Earthlink 2014 Annual Report Download - page 17

Table of Contents
traffic. As a CLEC, we charge IXCs intrastate access charges for the origination and termination services we provide to them. Under the FCC's
November 2011 order, state commissions will have oversight of the intrastate access charge transition process to ensure that carriers comply with
the FCC's timing and required reductions. States will continue to review intrastate switched access tariffs, as well as interconnection agreements
and associated reciprocal compensation rates, to ensure compliance with the FCC's intercarrier compensation framework and transition. States
may also have responsibility for determining the network “edge” for purposes of bill-and-
keep agreements. What these proceedings may entail
or to what extent requirements arising from such proceedings will affect our operations is unclear.
In addition, state legislatures are considering, and in some cases enacting, new laws that limit the authority of the state PUCs to regulate and
oversee the business dealings of carriers. We could be harmed by these actions.
We will be affected by how states regulate the retail prices of the incumbent carriers with which we compete. As the degree of intrastate
competition is perceived to increase, states are offering incumbent carriers increased pricing flexibility and deregulation of services deemed to be
competitive. This flexibility and deregulation may present the incumbent carriers with an opportunity to subsidize services that compete with our
services with revenues generated from their non-
competitive services, thereby allowing them to offer competitive services at prices lower than
most or all of their competitors. For example, some ILECs have obtained authority to create affiliates that operate on a much less regulated basis
and, therefore, could provide significant competition in addition to the local services historically offered by more regulated entities. We cannot
predict the extent to which these developments may affect our business.
Many states require prior approval for transfers of control of certified carriers, corporate reorganizations, acquisitions of telecommunications
operations, assignment of carrier assets, carrier stock offerings and incurrence by carriers of significant debt obligations. These requirements can
delay and increase the cost we incur to complete various financing transactions, including future stock or debt offerings, the sale of part or all of
our regulated business or the acquisition of assets and other entities to be used in our regulated business.
Local Government Authorizations and Related Rights
-of-Way
We are subject to numerous local regulations such as building codes, municipal franchise requirements and licensing. Such regulations vary on a
city-by-city and county-by-
county basis and can affect our provision of both network services and carrier services. We are required to obtain
street use and construction permits and licenses or franchises to install and expand our fiber optic network using municipal rights-of-
way. In
some municipalities where we have installed network equipment, we are required to pay license or franchise fees based on a percentage of gross
revenues or a per linear foot basis. Following the expiration of existing franchises, these fees are at risk of increasing. In many markets,
incumbent carriers do not pay these franchise fees or pay fees that are substantially lower than those required to be paid by us, although the
Telecommunications Act requires that, in the future, such fees be applied in a competitively neutral manner. To the extent that our competitors
do not pay the same level of fees that we do, we could be at a competitive disadvantage. Termination of the existing franchise or license
agreements before their expiration dates, or a failure to renew the franchise or license agreements, and a requirement that we remove the
corresponding portion of our facilities or abandon the corresponding portion of our network, could harm our business. In addition, we would be
adversely affected if we are unable to obtain additional authorizations for any new network construction on reasonable terms.
A number of states are considering reforming their laws and regulations governing the issuance of franchises and permits by local governmental
authorities, and some states already have enacted laws authorizing some types of entities to secure a state-
wide franchise. Congress also has
considered from time to time, and may consider in the future, various proposals intended to reform the relationship between federal, state and
local governments in connection with the franchising process. We cannot predict how these issues will be resolved, or the extent to which these
developments will affect our ability to compete. Unresolved issues also exist regarding the ability of new local service providers to gain access to
commercial office buildings to serve tenants. The outcome of these challenges cannot be predicted.
Other Regulation
Internet Taxation.
The Internet Tax Non-
Discrimination Act places a moratorium on taxes on Internet access and multiple, discriminatory taxes
on electronic commerce. Congress passed an extension on the tax moratorium through October 1, 2015 as a stopgap and may consider more
conclusive action in 2015. Certain states have enacted various taxes on Internet access and electronic commerce, and selected states' taxes are
being contested on a variety of bases. If these state tax laws are not successfully contested, or if future state and federal laws imposing taxes or
other regulations on Internet access and electronic commerce are adopted, our cost of providing Internet access services could be increased and
our business could be adversely affected.
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