 16% notes (in March 2003), the amendment to the Company’s credit facilities (in March 2003), the issuance of the 7¼% Senior notes due 2013 (in July 2003) and the issuance of the 8 3/8% notes (in November 2003). These increases were partially offset by the decreases from the write-off of previously deferred financing costs related to the reduction in borrowings under the Company’s credit facilities with the net proceeds from the issuances of the 16% notes, the 7¼% Senior notes due 2013 and the 8 3/8% notes.

The decrease in current portion of long-term debt and long-term debt of $190.4 million and $80.2 million, respectively, were due to cash flow from operations, the $82.7 million pay down of debt utilizing the proceeds of the broadband asset sale, the exchange of common stock for the BRCOM 9% notes and eliminating the capital lease of the Company’s headquarters, partially offset by paid in kind interest and amortization of discounts. Accounts payable decreased $64.9 million, or 50%, primarily due to $41.8 million of accounts payable assumed by the buyers of the broadband assets and by timing of vendor payments. The decrease in current unearned revenue of $77.4 million was primarily due to $42.7 million of liabilities assumed by the buyers of the broadband assets and amortization of an IRU contract that expired in May 2003. The decrease in long-term unearned revenue, less current portion of $294.1 million was primarily due to $278.7 million of liabilities assumed by the buyers of the broadband assets.

The decrease in dividends payable of $28.3 million was due to the exchange of common stock for the BRCOM 12½% Preferreds.

The decrease in minority interest of $404.2 million was due to the exchange of BRCOM’s 12½% Preferreds for common stock of the Company, partially offset by an increase in minority interest in the earnings of the Wireless segment.

Cash Flow

2003 Compared to 2002

For the year ended December 31, 2003, cash provided by operating activities totaled $310.6 million, $118.0 million more than the $192.6 million provided by operating activities during the year ended December 31,

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2002. This increase is largely due to a reduction in cash used on operations and working capital needs resulting from the sale of substantially all of the broadband assets.

The Company’s investing activities included outflows for capital expenditures and inflows from the sale of equity investments and assets. Capital expenditures during 2003 totaled $126.4 million, $49.5 million lower than the $175.9 million incurred during 2002. The decrease is due to completion of the optical overbuild of the national broadband network and subsequent sale of the broadband assets, partially offset by an increase at CBW related to the GSM/GPRS network overbuild previously discussed. In 2003, the Company received $82.7 million from the sale of substantially all of the assets of its broadband business and $3.8 million from the sale of its entire equity investment in Terabeam, offset by $6.1 million in fees related to the sale of the BRCOM assets. In 2002, the Company received proceeds of $345.0 million as a result of the sale of substantially all of the assets of CBD and $23.3 million from the sale of its entire equity stake in Anthem Inc.

The Company received $1,390.0 million of gross cash proceeds from the issuance of the 16% notes, the 7¼% senior notes due 2013 and the 8 3/8% notes during 2003. These gross proceeds were used to pay amounts outstanding under the credit facility, purchase the Convertible Subordinated Notes at a discounted price equal to 97% of their accreted value, and pay fees and expenses related to the transactions. The Company permanently prepaid $708.8 million in borrowings under its term and revolving credit facilities and made a $195.7 million payment under its term credit facilities with the net cash proceeds from the 16% notes, the net cash proceeds from the 7¼% senior notes due 2013 and cash provided by operations. BCSI Inc., a subsidiary of BRCOM, permanently repaid $193.0 million of the revolving credit facility using cash proceeds of $82.7 million from the sale of broadband assets and borrowings from the Company to fund operations and pay down remaining liabilities of $110.3 million in 2003. The Company reduced its borrowings under its revolving credit facilities utilizing cash provided by operations and cash on its balance sheet as of December 31, 2002.

Approximately $7.9 million in 6¾% cumulative convertible preferred stock dividends were paid during 2003. As a result of BRCOM’s decision to defer the February 15, 2003, May 15, 2003 and August 15, 2003 cash dividend payment on its 12½% Preferreds, the Company conserved approximately $24.8 million in cash during 2003 compared to 2002. The dividends were accrued, and therefore were presented as minority interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) through the exchange of the preferred stock on September 8, 2003. Refer to Note 10 of the Notes to Consolidated Financial Statements for a detailed discussion of minority interest. Debt issuance costs during 2003 totaled $80.4 million, $71.2 million higher than the $9.2 million incurred during 2002. The increase in debt issuance costs is due to the financing transactions completed in 2003.

As of December 31, 2003, the Company held $26.0 million in cash and cash equivalents. In addition to cash on hand, the primary sources of cash will be cash generated by operations and borrowings from the Company’s revolving credit facility. The primary uses of cash will be for funding the maintenance and strategic expansion of the local and wireless networks; interest and principal payments on the Company’s credit facilities, 16% notes, 7¼% Senior notes due 2013, 7¼% Senior notes due 2023, 8 3/8% notes , and CBT notes; dividends on the 6¾% cumulative convertible preferred stock; working capital; and liability management associated with BRCOM up to the maximum amount permitted under the terms of the 16% notes, the 7¼% Senior notes due 2013, 8 3/8% notes and Credit Agreement.

2002 Compared to 2001

In 2002, cash provided by operating activities totaled $192.6 million, $66.9 million lower than the $259.5 million generated during 2001, partially due to an increase in working capital requirements and a reduction in cash flow from CBD, which was sold in March 2002.

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The Company’s investing activities included outflows for capital expenditures and inflows from the sale of equity investments. Capital expenditures during 2002 totaled $175.9 million, $472.6 million lower than the $648.5 million incurred during 2001. The decrease is due to completion of the optical overbuild of the national network, completion of the wireless network footprint and installation of DSL-enabling equipment at CBT. In 2002, the Company received proceeds of $345.0 million as a result of the sale of substantially all of the assets of CBD and $23.3 million from the sale of its entire equity stake in Anthem Inc.

Preferred stock dividends of $10.4 million and $24.8 million were paid to the Cincinnati Bell Inc. 6¾% preferred shareowners and BRCOM’s 12½% preferred shareowners, respectively, during 2002. As a result of BRCOM’s decision to defer the August 15, 2002 and November 15, 2002 cash dividend payments on its 12½% preferred stock, the Company conserved $24.8 million in cash during the second half of 2002. The dividends were accrued, and therefore continued to be presented as minority interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). In addition, the Company repaid a net $298.9 million of its credit facility during 2002, using the proceeds from the sale of substantially all of the assets of CBD, as discussed above, partially offset by additional borrowings. Refer to Notes 8 and 10 of the Notes to Consolidated Financial Statements for a detailed discussion of debt and minority interest, respectively.

Regulatory Matters and Competitive Trends

Federal — The Telecommunications Act of 1996 (the “1996 Act”), including the rules subsequently adopted by the FCC to implement the 1996 Act, can be expected to impact CBT’s in-territory local exchange operations in the form of greater competition. The FCC’s rules have changed from time to time as a result of judicial review and further actions by the FCC and are expected to continue to change in the future. These changes can be expected to affect both CBT’s in-territory local exchange operations and its out of territory operations.

State — At the state level, CBT conducts local exchange operations in portions of Ohio, Kentucky and Indiana and, consequently, is subject to regulation by the Public Utilities Commissions (“PUC”) in those states. In Ohio, the PUC has concluded a proceeding to establish permanent rates that CBT can charge to competitive local exchange carriers for unbundled network elements, although some elements will remain subject to interim rates indefinitely. The Kentucky commission has authorized CBT to use the same rates established by the Ohio PUC for unbundled network elements in Kentucky. The establishment of these rates is intended to facilitate market entry by competitive local exchange carriers.

The Ohio PUC has required SBC Communications Inc. (“SBC”) and Verizon Communications Inc. (“Verizon”) to offer competitive local exchange services in several Ohio markets, including the Cincinnati market, as a condition to the approval of their respective mergers involving Ameritech Corp. and GTE Corp. Both SBC and Verizon have entered into interconnection agreements with CBT.

CBT is currently subject to an Alternative Regulation Plan (“Alt Reg Plan”) in Ohio. The current Alt Reg Plan gives CBT pricing flexibility in several competitive service categories in exchange for CBT’s commitment to freeze certain basic residential service rates during the term of the Alt Reg Plan. The term of the current Alt Reg Plan will remain in effect through June 30, 2004. Prior to June 30, 2004, CBT will be required to seek an extension of its existing Plan, initiate a proceeding to establish a new Alt Reg Plan or adopt a generic Alt Reg Plan developed by the Ohio PUC.

Refer to “Business Outlook” included in Item 1 on this Form 10-K for further discussion on competitive trends.

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Recently Issued Accounting Standards

In December 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). In December 2003, the FASB issued FIN 46-R “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46-R”) (revised December 2003), which replaces FIN 46. FIN 46-R incorporates certain modifications to FIN 46 adopted by the FASB subsequent to the issuance of FIN 46, including modifications to the scope of FIN 46. Additionally, FIN 46-R also incorporates much of the guidance previously issued in the form of FASB Staff Positions. For all special purposes entities (“SPEs”) and variable interest entities (“VIEs”) created prior to February 1, 2003, public entities must apply either the provisions of FIN 46, or early adoption of the provisions of FIN 46-R at the end of the first interim or annual reporting period after December 15, 2003. The Company has evaluated the provisions of this interpretation and has determined that the interpretation has no impact on the Company’s financial position, results of operations, or cash flows as it has no SPEs or VIEs.

In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS 149”). This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as “derivatives”) and for hedging activities under Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS 149 did not have an impact on the Company’s financial position, results of operations, or cash flows.

In May 2003, the FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. SFAS 150 was effective for financial instruments entered into or modified after May 31, 2003, and otherwise was effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS 150 had no impact on the Company’s financial position, results of operations, or cash flows.

In December 2003, the FASB issued Statement of Financial Accounting Standards No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits” (“SFAS 132”). This Statement revises employers’ disclosures about pension plans and other postretirement benefit plans. The Company revised its disclosures, which are included in Note 15 of the Notes to Consolidated Financial Statements, as required by the standard.

In January 2004, the FASB issued FASB Staff Position (“FSP”) No. 106-1, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-1”). FSP 106-1 permits employers that sponsor postretirement benefit plans that provide prescription drug benefits to retirees to make a one-time election to defer accounting for any effects of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”). The Company has elected to defer the accounting effects of the Act until the FASB issues guidance on how to account for the federal subsidy. The Company expects the Act will reduce its annual non-cash postretirement health expense by approximately $1 million and reduce its postretirement health liability by up to $12 million, assuming no plan design changes.

In December 2003, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 104 (“SAB 104”), Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of EITF 00-21, “Accounting for Revenue

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Arrangements with Multiple Deliverables.” SAB 104 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In March 2003, the EITF reached consensus on EITF 00-21. This guidance addresses the determination of whether an arrangement involving multiple deliverables contains more than one unit of accounting. EITF 00-21 was effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF 00-21 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

Business Development

In order to enhance shareowner value, the Company actively reviews opportunities for acquisitions, divestitures and strategic partnerships.

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Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement

This Form 10-K contains “forward-looking” statements, as defined in federal securities laws including the Private Securities Litigation Reform Act of 1995, which are based on Cincinnati Bell Inc.’s current expectations, estimates and projections. Statements that are not historical facts, including statements about the beliefs, expectations and future plans and strategies of the Company, are forward-looking statements. These include any statements regarding:

	•		future revenue, operating income, profit percentages, income tax refunds, realization of deferred tax assets, earnings per share or other results of operations;
	•		the continuation of historical trends;
	•		the sufficiency of cash balances and cash generated from operating and financing activities for future liquidity and capital resource needs;
	•		the effect of legal and regulatory developments; and
	•		the economy in general or the future of the communications services industries.

Actual results may differ materially from those expressed or implied in forward-looking statements. These statements involve potential risks and uncertainties, which include, but are not limited to:

	•		changing market conditions and growth rates within the telecommunications industry or generally within the overall economy;
	•		world and national events that may affect the Company’s ability to provide services or the market for telecommunication services;
	•		changes in competition in markets in which the Company operates;
	•		pressures on the pricing of the Company’s products and services;
	•		advances in telecommunications technology;
	•		the ability to generate sufficient cash flow to fund the Company’s business plan and maintain its networks;
	•		the ability to refinance the Company’s indebtedness when required on commercially reasonable terms;
	•		the Company’s ability to continue to finance BRCOM (a wholly-owned subsidiary);
	•		changes in the telecommunications regulatory environment;
	•		changes in the demand for the services and products of the Company;
	•		the demand for particular products and services within the overall mix of products sold, as the Company’s products and services have varying profit margins;
	•		the Company’s ability to introduce new service and product offerings in a timely and cost effective basis;
	•		the Company’s ability to attract and retain highly qualified employees;
	•		the Company’s ability to access capital markets and the successful execution of restructuring initiatives
	•		volatility in the stock market, which may affect the value of the Company’s stock; and
	•		the outcome of any of the pending class and derivative shareholder lawsuits.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they were made. The Company does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

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Item 7A. Qualitative and Quantitative Disclosures about Market Risk

The Company is exposed to the impact of interest rate fluctuations. To manage its exposure to interest rate fluctuations, the Company uses a combination of variable rate short-term and fixed rate long-term financial instruments. The Company has historically employed derivative financial instruments to manage its exposure to fluctuations in interest rates. The Company does not hold or issue derivative financial instruments for trading purposes or enter into interest rate transactions for speculative purposes.

The Company was required by terms of its credit facility to engage in interest rate swaps once certain thresholds were exceeded with regard to floating rate debt as a percentage of the Company’s total debt. The Company exceeded this threshold during 2000 and, accordingly, entered into a series of interest rate swap agreements on notional amounts totaling $130 million. The Company continued to exceed the above noted threshold in 2001 and increased the notional amount to $490 million. Throughout 2003, these agreements expired. The purpose of these agreements was to hedge against changes in market interest rates to be charged on the Company’s borrowings under its credit facility. The March 2003 credit facility amendment and restatement eliminated the requirement to maintain a certain threshold of fixed rate debt as a percentage of the Company’s total debt.

Swap agreements involve the exchange of fixed and variable rate interest payments and do not represent an actual exchange of the notional amounts between the parties. Because the notional amounts are not exchanged, the notional amounts of these agreements are not indicative of the Company’s exposure resulting from these derivatives. The amounts to be exchanged between the parties are primarily the result of the swap’s notional amount and the fixed and floating rate percentages to be charged on the swap. In accordance with SFAS 133, interest rate differentials associated with the Company’s interest rate swaps are recorded as an adjustment to interest payable or receivable with the offset to interest expense over the life of the swap. The Company’s interest rate swap agreements expired throughout 2003. During 2003, the fair value of the interest rate swaps increased resulting in a year-to-date, after-tax net gain of $4.5 million, which was recognized in Other Comprehensive Income (Loss).

Potential nonperformance by counterparties to the swap agreements exposes the Company to a certain amount of credit risk due to the possibility of counterparty default. Because the Company’s only counterparties in these transactions are financial institutions that are at least investment grade, it believes the risk of counterparty default is minimal.

Interest Rate Risk Management – The Company’s objective in managing its exposure to interest rate changes is to limit the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs.

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The following table sets forth the face amounts, maturity dates and average interest rates for the fixed- and floating-rate debt held by the Company at December 31, 2003 (excluding capital leases and unamortized discount):

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Item 8. Financial Statements and Supplementary Schedules

Financial statement schedules other than that listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.

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Report of Management

The management of Cincinnati Bell Inc. is responsible for the information and representations contained in this report. Management believes that the financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and that the other information in this report is consistent with those statements. In preparing the financial statements, management is required to include amounts based on estimates and judgments that it believes are reasonable under the circumstances.

In meeting its responsibility for the reliability of the financial statements, management maintains a system of internal accounting controls, which is continually reviewed and evaluated. Our internal auditors monitor compliance with the system of internal controls in connection with their program of internal audits. However, there are inherent limitations that should be recognized in considering the assurances provided by any system of internal accounting controls. Management believes that its system provides reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management’s authorization, that the recorded accountability for assets is compared with the existing assets at reasonable intervals, and that appropriate action is taken with respect to any differences. Management also seeks to assure the objectivity and integrity of its financial data by the careful selection of its managers, by organization arrangements that provide an appropriate division of responsibility, and by communications programs aimed at assuring that its policies, standards and managerial authorities are understood throughout the organization.

The financial statements have been audited by PricewaterhouseCoopers LLP, independent auditors. Their audit was conducted in accordance with auditing standards generally accepted in the United States of America. The Audit and Finance Committee of the Board of Directors, which is composed of five directors who are not employees, meets periodically with management, the internal auditors and PricewaterhouseCoopers LLP to review their performance and responsibilities and to discuss auditing, internal accounting controls and financial reporting matters. Both the internal auditors and the independent auditors periodically meet alone with the Audit and Finance Committee and have access to the Audit and Finance Committee at any time.

/s/ John F. Cassidy
John F. Cassidy
President and Chief Executive Officer

/s/ Brian A. Ross
Brian A. Ross
Chief Financial Officer

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Report of Independent Auditors

To the Board of Directors and the
Shareowners of Cincinnati Bell Inc.

In our opinion, the consolidated financial statements listed in the accompanying index, present fairly, in all material respects, the financial position of Cincinnati Bell Inc. (f/k/a Broadwing Inc.) (“the Company”) and its subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its consolidated balance sheet as of December 31, 2002 and its consolidated statements of operations and comprehensive income (loss), cash flows, and shareowners’ equity (deficit) for the years ended December 31, 2002 and 2001 to reflect adjustments relating to a long-term construction contract entered into in 2000.

As discussed in Note 1 to the consolidated financial statements, on January 1, 2003, the Company changed its method of accounting for asset retirement obligations in connection with the adoption of Statement of Financial Accounting Standards No. 143. In addition, as discussed in Note 5 to the consolidated financial statements, on January 1, 2002, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142.

/s/ PricewaterhouseCoopers LLP

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