UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2005

For the transition period from                          to                         

Commission File Number: 1-8519

CINCINNATI BELL INC.

201 East Fourth Street, Cincinnati, Ohio 45202

Telephone—513-397-9900

Securities registered pursuant to Section 12(b) of the Act:

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 (Section 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. ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

Large accelerated filer x            Accelerated filer ¨            Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The aggregate market value of the voting shares owned by non-affiliates of the registrant was $1,057,414,896, computed by reference to the closing sale price of the stock on the New York Stock Exchange on June 30, 2005, the last trading day of the registrant’s most recently completed second fiscal quarter.

At February 28, 2006, there were 247,125,771 common shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement relating to the Company’s 2006 Annual Meeting of Shareholders are incorporated by reference into Part III of this report to the extent described herein. Information required under Item 9 to this Report is incorporated by reference to the Company’s Current Report on Form 8-K filed on March 24, 2005.

TABLE OF CONTENTS

PART I

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

Part I

Item 1.    Business

General

Cincinnati Bell Inc. (the “Company”) 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 and wireless networks with a well-regarded brand name and reputation for service. The Company has five reportable business segments: Local, Wireless, Hardware and Managed Services, Other, and Broadband. The Broadband segment no longer has any substantive, on-going operations.

The Company’s primary businesses consist of the Local and Wireless segments, which predominately provide voice and data telecommunications services. For the year ended December 31, 2005, these two segments generated 82% of the Company’s 2005 consolidated revenue and 87% of the Company’s 2005 consolidated operating income. The Hardware and Managed Services (“HMS”) segment provides information technology consulting and data center collocation services. The HMS segment also sells equipment, typically located on the customer’s premises, through which the Company provides its telecommunications and managed services. In its Other segment, the Company operates Cincinnati Bell Any Distance Inc. (“CBAD”), which provides long distance services, Cincinnati Bell Complete Protection Inc. (“CBCP”), which provides security monitoring services and related surveillance hardware, the Company’s public payphone business (“Public”), and Cincinnati Bell Entertainment (“CBE”), which intends to offer in the future television programming over the internet as an alternative to cable or satellite television service.

In 2003, the Company sold substantially all of the assets of its broadband business. These assets were held by the Company’s wholly-owned subsidiary, BRCOM Inc. (f/k/a Broadwing Communications Inc.). Refer to Note 16 to the Consolidated Financial Statements for a detailed discussion of the sale.

In addition to the sale of substantially all of the broadband assets, on June 13, 2003, the Company’s subsidiaries entered into agreements with the buyer of the broadband assets whereby the Company will continue to market Broadwing Communications LLC’s (“Broadwing”) (f/k/a C III Communications Operations LLC) broadband products to business customers and purchase capacity on Broadwing’s national network in order to sell long distance services, under the CBAD brand, to residential and business customers in the Greater Cincinnati area market.

Although the Company operates in distinct business segments, it offers each of its operating segments’ services through common distribution channels. These channels include the Company’s direct sales force, 20 Company-run retail locations, independent agents, and the Company’s service centers. For its consumers and small business customers, the Company markets the services of its operating segments in a combined package of services. The most comprehensive package of services that the Company offers is the Custom Connections^SM “Super Bundle,” comprised of a customized package of local, long distance, wireless, and digital subscriber line (“DSL”) services on a single monthly bill and at a price that is discounted compared to the purchase price of each service on an individual basis. As of December 31, 2005, the Company had approximately 150,000 subscribers in this comprehensive bundling package, which represents 16% of the Company’s primary consumer and business access lines.

The Company is an Ohio corporation, incorporated under the laws of Ohio in 1983. Its principal executive offices are at 201 East Fourth Street, Cincinnati, Ohio 45202 (telephone number (513) 397-9900 and website address http://www.cincinnatibell.com). The Company makes available on its website at the investor relations tab (http://investor.cincinnatibell.com) its reports on Form 10-K, 10-Q, and 8-K (as well as all amendments to these reports), free of charge, 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, 100 F Street N.E., 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 that site is http://www.sec.gov.

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Local

The Local segment provides local voice, data, and other telephone services. Voice services include local service, switched access, information services, and value-added services. These value-added services include enhanced custom calling features, such as caller identification, voicemail, call waiting, and call return. Data services include dedicated network access, Gigabit Ethernet (“Gig-E”) and Asynchronous Transfer Mode (“ATM”) based data transport, and DSL and dial-up Internet access. Other services consist of inside wire installation for business enterprises and billing, clearinghouse and other ancillary services primarily for inter-exchange (long distance) carriers. The Local segment provides these services through the operations of Cincinnati Bell Telephone LLC (“CBT”) to customers located in southwestern Ohio, northern Kentucky and southeastern Indiana. The Company has operated as the Incumbent Local Exchange Carrier (“ILEC”) in the Greater Cincinnati area for approximately the past 130 years. This market consists of primarily 2,400 square miles located within approximately a 25-mile radius of Cincinnati, Ohio.

The Local segment continues to develop a presence outside its ILEC territory, particularly in Dayton and Mason, Ohio through a product suite of local voice/data services to business and residential customers. Effective January 1, 2005, all operations outside of its ILEC territory are operated by a subsidiary of CBT, Cincinnati Bell Extended Territories LLC (“CBET”). CBET operates as a Competitive Local Exchange Carrier (“CLEC”) and provides substantially all of its services on its own network or through purchasing Unbundled Network Elements (“UNE-L” or “loops”) from the incumbent local carrier. The Local segment links its Cincinnati and Dayton geographies through its synchronous optical fiber network (“SONET”), which provides route diversity via two separate paths.

CBT provides voice and related value added services over a 100% digital, circuit switch-based network to end users via lines of access and has deployed DSL capable electronics throughout its territory, allowing it to offer DSL services to approximately 90% of its access lines qualified or addressable for this service. CBT’s network also includes the use of fiber-optic cable, with 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 also has an extensive business-oriented data network, offering native speed Ethernet services over an interlaced ATM – Gig-E backbone network, delivered to end users via high-capacity circuits.

CBT had approximately 931,000 network access lines in service on December 31, 2005, a 4% and 6% reduction in comparison to 970,000 and 986,000 access lines in service at December 31, 2004 and 2003, respectively. Approximately 78%, 21%, and 1% of CBT’s network access lines serve customers in Ohio, Kentucky and Indiana, respectively. 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 to existing access line customers and by increasing the sale of high capacity data circuits.

In 2004, CBT increased the speed of its existing DSL service to compete with, and to offer comparable speeds to, its main high-speed internet competitors. The Company believes that this improvement and marketing programs, which offer this service in combination with local voice, long distance and wireless services, have helped its DSL subscriber base to increase to 163,000 as of December 31, 2005, a 24% and 63% increase in comparison to 131,000 and 100,000 subscribers at December 31, 2004 and 2003, respectively. CBT’s consumer penetration of DSL service was 26% of addressable lines at the end of 2005, an increase of six percentage points from 20% at the end of 2004. Business penetration of addressable lines has grown to 10% at the end of 2005, up two percentage points from 8% penetration at the end of 2004. On a combined basis, approximately 163,000 subscribers represent 22% penetration of addressable lines compared to 17% penetration at the end of 2004.

CBT operates the National Payphone Clearinghouse (“NPC”) in an agency function, facilitating payments from inter-exchange carriers to payphone service providers (“PSPs”) relating to the compensation due to PSPs for originating access code calls, subscriber 800 calls, and other toll free and qualifying calls pursuant to the rules of the Federal Communications Commission and state regulatory agencies. As the NPC agent, the Company does not take equitable title to the inter-exchange carriers’ cash to be paid to the PSPs, nor does the Company accept liability for the payments owed to the PSPs.

The Local segment produced $755.6 million, $761.7 million, and $774.5 million, or 62%, 63%, and 50%, of consolidated Company revenue in 2005, 2004, and 2003, respectively. The Local segment produced consolidated operating income of $276.1 million, $279.1 million, and $282.7 million in 2005, 2004, and 2003, respectively.

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Wireless

The Wireless segment provides advanced digital voice and data communications services through the operation of a regional wireless network in a licensed service territory, which surrounds Cincinnati and Dayton, Ohio including areas of northern Kentucky and southeastern Indiana and includes a population of approximately 3.4 million. As of December 31, 2005, the segment served approximately 496,000 subscribers, which represents 15% of the licensed population. Of its total subscribers, 315,000 were postpaid subscribers, who are billed monthly in arrears, and 181,000 were prepaid i-wireless^SM subscribers, who purchase service in advance. The segment also sells related telecommunications equipment, wireless handset devices, and related accessories to support its service business.

Cincinnati Bell Wireless LLC (“CBW”) has historically operated the Wireless segment as a joint venture with Cingular Wireless Corporation (“Cingular”) through its subsidiary, AT&T PCS LLC (“AWE”). At December 31, 2005, the Company owned 80.1% of CBW while Cingular owned the remaining 19.9%. In response to Cingular’s acquisition of AWE (the “Merger”), the Company entered into an agreement (the “Agreement”) with Cingular on August 4, 2004 and subsequently amended it on February 14, 2005. The Agreement modified CBW’s operating agreement between the Company and AWE, whereby the Company agreed to waive AWE’s prohibition against competing with CBW and Cingular agreed to forego certain minority rights including membership on CBW’s governing member committee. In the Agreement, both parties agreed to new reciprocal roaming agreements, to the disposition of certain TDMA assets, which CBW and AWE had jointly used, and put/call obligations for the sale/purchase of the 19.9% of CBW owned by AWE. On February 14, 2006, Cingular exercised its contractual put right to require the Company to purchase Cingular’s 19.9% membership interest in CBW. Pursuant to the terms of the put right, the Company paid Cingular $83.2 million for its 19.9% ownership interest in the joint venture. As a result, CBW is now a wholly-owned subsidiary of the Company. The Company funded the purchase with borrowings from its bank credit facility. Refer to Note 21 to the Consolidated Financial Statements.

As CBW was jointly owned with Cingular through February 14, 2006, income or losses generated by the Wireless segment in the periods covered by this report were shared between the Company and Cingular in accordance with respective ownership percentages of 80.1% and 19.9%. 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. Refer to Note 9 to the Consolidated Financial Statements for a detailed discussion of Cingular’s minority interest in this venture.

CBW operates a digital wireless network, which is comprised of centralized switching and messaging equipment connected to approximately 390 radio base station locations utilizing 30 MHz of wireless spectrum in the Cincinnati and Dayton Basic Trading Areas (“BTA”). The Company owns the licenses to 30 MHz of spectrum in Cincinnati and 20 MHz of spectrum in Dayton, and leases a 10 MHz license owned by Cingular in the Dayton BTA. The lease for the Dayton spectrum expires in April 2007.

Since October 2003, CBW has deployed service on both Time Division Multiple Access (“TDMA”) and Global System for Mobile Communications (“GSM”) and General Packet Radio Service (“GPRS”) technologies, and in the first quarter of 2005, CBW upgraded GPRS to enhanced data rates for GSM evolution (“EDGE”), which provides up to three times the capacity of GPRS. TDMA is CBW’s legacy technology and provides both voice and short message service (“SMS”) data services. GPRS and EDGE technology provide, in addition to SMS, enhanced wireless data communication services, such as mobile web browsing, internet access, email and picture messaging. As of December 31, 2005, the Company has transitioned over 80% of its customers to GSM and delivers over 90% of network minutes of use (“MOU’s”) via the GSM network.

As a result of retiring certain TDMA assets, which produced write-downs of $23.7 million in the first quarter of 2005, and an impairment charge in the fourth quarter of 2005 totaling $18.6 million, the carrying value of the TDMA assets was less than $1 million at December 31, 2005. The Company plans to discontinue the operation of the TDMA network in 2006 due to the limited number of remaining customers it serves and the reduced revenue and cash flow it now generates. As the Company migrates these remaining TDMA customers and retires the TDMA network, it expects it will increase handset costs but will reduce network operating costs and capital expenditures.

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The Wireless segment contributed $237.5 million, $261.7 million, and $259.5 million, or 20%, 22%, and 17% of consolidated revenue in 2005, 2004, and 2003, respectively. The Wireless segment produced an operating loss of $51.7 million and $1.4 million in 2005 and 2004, respectively, and operating income of $60.2 million in 2003. Included in the 2005 operating loss are impairment charges related to the TDMA network assets totaling $42.3 million and depreciation of the TDMA assets totaling $36.5 million.

Postpaid subscriber service generated approximately 70% of total 2005 segment revenue. A variety of rate plans are available to postpaid subscribers, and these plans typically include a fixed number of national minutes and/or an unlimited number of mobile-to-mobile (calls to and from other CBW subscribers) or local minutes for a flat monthly rate. For plans with a fixed number of minutes, the postpaid subscriber can purchase additional minutes at a per-minute-of-use rate. Prepaid i-wireless^SM subscribers, who accounted for 18% of 2005 revenue, can purchase minutes at a per-minute-of-use rate and unlimited minutes for mobile-to-mobile calls for a flat, per day fee. Revenue from other wireless service providers for the purchase of roaming minutes for the carrier’s own subscribers using minutes on CBW’s network, collocation revenue (rent received for the placement of other carriers’ radios on CBW towers), and reciprocal compensation for other carriers’ subscribers who terminate calls on CBW’s network accounted for approximately 3% of total 2005 segment revenue.

Sales of handsets and accessories generated the remaining 9% of segment revenue. CBW sells handsets and accessories, often below its own purchase cost, to promote the retention and sale of new service plans. Sales also take place through the Company’s direct sales force, on the Company’s website and in the retail stores of major electronic and other retailers pursuant to agency agreements. 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. CBW purchases handsets and accessories from a variety of manufacturers and maintains an inventory to support sales.

Hardware and Managed Services

The HMS segment provides data center collocation, IT consulting services, telecommunications and computer equipment, and installation and maintenance of telecommunications and computer equipment through the Company’s subsidiary, CBTS. CBTS has relationships with over 20 technology vendors that offer a wide array of equipment and operating systems to meet the needs of small to large businesses. CBTS currently operates three data centers, two owned and one leased, to warehouse the equipment purchased by its customers in a triple-wall, disaster-safe environment. The data center service provides 24-hour monitoring, redundant power, environmental controls, and high-speed, highly-available optical network connections. The Company also provides outsourced IT project management and recurring management of its customers’ data hardware and telephony equipment.

The segment produced total revenue of $172.7 million, $134.7 million, and $162.8 million in 2005, 2004, and 2003, respectively. In 2005, 2004, and 2003 hardware revenues were $106.6 million, $74.0 million, and $89.6 million, respectively, while managed service revenues accounted for $66.1 million, $60.7 million, and $73.2 million. The opening of the Florence, Kentucky data center in June 2005 and the purchase of the Mason, Ohio facility in late 2004 provided CBTS with additional opportunity for hardware sales to its new data center customers. This has caused an increase in hardware revenue as a percentage of total revenue in 2005 as compared to previous years. The HMS segment revenue constituted approximately 14% of consolidated revenue in 2005 and 11% of consolidated revenue in 2004 and 2003. The HMS segment produced operating income of $13.4 million, $12.7 million, and $17.5 million in 2005, 2004, and 2003, respectively.

In 2004, CBTS sold certain operating assets, which were generally residing outside of the Company’s operating area, for approximately $3.2 million in cash. Subsequently in 2004, CBTS paid $1.3 million to the buyer of the assets in working capital adjustments related to the sale.

Other

The Other segment combines the operations of CBAD, CBCP, Public and CBE. CBAD sells long distance services in the Company’s operating area, and CBCP sells surveillance hardware and monitoring services to

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residential and business customers in the Company’s operating area, while Public provides public payphone services principally in the Company’s ILEC operating area.

The Other segment produced revenue of $77.7 million, $78.6 million, and $81.1 million in 2005, 2004, and 2003, respectively, constituting approximately 6%, 7%, and 5% of consolidated revenue in 2005, 2004, and 2003, respectively. The Other segment produced operating income of $26.6 million, $18.0 million, and $6.5 million in 2005, 2004, and 2003, respectively.

Cincinnati Bell Any Distance

CBAD provides long distance services to businesses and residential customers in the Greater Cincinnati and Dayton, Ohio areas. At December 31, 2005, CBAD had approximately 564,000 subscribers, 413,000 residential and 151,000 business, compared to 562,000 and 539,000 long distance subscribers at December 31, 2004 and 2003, respectively. For Local segment access lines for which a long distance carrier is chosen, CBAD’s market share, as measured by the number of CBT lines for which a long distance carrier was selected, within the Greater Cincinnati area increased in 2005, with residential and business market share growing to approximately 80% and 52%, respectively, from 76% and 48%, respectively, at the end of 2004. In 2005, CBAD produced $70.2 million in revenue for the Other segment, representing approximately 6% of consolidated revenue, compared to $64.1 million or 5% of consolidated revenue in 2004, and $64.5 million or 4% of consolidated revenue in 2003.

Cincinnati Bell Complete Protection Inc.

CBCP provides surveillance hardware and monitoring services to residential and business customers in the Greater Cincinnati and Dayton, Ohio areas. At December 31, 2005 and 2004, CBCP had approximately 7,000 monitoring subscribers in comparison to 6,000 monitoring subscribers at December 31, 2003. CBCP produced $2.9 million, $3.9 million, and $3.7 million in revenue in 2005, 2004, and 2003, respectively, for the Other segment. At the end of 2004, CBCP decided to focus its operations on providing monitoring services in which it could leverage operating synergies with the Company’s local operation. At that time, CBCP discontinued sales of surveillance equipment to business customers who do not also have an on-going monitoring service relationship. These sales comprised approximately $2 million of CBCP’s 2004 revenue; however, discontinuing these sales did not reduce the Other segment’s 2005 profitability.

Payphone Business

In the fourth quarter of 2004, the Company sold its payphone assets located at correctional institutions and those outside of the Company’s operating area for $1.4 million. Prior to the sale, Public provided public payphone services to customers in a seven state regional area. Services are now provided in a three state regional area – Ohio, Kentucky, and Indiana. Public had approximately 3,700, 4,600, and 8,100 stations in service as of December 31, 2005, 2004, and 2003, respectively, and generated approximately $4.5 million, $10.6 million, and $12.8 million in revenue in 2005, 2004, and 2003, respectively, or less than 1% of consolidated revenue in each year. The revenue decrease is a result of fewer stations in service and reduced calls per line caused by continued penetration of wireless communications and a targeted reduction in unprofitable lines. The out-of-territory assets sold contributed approximately $2.6 million to the Other segment’s total revenue in 2004 with only marginal contribution to the segment’s operating income.

Cincinnati Bell Entertainment

The Company created Cincinnati Bell Entertainment in 2005, which intends to offer in the future television programming over the internet as an alternative to cable or satellite television service. The Company is reviewing the rapidly evolving technologies involved with the internet protocol television (“IPTV”) product, and, while the Company intends to provide this service to the customers in its operating areas, it does not expect significant revenues to be associated with this product in 2006.

Broadband

The Broadband segment no longer has any substantive, on-going operations. 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 for up to $129 million in cash and the assumption of certain long-term operating

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contractual commitments. On June 6, 2003 and June 13, 2003, this agreement was amended to, among other things, reduce the initial purchase price to $108.7 million (an estimated $91.5 million in cash and a $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, which was subsequently reduced to $82.7 million by virtue of agreed upon performance-related purchase price adjustments. On June 13, 2003, the Company effectively transferred control of the broadband business to the buyer.

Broadband revenue was $332.4 million, or 21%, of consolidated revenue in 2003. Broadband generated operating income of $344.5 million in 2003, or 50% of consolidated operating income, which included $336.7 million related to the gain on sale of the broadband assets. Operating income of $12.3 million and $10.7 million in 2005 and 2004 is primarily due to the adjustment of liabilities not assumed by the buyer and, in 2004, also due to the reduction of the indemnity liability as a result of the expiration of certain indemnities to the buyer.

Subsequent to the closing of the asset sale, the Broadband segment consists of certain liabilities not assumed by the buyer. Prior to the sale of the broadband assets, the Broadband segment generated revenue 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) and other services. BRCOM generally provided these transport and switched voice services over its 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’s Broadband segment revenue was zero in 2005 and 2004 and is expected to be zero going forward.

Employees

At February 28, 2006, the Company had approximately 2,900 employees. CBT had approximately 1,500 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 2008.

Business Segment Information

The amount of revenue, intersegment revenue, operating income (loss), assets, capital expenditures, and depreciation and amortization attributable to each of the Company’s business segments as of and for the years ended December 31, 2005, 2004, and 2003 is set forth in Note 14 to the Consolidated Financial Statements.

Item 1A.    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.

The Company has a substantial amount of debt and has significant debt service obligations. As of December 31, 2005 the Company had outstanding indebtedness of $2,084.7 million and a total shareowners’ deficit of $737.7 million. In addition, the Company had the ability to borrow additional amounts 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:

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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, that 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 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 reached 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.

Certain of the Company’s material subsidiaries are subject to 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 or making distributions to the Company, it would have a material adverse effect on the Company’s liquidity 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 and its subsidiaries, the Company’s creditors, 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 its credit facilities to provide for temporary financing requirements in excess of amounts generated by operations. The Company has a $250 million revolving credit facility with no outstanding borrowings and $6.4 million in letters of credit issued against the facility at December 31, 2005. 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 will constrain its ability to borrow under the credit facilities. As of December 31, 2005, the Company was in compliance with all of the covenants of its credit facilities.

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:

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

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

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. During the occurrence and continuance of a default under the credit facilities, the lenders may elect not to provide loans until such default is cured or waived. Additionally, if certain defaults occur, the lenders 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’s future cash flows could be adversely affected if it is unable to realize fully its deferred tax assets.

As of December 31, 2005, the Company had a net deferred tax asset of $680.6 million, which includes U.S. federal net operating loss carryforwards of approximately $611.7 million, state and local net operating loss carryforwards of approximately $205.6 million, deferred tax temporary differences and other tax attributes of $47.2 million, and valuation allowances of $183.9 million. The valuation allowances have been provided against certain state and local net operating losses and other deferred assets due to the uncertainty of the Company’s ability to utilize the assets within the statutory expiration period. For more information concerning the Company’s net operating loss carryforwards, deferred tax assets, and valuation allowance, see Note 12 to the Consolidated Financial Statements. If the Company is unable for any reason to fully realize its deferred tax assets, its business and future cash flows could be adversely affected.

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.

The telecommunications industry is very competitive. Either new entrants, such as cable companies, or existing competitors, attempting to respond to difficult market conditions, may reduce pricing, create new bundled offerings, or develop new, potentially disruptive technologies, products, and services. If the Company cannot continue to offer reliable, competitively priced, value-added services, or if the Company does not keep pace with technological advances, competitive forces could adversely affect it through a loss of market share or a

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decrease in revenue and profit margins. The Company has lost, and may continue to lose, access lines as a part of its customer base utilizes service of competitive wireline or wireless providers in lieu of the Company’s local wireline service. The Company also competes with voice over internet protocol (“VoIP”) providers as well as broadband service providers utilizing cable or powerline access technologies.

CBT faces competition from other local exchange carriers, wireless service providers, inter-exchange carriers, and cable, broadband, and Internet service providers. The Company believes CBT could face greater competition as new facilities-based service providers with existing service relationships with CBT’s customers compete more aggressively and focus greater resources on the Greater Cincinnati operating area. In June 2004, Time Warner Cable began offering VoIP and long distance service in both Cincinnati and Dayton. In July 2004, both AT&T and Verizon began offering VoIP and long distance service in Cincinnati and Dayton. Also, in July 2004, the local gas and electric supplier began offering high-speed Internet access over electrical lines to customers in limited neighborhoods of CBT’s operating area.

If the Company is unable to effectively implement strategies to retain access lines, the Company’s traditional telephone business will be adversely affected.

CBW is one of several active wireless service providers in the Cincinnati and/or Dayton, Ohio metropolitan market areas, including Cingular, Sprint Nextel, T-Mobile, Verizon, and Leap, all of which are nationally known and most are well funded. In addition, in 2005, Time Warner Cable announced a joint venture with Sprint Nextel to explore offering wireless services. The Company anticipates that continued competition could compress its gross margins for wireless products and services as carriers continue to offer more minutes for equivalent or lower service fees because CBW cannot offer more minutes without incremental costs. 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 Cingular’s acquisition of AWE and the merger of Sprint and Nextel, 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. Furthermore, wireless subscribers are permitted to retain their wireless phone numbers when changing to another wireless carrier within the same geographic area. The Company generally does not enter into long-term contracts with its wireless subscribers, and, therefore, this portability could have a significant adverse affect on the Company.

The Company’s other subsidiaries operate in a largely local or regional area, and each of these subsidiaries faces significant competition. CBTS competes against numerous other information technology consulting, web-hosting, and computer system integration companies, many of which are larger, national in scope, and better financed. CBAD competitors include large national long-distance carriers, such as AT&T, MCI, Sprint, and emerging VoIP providers, and wireless providers that offer plans with no additional fees for long distance. CBCP competes against national companies, such as ADT, and against local 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 popularity of wireless communications.

The effect of the foregoing competition on any of the Company’s subsidiaries could have a material adverse impact on its businesses, financial condition, results of operations, and cash flows. This could result in increased reliance on borrowed funds and could impact the Company’s ability to maintain its wireline and wireless networks.

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, 2005, capital expenditures totaled $143 million. The Company expects to spend approximately 12% of future revenue on capital expenditures in future periods, excluding any significant expenditures associated with the introduction of new products, services, or a major network or data center expansion. The Company may incur significant additional capital expenditures as a result of unanticipated developments, 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.

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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 licensed to CBW by the FCC. For its GSM network, CBW uses spectrum licensed to the Company and to Cingular. 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. Furthermore, the Company network depends upon the deployment of radio frequency equipment on towers and atop of buildings. The Company both owns and leases spaces on these towers and buildings and typically leases underlying land. There can be no assurance that spectrum or the appropriate radio frequency equipment locations will be available to CBW or will be available on commercially favorable terms. Failure to obtain or to retain any needed spectrum or radio equipment locations 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 Company’s 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, which may differ from the regulatory scrutiny faced by the Company’s competitors. A significant portion of CBT’s revenue is derived from pricing plans that require regulatory overview and approval. Different interpretations by regulatory bodies may result in adjustments to revenue in future periods. In recent years, these regulated pricing plans have required CBT to decrease or fix the rates it charges for some services while its competition has typically been able to set rates for its services with limited restriction. 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. In addition, different regulatory interpretations of existing regulations or guidelines may affect the Company’s revenues in future periods.

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 has impacted 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. Various regulatory decisions or initiatives at the federal or state level may from time to time have a negative impact on Cincinnati Bell Telephone’s ability to compete in territory or upon its out-of-territory subsidiary’s ability to compete in its markets.

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 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. No assurance can be given that 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, will not have a material adverse effect on the Company’s business, financial condition, results of operations, and cash flows.

Failure to anticipate the needs for and introduce new products and services or to compete with new technologies may compromise the Company’s success in the telecommunications industry.

The Company’s success depends, in part, on being able to anticipate the needs of current and future enterprise, carrier, and residential customers. The Company seeks to meet these needs through new product introductions, service quality, and technological superiority. The Company has implemented GSM technology for wireless communications and works with vendors to ensure the newest handsets and accessories are available to its customers. New products and services are important to the Company’s success as its industry is

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technologically driven, such that new technologies can offer alternatives to the Company’s existing services. The development of new technologies could accelerate the Company’s loss of access lines and 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 could incur significant costs resulting from complying with, or potential violations of, environmental, health, and human safety laws.

The Company’s operations are subject to laws and regulations relating to the protection of the environment, 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, 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 and other operations at our sites, the Company could incur significant costs resulting from complying with or violations of such laws, the imposition of cleanup obligations, and third-party suits. For instance, a number of the Company’s sites formerly contained underground storage tanks for the storage of used oil and fuel for back-up generators and vehicles. In addition, a few sites currently contain underground tanks for back-up generators, and many of the Company’s sites have aboveground tanks for similar purposes.

The Company could incur significant costs as a result of a number of putative class action and derivative lawsuits that were filed against the Company.

A number of putative class action and derivative lawsuits have been filed against the Company and certain of its current and former officers and directors, which allege a number of violations of securities laws. The Company is vigorously contesting these matters, but such litigation could result in substantial costs and have a material impact on the Company’s financial condition, results of operations, and cash flows. In February 2006, the Company settled one of these cases, its ERISA class action lawsuit, for $11 million, to be paid by its insurers (refer to Note 11 to the Consolidated Financial Statements). An adverse decision or settlement in any of the remaining cases could require the Company to pay substantial damages, which would have a material adverse effect on business and operations.

The Company generates substantially all of its revenue by serving a limited geographic area.

The Company generates substantially all of its revenue 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 flows compared to similar companies of a national scope and similar companies operating in different geographic areas.

Third parties may claim that the Company is infringing their intellectual property, and the Company could suffer significant litigation or licensing expenses or be prevented from selling products.

Although the Company does not believe that any of its products or services infringes the valid intellectual property rights of third parties, the Company may be unaware of intellectual property rights of others that may cover some of its technology, products or services. Any litigation growing out of third party patents or other intellectual property claims could be costly and time-consuming and could divert its management and key

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personnel from the business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Resolution of claims of intellectual property infringement might also require the Company to enter into costly license agreements. Likewise, the Company may not be able to obtain license agreements on acceptable terms. The Company also may be subject to significant damages or injunctions against development and sale of certain of its products. Further, the Company often relies on licenses of third party intellectual property useful for its businesses. The Company cannot ensure that these licenses will be available in the future on favorable terms or at all.

Third parties may infringe the Company’s intellectual property, and the Company may expend significant resources enforcing its rights or suffer competitive injury.

The Company’s success depends in significant part on the competitive advantage it gains from its proprietary technology and other valuable intellectual property assets. The Company relies on a combination of patents, copyrights, trademarks and trade secrets protections, confidentiality provisions and licensing arrangements to establish and protect its intellectual property rights. If the Company fails to successfully enforce its intellectual property rights, its competitive position could suffer, which could harm its operating results.

The Company’s pending patent and trademark registration applications may not be allowed, or competitors may challenge the validity or scope of its patents, copyrights or trademarks. Further, the Company may be required to spend significant resources to monitor and police its intellectual property rights. The Company may not be able to detect third party infringements and its competitive position may be harmed before the Company does so. In addition, competitors may design around the Company’s technology or develop competing technologies. Furthermore, some intellectual property rights are licensed to other companies, allowing them to compete with the Company using that intellectual property.

Uncertainty in the U.S. securities markets and adverse medical cost trends could cause the Company’s pension and postretirement costs to increase.

The Company’s pension and postretirement costs have increased in recent years, primarily due to a continued increase in medical and prescription drug costs. Investment returns of the Company’s pension funds depend largely on trends in the U.S. securities markets and the U.S. economy in general. In particular, uncertainty in the U.S. securities markets and U.S. economy could result in investment returns less than those previously assumed and a decline in the value of plan assets used in pension and postretirement calculations, which the Company would be required to recognize over the next several years under generally accepted accounting principles. Should the securities markets decline and medical and prescription drug costs continue to increase significantly, the Company would expect to face increasing annual combined net pension and postretirement costs. Refer to Note 8 to the Consolidated Financial Statements.

If the Company fails to extend or renegotiate its collective bargaining agreements with its labor union when they expire, or if its unionized employees were to engage in a strike or other work stoppage, the Company’s business and operating results could be materially harmed.

The Company is a party to collective bargaining agreements with its labor union, which represent a significant number of its employees. Although the Company believes that its relations with its employees are satisfactory, no assurance can be given that the Company will be able to successfully extend or renegotiate its collective bargaining agreements when they expire. If the Company fails to extend or renegotiate its collective bargaining agreements, if disputes with its union arise, or if its unionized workers engage in a strike or a work stoppage, the Company could experience a significant disruption of operations or incur higher ongoing labor costs, either of which could have a material adverse effect on the business.

Item 1B.    Unresolved SEC Staff Comments

None.

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Item 2.    Properties

Cincinnati Bell Inc. and its subsidiaries own or maintain telecommunications facilities in three states. Principal office locations are in Cincinnati, Ohio.

The property of the Company is principally comprised of telephone plant and equipment in its local telephone franchise area (i.e., Greater Cincinnati), and the infrastructure associated with its wireless business in the Greater Cincinnati and Dayton, Ohio operating areas. Each of the Company’s subsidiaries maintains some investment in furniture and office equipment, computer equipment and associated operating system software, application system software, leasehold improvements, and other assets. Facilities equipment and access circuits leased as part of an operating lease arrangement are expensed as equipment or services are used.

With regard to its local telephone operations, substantially all of the central office switching stations are owned and situated on land owned by the Company. Some business and administrative offices are located in rented facilities, some of which are recorded as capitalized leases. With regard to its wireless operations, CBW both owns and leases the locations which house its switching and messaging equipment. It owns approximately 50% of the tower structures and leases almost all of the land upon which its radio base stations reside. CBW leases space primarily from other wireless carriers or tower companies for the remaining tower sites and its ground leases are typically renewable at CBW’s option with predetermined rate escalations. CBTS operates three data centers – two owned and one leased – in Ohio and Kentucky through which it provides 24-hour monitoring, redundant power, environmental controls, and high-speed, highly-available optical network connections to its customers.

The Company’s gross investment in property, plant, and equipment was $2,509.1 million and $2,583.4 million at December 31, 2005 and 2004, respectively, and was divided among the operating segments as follows:

For additional information about the Company’s properties, see Note 4 to the Consolidated Financial Statements that are contained in Item 8 of this Report on Form 10-K.

Item 3.    Legal Proceedings

The information required by this Item is included in Note 11 to the Consolidated Financial Statements that are contained in Item 8 of this Report on Form 10-K.

Item 4.    Submission of Matters to a Vote of the Security Holders

None.

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PART II

Item 5.    Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

The Company’s common shares (symbol: CBB) are listed on the New York Stock Exchange and on the National Stock Exchange. As of February 28, 2006, there were 72,924 holders of record of the 247,125,771 outstanding common shares of the Company. The high and low daily closing prices during each quarter for the last two fiscal years are listed below:

Dividends

The Company does not currently intend to pay dividends on its common shares and is furthermore restricted in its ability to pay dividends pursuant to certain covenants in its various debt agreements. Refer to Note 6 to the Consolidated Financial Statements.

Issuer Purchases of Equity Securities

The following table provides information regarding the Company’s purchases of its common stock during the year ended December 31, 2005:

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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.

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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,” should be read in conjunction with the “Private Securities Litigation Reform Act of 1995 Safe Harbor Cautionary Statement,” “Risk Factors,” and the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements.

Executive Summary

Cincinnati Bell Inc. (the “Company”) 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 and wireless networks with a well-regarded brand name and reputation for service. The Company has five reportable business segments: Local, Wireless, Hardware and Managed Services, Other, and Broadband. The Broadband segment no longer has any substantive, on-going operations.

In 2005, the Company continued to make progress on its primary objectives, which were to: (1) reduce indebtedness, (2) defend its core franchise against increasing competition, and (3) add to the Company’s growth businesses.

Reduce indebtedness

The Company reduced total indebtedness by 3%, from $2,141.2 million at December 31, 2004 to $2,084.7 million at December 31, 2005, primarily with operating cash flows. This reduction is net of an $82.8 million increase to debt from the $55.1 million repayment premium on the 16% Senior Subordinated Discount Notes due 2009 (the “16% Notes”) and the $27.7 million write-off of debt discounts on those notes. The repayment of the 16% Notes was funded with the proceeds from a $400 million term loan issued under the new corporate credit facility and borrowings under its revolving line of credit. Because of the lower interest rates on the Company’s corporate credit facility as compared to the 16% Notes, the Company’s cash payment for interest expense will be reduced by approximately $20 million to $25 million annually, and its interest expense will be reduced by $45 million to $50 million annually.

Defend the core franchise against increasing competition

The Company defended its core franchise through bundling, adding 27,000 net subscribers to its Custom Connections^SM “Super Bundle” which offers local, long distance, wireless, DSL, and the Company’s value-added service package, Custom Connections^®, on a single bill at a price lower than the amount the customer would pay for all of the services individually. The Company finished the year with 150,000 Super Bundle subscribers, 22% more than at the end of 2004. Total access lines declined by 4% versus 2004, in line with Company expectations given wireless substitution and other competitive factors. The Company believes that its Super Bundle customers are less likely to disconnect existing services and change services to a competitor.

Add to growth businesses

The Company increased data revenues in the Local segment by $15.3 million primarily as a result of an addition of 32,000 Digital Subscriber Line (DSL) subscribers. The Company finished the year with 163,000 DSL subscribers, an increase of 24% over 2004. Penetration of its DSL product increased to 22% of addressable access lines.

The Company increased wireless subscribers from 481,000 at December 31, 2004 to 496,000 at December 31, 2005. The Company experienced particularly strong subscriber growth in its fourth quarter in 2005, increasing its subscribers by 23,000 in this quarter. The increase was the Company’s largest increase in wireless subscribers in any quarter since the fourth quarter of 2001, which the Company believes is a result of continued improvements to its wireless network’s service quality and the introduction of more attractive rate plans. The Company’s postpaid subscriber churn improved from 2.8% in the fourth quarter of 2004 to 1.8% in the fourth quarter of 2005.

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The Company opened a new data center facility in 2005, increasing the Company’s managed service and hardware revenues. Sales of information technology (“IT”) and computer-related hardware totaled $80.2 million during 2005, which was a 55% increase over 2004 hardware sales.

Results of Operations

Consolidated Overview

The financial results for 2005, 2004, and 2003 referred to in this discussion should be read in conjunction with the Consolidated Statements of Operations and Note 14 to the Consolidated Financial Statements.

2005 Compared to 2004

Consolidated revenue totaled $1,209.6 million in 2005, an increase of $2.5 million, compared to 2004. The increase was primarily due to the following:

Operating income for 2005 was $258.8 million, a decrease of $40.5 million compared to 2004. The decrease was primarily due to the following:

The minority interest caption relates to the 19.9% minority interest of Cingular in the net income of Cincinnati Bell Wireless LLC . The TDMA asset impairment charges discussed above gave rise to CBW losses in 2005, and the minority interest income add back of $11.0 million in 2005 represents Cingular’s portion of the CBW losses. As a result of the Company’s purchase of Cingular’s 19.9% interest in CBW on February 14, 2006, the Company will recognize minority interest expense or income through this date of purchase, but no further minority interest expense or income will be recorded after this date as CBW will be wholly-owned.

Interest expense decreased to $184.4 million for 2005 compared to $203.3 million in 2004. This decrease is primarily a result of the net decrease of $16 million from the extinguishment of the 16% Notes in August 2005, partially offset by interest on the corporate credit facility, which funded the repayment of the 16% Notes.

The loss on extinguishment of debt of $99.8 million for 2005 was comprised of a $91.9 million loss related to the repurchase of the 16% Notes and $7.9 million associated with the repayment of previously existing credit facilities. See Note 6 to the Consolidated Financial Statements for further details.

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Income tax expense was $54.3 million for 2005. Although the Company had pre-tax losses for the year, income tax expense results from legislation that the state of Ohio passed on June 30, 2005 instituting a gross receipts tax and phasing out Ohio’s corporate franchise and income tax over a 5 year period. As a result of this legislation, the Company no longer expects to realize state income tax benefits associated with $47.5 million of deferred tax assets previously recorded. Therefore, the Company reduced deferred tax assets and increased income tax expense by $47.5 million in 2005. Additionally, the Company had non-deductible expenses including interest on securities originally issued to acquire its broadband business (the “Broadband Securities”) or securities that the Company has subsequently issued to refinance the Broadband Securities. As a result of these items, the Company recorded income tax expense of $54.3 million even though it had a loss before income taxes of $10.2 million. For the future, the Company expects its effective tax rate to exceed statutory rates primarily due to the non-deductible expenses associated with the Broadband Securities. The Company used federal and state net operating loss carryforwards to substantially defray payment of federal and state tax liabilities in 2005. As a result, the Company had net federal and state cash tax payments of $2.1 million during the year.

In February 2006, the Kentucky Revenue Cabinet issued state tax regulation, which may limit the Company’s ability to use its state net operating loss carryforwards against future state taxable income. The Company expects this will result in a one-time income tax charge of approximately $4 million in the first quarter of 2006.

2004 Compared to 2003

Consolidated revenue totaled $1,207.1 million in 2004, which was $350.7 million, or 23%, less than 2003. Foregone revenue associated with disposed broadband assets is the primary reason that 2004 revenue has declined. Revenue of the Broadband segment, which no longer generates any revenue, decreased $332.4 million (or $302.1 million net of intercompany eliminations) in 2004 compared to 2003. Related to the sale of its assets, which were located outside of the Company’s local telephone or wireless operating territories, the Company estimates that revenue in its HMS segment decreased approximately $33.4 million in 2004. Also, revenue in the Local segment declined $12.8 million during 2004 as data revenue growth from DSL transport and dial-up Internet access only partially offset declines in voice revenue.

Operating income for 2004 was $299.3 million. Operating income in 2003 was $684.0 million, which includes a gain on the sale of broadband assets of $336.7 million. The decrease in operating income from 2003 to 2004 was primarily due to the following:

Minority interest income of $0.5 million in 2004 relates to the 19.9% minority interest of Cingular in the net income of CBW. This compares to minority interest expense of $42.2 million in 2003 as a result of a

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$32.0 million decline resulting from the exchange of the 12 ¹/2% Junior Exchangeable Preferred Stock of BRCOM (the “12 ¹/2% Preferreds”) for common stock of the Company in September 2003 and a decline in the net income of CBW.

Interest expense of $203.3 million in 2004 decreased $14.5 million compared to 2003. This was primarily the result of an $8.4 million reduction in amortization of note issuance costs related to the prepayment of the Company’s credit facilities in 2003, and $6.1 million of lower interest expense primarily due to the net of approximately $531.0 million reduced average debt outstanding offset partially by the issuance of the $500.0 million 7 ¹/4% Notes in July 2003 and the issuance of the 16% Notes.

The Company recorded a loss on extinguishment of debt of $17.6 million in 2003. The loss is comprised of $17.4 million from retirement of the remaining $46 million of BRCOM 9% notes and related accrued interest of $1.6 million 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. Additionally, the Company wrote off $16.4 million of deferred financing costs related to the prepayment and amendments of the Company’s credit facilities. These losses were offset by a non-cash gain of $16.2 million from the Company purchasing all of its 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 Company had income tax expense of $36.1 million in 2004 compared to a benefit of $828.8 million in 2003. The increase in expense is primarily the result of the fourth quarter 2003 reversal of the Company’s deferred income tax valuation allowance as a result of the substantial resolution of uncertainties related to BRCOM’s liquidity. The effective income tax rate in 2004 is 36%, which differs from the federal statutory rate primarily due to the effects of certain non-deductible interest expense amounts, benefits from the reduction of certain state deferred tax valuation allowances and recurring state income tax expenses. The Company used $25.2 million of federal and state operating loss tax carryforwards in 2004 to defray payment of the majority of its federal and state tax liabilities. The Company paid $2.3 million in federal and state tax liabilities during 2004.

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 to the Consolidated Financial Statements for a detailed discussion of the adoption of SFAS 143.

Discussion of Operating Segment Results

The Company realigned its business segments in 2004. CBTS, a data equipment and managed services subsidiary, was previously reported in the Broadband segment and is now reported in the Hardware and Managed Services segment. Additionally, the sale of telephony equipment of CBT and its associated installation and maintenance business, previously reported in the Local segment, is now included in the HMS segment. Accordingly, the historical results of operations of the Local, HMS, and Broadband segments have been recast to reflect the current segment reporting.

Local

The Local segment provides local voice telephone service, including enhanced custom calling features, and data services, which include dedicated network access, Gigabit Ethernet and Asynchronous Transfer Mode based data transport, and DSL and dial-up Internet access, to customers in southwestern Ohio, northern Kentucky, and southeastern Indiana. These services are provided primarily by CBT, which operates as the Incumbent Local Exchange Carrier (“ILEC”) in its operating territory of an approximate 25-mile radius of Cincinnati, Ohio. CBT’s network has full digital switching capability and can provide data transmission services to approximately 90% of its addressable access lines via DSL.

Outside of its ILEC territory, the Local segment provides these services through Cincinnati Bell Extended Territories LLC (“CBET”), which operates as a competitive local exchange carrier (“CLEC”) both in the communities north of CBT’s operating territory and in the greater Dayton market. CBET provides voice services for residential as well as voice and data services for business customers on its own network and by purchasing UNE-L’s or UNE-platform from the ILEC. CBET provides service through UNE-L to its customer base in the

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Dayton, Ohio market. The Local segment links its Cincinnati and Dayton geographies through its fiber networks, which provides route diversity via two separate paths.

2005 Compared to 2004

Revenue

Voice revenue, which includes local service, switched access, information services and value added services revenues decreased by $19.4 million versus 2004 as a result of a 4% decrease in local service access lines as well as the loss of value added services revenue.

Access lines within the segment’s ILEC territory decreased by 47,000, or 5%, from 940,000 at December 31, 2004 to 893,000 at December 31, 2005, which the Company believes results from several factors including customers electing to use wireless communication (“wireless substitution”) in lieu of the traditional local service, Company-initiated disconnections of customers with credit problems, and customers electing to use service from other providers. The Company has partially offset its access line loss in its ILEC by targeting voice services to residential and small business customers in Dayton, Ohio. The Company had 38,000 total access lines outside its ILEC service territory at December 31, 2005, a 25% increase from the prior year.

Data revenue consists of data transport, high-speed Internet access (including DSL), dial-up Internet access, digital trunking, and Local Area Network (“LAN”) interconnection services. The increase in data revenue of $15.3 million for 2005 as compared to 2004 is due to higher DSL revenue and data transport revenue. An increase in average DSL subscribers of 32,000, partially offset by a slightly lower average rate per subscriber, produced an additional $11.1 million in revenue for 2005 as compared to 2004. Also, data transport revenues were $6.6 million higher in 2005 as compared to 2004. These increases were partially offset by a decrease of $2.0 million in dial-up internet revenues, attributable to both a decrease in rate and average subscribers, as dial-up customers migrate to DSL. As of December 31, 2005, the Company’s DSL penetration of addressable access lines was approximately 22%, up from 17% at December 31, 2004.

The Company believes its rate of access line loss would have been greater and its increase in DSL subscribers would have been less without the success of its Custom Connections^SM “Super Bundle.” The Company added 27,000 Super Bundle subscribers during 2005, bringing total subscribership to 150,000, of which 143,000 were consumer ILEC subscribers, a 26% penetration of access lines. The Company’s Super Bundle offers local, long distance, wireless, DSL, and the Company’s value-added service package, Custom Connections^®, on a single bill at a price lower than the amount the customer would pay for all of the services individually. An aggressive marketing campaign and the favorable bundled pricing associated with Custom Connections^SM “Super Bundle” has increased the demand for the Company’s ZoomTown DSL offering, which

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added 32,000 subscribers in 2005, growing 24% compared to December 31, 2004, to 163,000 subscribers. As a result of this growth, total lines to the customer (defined as access lines plus DSL subscribers) as of December 31, 2005 decreased only slightly compared to December 31, 2004, and revenue per household increased 3% to $48.73.

Costs and Expenses

Cost of services and products increased by $15.9 million for 2005 versus 2004 primarily due to the following:

Selling, general and administrative expenses decreased $1.1 million compared to 2004. Higher costs of $4.5 million for pension, postretirement and employee medical expenses were more than offset by lower advertising costs of $2.4 million, lower labor and other employee costs, and lower consulting fees.

Depreciation expense decreased $9.0 million in 2005 compared to 2004. The decreases were primarily due to changes in depreciation rates in the fourth quarter of 2004 used as a result of updated estimates of the depreciable assets’ useful lives.

In 2004, the Company initiated a restructuring to improve operating efficiencies and reduce operating expenses resulting in a charge of $10.4 million. The Company incurred a $1.5 million charge in 2005 related to the outsourcing of its directory assistance services. See Note 3 to the Consolidated Financial Statements for further discussion.

2004 Compared to 2003

Local service revenue of $761.7 million during 2004 decreased 2%, or $12.8 million, compared to 2003. Revenue declines related to access line losses were partially offset by DSL revenue growth.

Voice revenue of $519.8 million in 2004 decreased 3%, or $16.8 million, compared to 2003. Local service revenue declined $11.9 million as a result of both fewer access lines in service, which declined 1.6% from 986,000 at December 31, 2003 to 970,000 at December 31, 2004, and a 1% lower average revenue per line. The lower average revenue per line is the result of selected price discounts to enterprise customers and certain rate plans related to the service launch in Dayton, Ohio.

Access lines within the segment’s ILEC territory decreased 37,000, or 4%, from 977,000 to 940,000. The majority of this decrease is a 21,000 decrease in residential access lines, which the Company believes is primarily due to customers electing to use wireless communication (“wireless substitution”) in lieu of the traditional local service. In March 2004, the Company expanded its product suite in Dayton, Ohio and began to mass market voice services to residential and small business customers. This helped to increase CLEC access lines by 21,000 lines during 2004, bringing total access lines outside its ILEC service territory to 30,000, which is 3% of its total access lines at December 31, 2004.

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Voice revenues also declined $3.1 million as a result of decreases in trunking revenue and $1.4 million as a result of decreases in value added services revenue due to price decreases to consumers and small businesses provided within the Company’s Custom Connections^SM “Super Bundle.”

Data revenue in 2004 was $203.9 million, representing a $7.6 million, or 4%, increase compared to 2003. Internet-based revenue, high-speed DSL and dial-up access increased $11.0 million in 2004 primarily driven by a 31,000 increase in DSL subscribers, which were 131,000 at December 31, 2004. As of December 31, 2004, 89% of CBT’s access lines in its incumbent local exchange operating territory were loop-enabled for DSL transport with a penetration of approximately 17% of total access lines, up from 13% at December 31, 2003. Other high speed/high capacity data services such as transport, digital trunking, LAN, and customized services revenue decreased $2.5 million in 2004 as a result of both competitive pressures and regulatory-mandated price decreases for wholesale services sold to other telecommunications providers.

The Company believes that its rate of access line loss would have been greater and its increase in DSL subscribers would have been less without the success of its Custom Connections^SM “Super Bundle.” The Company added 52,000 new, Super Bundle subscribers in 2004, to reach a total of 123,000, a 73% increase compared to December 31, 2003. At December 31, 2004, 20% of CBT’s primary residential, ILEC access lines were in a Super Bundle. Also, as a result of its success, the Local segment in-territory revenue per consumer household (local revenue divided by average primary access lines) increased by $0.88, or 2%, to $47.49 in 2004 compared to $46.61 in 2003.

Other services revenue of $38.0 million during 2004 decreased $3.6 million compared to 2003, primarily as a result of a decrease in wiring revenue.

Costs and Expenses

Cost of services and products decreased $12.0 million, or 5%, to $220.2 million in 2004 compared to 2003. The decrease was primarily due to a decline in operating taxes of approximately $7.4 million, of which $6.8 million relates to a change in Ohio law. CBT was no longer subject to franchise taxes based on gross receipts, but instead was subject to state and local income tax and included in the combined Ohio state income tax return with other Cincinnati Bell operating companies. See “Accounting for Taxes” in the “Critical Accounting Policies and Estimates” section for discussion of Ohio tax legislation passed in June 2005 that will impact future state income tax expense and operating tax expense. Additionally, cost of goods sold and material costs declined $1.6 million during 2004 related to lower material costs associated with the decrease in wiring revenue compared to 2003.

Selling, general and administrative expenses increased 5%, or $6.0 million, to $134.8 million in 2004. This increase was due to an additional $4.2 million of advertising and promotional expense related to a 25% increase in DSL gross additions and 26,000 gross additions in Dayton local customers.

Total labor and related expense decreased $2.5 million, or 1%, as compared to 2003 primarily as a result of a $2.4 million curtailment charge in 2003 related to the sale of substantially all of the broadband assets. A 2% reduction in CBT’s headcount also helped to keep labor costs otherwise relatively flat.

Depreciation expense of $117.2 million decreased $8.5 million, or 7%, in 2004 compared to 2003, due to a decrease in depreciable assets and reduced capital spending.

Restructuring charges during 2004 of $10.4 million were $5.9 million higher than 2003. For further description and purpose of these restructuring charges, please refer to Note 3 to the Consolidated Financial Statements.

Wireless

The Wireless segment provides advanced digital, voice and data communications services through the operation of a regional wireless network in a licensed service territory, which surrounds Cincinnati and Dayton, Ohio and includes areas of northern Kentucky and southeastern Indiana. The segment offers service outside of its regional operating territory through wholesale and re-sale arrangements (“roaming agreements”) with other wireless operators. The segment also sells related telecommunications equipment, wireless handset devices and related accessories to support its service business.

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The Wireless segment consists of CBW, which was historically a joint venture with Cingular Wireless Corporation PCS, LLC (“Cingular”), in which the Company owned 80.1% of CBW while Cingular owned the remaining 19.9%. On February 14, 2006, the Company purchased Cingular’s interest such that CBW is now a wholly-owned subsidiary.

Since October 2003, CBW has deployed service on both TDMA and GSM networks. As of December 31, 2005, CBW had transitioned more than 80% of its subscribers to GSM technology, which provides voice communication, short message service (“SMS”) or text messaging, and enhanced data communication services, such as mobile web browsing, internet access, email, and picture messaging. In the first quarter of 2005, the Company completed its upgrade to enhanced data rates for GSM evolution (“EDGE”), which required only software upgrades to deliver higher speeds of data transmission and capacity. The Company expects to discontinue the use of its TDMA network during 2006.

2005 Compared to 2004

Revenue

Service revenue decreased by $27.2 million in 2005 as compared to 2004. This decrease is primarily attributed to the following:

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Total wireless subscribers at December 31, 2005 were approximately 496,000, which represents approximately 15% of the population in CBW’s licensed operating territory.

Equipment revenue increased by $3.0 million as the Company sold 41,000 more handsets during 2005 as compared to 2004 as 26,000 more TDMA customers migrated to the Company’s GSM network.

Costs and Expenses

Cost of services and products consists largely of network operation costs, roaming expense (whereby CBW incurs costs associated with its subscribers using their handsets while in the territories of other wireless service providers), interconnection expenses, and cost of handsets and accessories sold. The decrease in costs of services of $3.9 million compared to 2004 was due to lower roaming expense of $8.9 million resulting from the renegotiation of rates with Cingular noted above, partially offset by $1.9 million of higher handset and accessory costs related to the equipment revenue increase and $2.5 million of higher operating taxes.

Selling, general and administrative expenses include certain customer acquisition expenses, such as advertising, distribution and promotional expenses. These expenses were flat as compared to 2004. Increases in advertising and promotional expenses of $2.9 million were offset by decreased fees for outsourced services as a result of better negotiated rates and lower legal claim costs for the roaming litigation that was incurred in 2004. Refer to Note 11 to the Consolidated Financial Statements.

In 2005, the Company further revised its estimate of the remaining useful lives of certain of the TDMA assets, resulting in additional depreciation. The depreciation increase for 2005 versus 2004 results from the accelerated depreciation on TDMA assets as well as on certain GSM assets that were replaced in late 2005 as part of the Company’s continued initiative to improve GSM network quality.

The Company incurred charges of $42.3 million in 2005 to write down the recorded value of its TDMA network assets. A portion of the TDMA assets were taken out of service in 2005 in order to optimize the remaining spectrum associated with TDMA assets. This resulted in a charge of $23.7 million. Additionally, an asset impairment charge of $18.6 million was incurred to write down to fair value the remaining TDMA assets in use. Due to the rapid migration of TDMA subscribers to the Company’s GSM network and lower ARPU associated with the remaining TDMA customers, the remaining future cash flows associated with the TDMA assets could no longer support the recorded value of the TDMA assets, resulting in the impairment charge. After the charges, the book value of TDMA network assets was less than $1 million at December 31, 2005. The Company expects to discontinue its TDMA network in 2006. Asset impairment charges in 2004 were recorded to write-down certain TDMA assets taken out of service and certain intangible assets.

Amortization expense in 2004 was a result of accelerated amortization related to the change in estimated economic useful life of certain roaming and trade name agreements as a result of the merger between Cingular and AT&T Wireless Services on October 26, 2004.

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2004 Compared to 2003

Revenue

Wireless segment revenue increased $2.2 million, or 1%, to $261.7 million during 2004 compared to 2003. Equipment revenue increased $6.6 million in 2004 primarily due to a 27% increase in new service activations and 17% of CBW’s existing TDMA customers purchasing new handsets to switch their service to the Company’s new GSM service. This increase in equipment revenue offset a $3.6 million decrease in roaming revenue and a $0.8 million decrease in CBW subscriber service revenue.

CBW’s roaming revenue declined primarily as a result of a 20% decrease in average revenue per roaming minute as a greater amount of AWE roaming traffic used lower priced GSM minutes than in 2003. Total roaming revenue equaled $13.0 million in 2004.

Subscriber service revenue declined $0.8 million as a result of a $3.8 million postpaid service revenue decrease more than offsetting a $3.0 million increase in prepaid service revenue. Postpaid revenue decreased as a result of a 5,600 decrease in subscribers, driven primarily by an average monthly customer churn which increased to 2.6% in 2004 compared to 1.8% in 2003, and a $0.50 decrease in postpaid ARPU, excluding roaming revenue, from $51.42 in 2003 to $50.92, which is in part the result of customer migrations to lower priced GSM rate plans. The Company believes that the increase in postpaid churn during the year is the result of a combination of factors, most notably network quality issues created by CBW’s network migration. At December 31, 2004 CBW had 306,300 postpaid subscribers.

Prepaid service revenue increases were largely the result of increased subscribers. As of December 31, 2004, prepaid subscribers totaled approximately 174,700, a 12,200 increase over December 31, 2003. Likely a result of both the aforementioned network quality issues as well as unmeasured TDMA customer migrations to the new GSM network, average monthly prepaid customer churn increased to 6.1% in 2004 compared to 4.9% in 2003. Total wireless subscribers at December 31, 2004 were approximately 481,000, or approximately 14% of the population in CBW’s licensed operating territory.

Data revenue of $14.7 million increased $5.6 million, or 62%, from $9.1 million as compared to 2003. Data revenue is 6% of total revenue.

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. WLNP did not have any significant impact in 2004.

Costs and Expenses

Cost of services and products increased $22.7 million, or 21%, to $133.2 million in 2004 compared to the prior year. The increase was due largely to an $18.0 million increase of costs associated with increased handset subsidies, which supported both a 27% increase in new gross customer additions as well as the migration of 17% of the Company’s legacy TDMA customers to its new GSM network.

In the fourth quarter of 2004, CBW recorded a $3.2 million adjustment related to prior periods to account for certain rent escalations associated with its tower site leases on a straight-line basis. These rent escalations are associated with lease renewal options that were deemed to be reasonably assured of renewal, thereby extending the initial term of the leases. The adjustment was not considered material to the current year or to any prior years’ earnings, earnings trends, or individual financial statement line items. Additionally, customer service expense increased $2.4 million as a result of increased customer contacts, driven by the GSM migration and quality issues, which was offset by a decrease in incollect expense of $4.7 million. Lower incollect expense was the result of a 20% decrease in the average cost per roaming minute of which a greater percentage was on the lower priced GSM network.

Selling, general, and administrative expenses of $56.5 million increased by $6.5 million, or 13%, in 2004, primarily as a result of a $3.3 million increase in advertising and promotional expense to support the 27% increase in new customer gross additions.

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Depreciation expense of $58.3 million increased $20.0 million in 2004 compared to 2003. The increase was a result of $20.6 million in additional depreciation related to the change in estimated economic useful life of the TDMA network to December 31, 2006.

Amortization expense of $9.1 million increased $8.6 million in 2004 compared to 2003. The increase was a result of $7.4 million in accelerated amortization related to the shortened, estimated economic useful lives of certain AWE roaming and trade name agreements, as a result of the merger between Cingular Wireless and AWE, consummated on October 26, 2004.

Asset impairment charges of $5.9 million in 2004 were comprised of $3.5 million recorded to write-down certain TDMA assets, which CBW removed from service, and a $2.4 million asset impairment charge related to certain intangible assets.

Hardware and Managed Services

The Hardware and Managed Services segment provides data center collocation, IT consulting services, telecommunications and computer equipment as well as related installation and maintenance. The Hardware and Managed Services is comprised of the operations within CBTS. In March 2004, CBTS sold certain operating assets, which were generally residing outside of the Company’s operating area, for approximately $3.2 million in cash. During the second quarter of 2004, CBTS paid $1.3 million to the buyer of the assets in working capital adjustments related to the sale.

2005 Compared to 2004

Revenue

Hardware revenue is generated by the reselling of major manufacturers’ IT, data and telephony equipment. Managed services revenue consists of the sale of outsourced technology resources, leveraging assets within the Company, including but not limited to data center assets, and revenue of technical services and maintenance directly related to the sale of IT, data and telephony equipment. The CBTS business model links the capability to sell a wide range of equipment from various manufacturers along with the Company’s technical and infrastructure capability to offer complete technology solutions for the small, medium, and large business customer.

In March 2004, CBTS sold certain out-of-territory operations, which negatively impacted 2005 hardware revenue by $20.7 million. This decrease was more than offset by increased hardware sales from core CBTS operations. This increase in core CBTS hardware sales was due to a $49.1 million increase in IT and computer-related hardware revenue, resulting primarily from increased hardware revenue from data center customers. CBTS expanded its data center business with the purchase of its Mason, Ohio data center in late 2004 and the

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opening of its Florence, Kentucky data center in June 2005. The increased hardware sales were for equipment used in CBTS data centers as well as for equipment to be used at customer facilities. Higher revenue for the sale of telephony and other equipment accounted for the remaining increase in 2005.

The newly operational data centers and increased hardware sales directly contributed to an increase of $13.7 million in managed and data center services revenue in 2005, partially offset by decreased revenues of $3.5 million related to the sale of out-of-territory offices and lower professional services revenue of $3.9 million. Data center service revenue increased in 2005 as a result of the Florence facility opening in 2005 and the Mason facility being operational for a full year, in addition to increased revenue generated from services provided to CBTS data center customers outside of CBTS facilities.

Costs and Expenses

Cost of services and products increased for 2005 by $34.8 million as compared to 2004. Higher sales from IT and computer-related hardware and telephony hardware through core CBTS operations caused an increase to cost of goods sold of $44.6 million and $1.9 million, respectively, which was partially offset by a decrease of $19.8 million related to the sale of out-of-territory operations. Operational costs of the new data center facilities increased $5.7 million in 2005 as both facilities were running during 2005, and managed services costs increased $7.2 million related to higher revenue. These increases in 2005 were partially offset by lower professional services costs and lower operating costs due to the sale of out-of-territory operations.