Earthlink 2015 Annual Report Download - page 15

Table of Contents
arbitrate interconnection agreements between the incumbent carriers and competitive carriers such as us when requested by one of the parties. Under the
Telecommunications Act, the decisions of state PUCs with regard to interconnection disputes may be appealed to federal courts. There remain important
unresolved issues regarding the extent to which the commissions will adopt policies that promote local telephone service competition.
States also regulate in part the intrastate carrier access services of carriers like us. As an interexchange carrier (“IXC”), we are required to pay intrastate access
charges to local exchange carriers when they originate or terminate our intrastate long distance 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.
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