FairPoint Communications 2004 Annual Report Download - page 20

unfeasible or unduly economically burdensome. If a state regulatory commission denies some or all of any such request made by one of our
rural local exchange carriers, or does not allow us adequate compensation for the costs of providing interconnection, our costs could increase
and our revenues could decline. In addition, with such a denial, competitors could enjoy benefits that would make their services more
attractive than if they did not receive such interconnection rights. With the exception of the previously referenced requests to modify the
May 24, 2004 implementation date for local number portability in certain states, we have not encountered a need to file any such requests for
suspension or modification of the interconnection requirements.
The Telecommunications Act, with certain exceptions, imposes the following additional duties on incumbent telephone companies by
requiring them to: (i) interconnect their facilities and equipment with any requesting communications carrier at any technically feasible point;
(ii) unbundle and provide nondiscriminatory access to network elements such as local loops, switches and transport facilities, at
nondiscriminatory rates and on nondiscriminatory terms and conditions; (iii) offer their retail services for resale at wholesale rates;
(iv) provide reasonable notice of changes in the information necessary for transmission and routing of services over the incumbent telephone
company's facilities or in the information necessary for interoperability; and (v) provide, at rates, terms and conditions that are just,
reasonable and nondiscriminatory, for the physical co-location of equipment necessary for interconnection or access to unbundled network
elements at the premises of the incumbent telephone company. Competitors are required to compensate the incumbent local exchange
carrier for the cost of providing these interconnection services. However, pursuant to the Telecommunications Act, rural telephone
companies, including our rural local exchange carriers, are automatically exempt from these additional incumbent telephone company
requirements. The exemption remains effective until an incumbent rural local telephone company receives a bona fide request for these
additional interconnection services and the applicable state authority determines whether the request is not unduly economically
burdensome, technically feasible, and consistent with the universal service objectives set forth in the Telecommunications Act. This
exemption remains effective for all of our incumbent local telephone operations, except in Florida where the legislature has determined that
all incumbent local exchange carriers are required to provide the additional interconnection services as prescribed in the Telecommunications
Act. If a request for any of these additional interconnection services is filed by a potential competitor with respect to one of our other operating
territories, we are likely to ask the relevant state regulatory commission to retain the exemption. If a state regulatory commission rescinds
such exemption in whole or in part and if the state regulatory commission does not allow us adequate compensation for the costs of providing
the interconnection, our costs would significantly increase, we would face new competitors in that state and we could suffer a significant loss
of customers and resulting declines in our revenues. In addition, we could incur additional administrative and regulatory expenses as a result
of the interconnection requirements.
Promotion of Universal Service
The Universal Service Fund payments received by our rural local exchange carriers from the Universal Service Fund are intended to
support the high cost of our operations in rural markets. Such Universal Service Fund payments related to the high cost loop represented 9%
of our revenues for the year ended December 31, 2004. Under current Federal Communications Commission regulations, the total
Universal Service Fund available to all rural local telephone companies, including our 26 rural local exchange carrier subsidiaries, is subject
to a cap. In any given year, the cap may or may not be reached. In any year where the cap is reached, the per access line rate at which we can
recover Universal Service Fund payments may decrease. In addition, the consideration of changes in the federal rules governing the
distribution of Universal Service Fund is pending before the Federal Communications Commission. If our rural local exchange carriers were
unable to receive Universal Service Fund payments, or if such payments were reduced, many of our rural local exchange carriers would be
unable to operate as profitably as they have historically in the absence of our implementation
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