FairPoint Communications 2006 Annual Report Download - page 30

have been, challenged in the courts, and could be changed by Congress or regulators. In addition, any of the following have the potential to have a significant
impact on us:
 A significant portion of our revenues come from network access charges, which are
paid to us by intrastate and interstate long distance carriers for originating and terminating calls in the regions served. This also includes Universal Service
Fund payments for local switching support, long term support and interstate common line support. In recent years, several of these long distance carriers have
declared bankruptcy. Future declarations of bankruptcy by one or more carriers that utilize our access services could negatively impact our financial results.
The amount of access charge revenues that we receive is based on rates set by federal and state regulatory bodies, and such rates could change. Further, from
time to time federal and state regulatory bodies conduct rate cases and/or “earnings” reviews, which may result in rate changes. The Federal Communications
Commission has reformed and continues to reform the federal access charge system. States often mirror these federal rules in establishing intrastate access
charges. In October 2001, the Federal Communications Commission reformed the system to reduce interstate access charges and shift a portion of cost
recovery, which historically has been based on minutes-of-use, to flat-rate, monthly per line charges on end-user customers rather than long distance carriers.
As a result, the aggregate amount of access charges paid by long distance carriers to access providers, such as our rural local exchange carriers, has decreased
and may continue to decrease. Although these changes were implemented on a revenue neutral basis (with commensurate increases in other charges and
Universal Service Fund support), there is no assurance that future changes in access charge rates will be implemented on a revenue neutral basis.
Furthermore, to the extent our rural local exchange carriers become subject to competition, such access charges could be paid to competing communications
providers rather than to us. Additionally, the originating and terminating access revenues we receive may be reduced as a result of wireless, VoIP, or other new
technology utilization. Finally, the Federal Communications Commission is currently weighing several proposals to comprehensively reform the intercarrier
compensation regime in order to create a uniform system of intercarrier payments. Any such proposal eventually adopted by the Federal Communications
Commission will likely involve significant changes in the access charge system and could potentially result in a significant decrease or elimination of access
charges altogether. Decreases or losses of access charges may or may not result in offsetting increases in local, subscriber line or Universal Service Fund
revenues. Regulatory developments of this type could adversely affect our business, revenue and/or profitability.
 We receive Universal Service Fund revenues to support the high cost of our operations
in rural markets. The high cost loop support we receive from the Universal Service Fund is based upon our average cost per loop compared to the national
average cost per loop. This revenue stream fluctuates based upon our average cost per loop compared to the national average cost per loop. For example, if the
national average cost per loop increases and our operating costs (and average cost per loop) remain constant or decrease, the payments we receive from the
Universal Service Fund would decline. Conversely, if the national average cost per loop decreases and our operating costs (and average cost per loop) remain
constant or increase, the payments we receive from the Universal Service Fund would increase. The national average cost per loop in relation to our average
cost per loop has increased and we believe that the national average cost per loop will likely continue to increase in relation to our average cost per loop. As a
result, the payments we receive from the Universal Service Fund have declined and will likely continue to decline. This support fluctuates based upon the
historical costs of our operating companies. In addition to the Universal Service Fund high cost loop support, we also receive other Universal Service Fund
support payments, which include local switching support, long term support, and interstate common line support that used to be included in our interstate
access charge revenues (the Federal Communications Commission has recently merged long term support into interstate common line support). If our rural
local exchange carriers were unable to receive support from the Universal Service Fund, or if such support was 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 of
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