FairPoint Communications 2004 Annual Report Download - page 19

charge for intrastate services, including rates for intrastate access services paid by providers of intrastate long distance services. Although the
Federal Communications Commission has preempted certain state regulations pursuant to the Telecommunications Act, states have
retained authority to impose requirements on carriers necessary to preserve universal service, protect public safety and welfare, ensure
quality of service and protect consumers. For instance, incumbent local exchange carriers must file tariffs setting forth the terms, conditions
and prices for their intrastate services, and such tariffs may be challenged by third parties. From time to time, states conduct rate cases or
"earnings" reviews. These reviews may result in the disallowance of certain investments or expenses for ratemaking purposes. We currently
have "earnings" reviews of our rates being conducted in Idaho, New York (including with respect to deferred pension assets) and Vermont.
Under the Telecommunications Act, state regulatory commissions have jurisdiction to arbitrate and review interconnection disputes and
agreements between incumbent local exchange carriers and competitive local exchange carriers, in accordance with rules set by the Federal
Communications Commission. State regulatory commissions may also formulate rules regarding fees imposed on providers of
communications services within their respective states to support state universal service programs. States often require prior approvals or
notifications for certain acquisitions and transfers of assets, customers, or ownership of regulated entities. Therefore, in most instances we
will be required to seek state approval prior to completing new acquisitions of rural local exchange carriers. States generally retain the right to
sanction a carrier or to revoke certifications if a carrier materially violates relevant laws and/or regulations.
Local Government Authorizations
We may be required to obtain from municipal authorities permits for street opening and construction or operating franchises to install
and expand facilities in certain rural communities. Some of these franchises may require the payment of franchise fees. We have obtained
such municipal franchises as were required. In some rural areas, we do not need to obtain such permits or franchises because the
subcontractors or electric utilities with which we have contracts already possess the requisite authorizations to construct or expand our
networks.
Promotion of Local Service Competition and Traditional Telephone Companies
As discussed above, the Telecommunications Act provides, in general, for the removal of barriers to entry into the communications
industry in order to promote competition for the provision of local service. Congress, however, has recognized that states should not be
prohibited from taking actions necessary to preserve and advance universal service, and has further recognized that special consideration
should be given to the appropriate conditions for competitive entry in areas served by rural telephone companies, such as our 26 rural local
exchange carrier subsidiaries.
Pursuant to the Telecommunications Act, all local exchange carriers, including both incumbents and new competitive carriers, are
required to: (i) allow others to resell their services at retail rates; (ii) ensure that customers can keep their telephone numbers when changing
carriers; (iii) ensure that competitors' customers can use the same number of digits when dialing and receive nondiscriminatory access to
telephone numbers, operator service, directory assistance and directory listing; (iv) ensure access to telephone poles, ducts, conduits and
rights of way; and (v) compensate competitors for the competitors' costs of completing calls to competitors' customers. Competitors are
required to compensate the incumbent telephone company for the cost of providing these interconnection services. Under the
Telecommunications Act, our rural local exchange carriers may request from state regulatory commissions, suspension or modification of
any or all of the requirements described above. A state regulatory commission may grant such a request if it determines that such
exemption, suspension or modification is consistent with the public interest and necessary to avoid a significant adverse economic impact on
communications users and generally avoid imposing a requirement that is technically
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