FairPoint Communications 2007 Annual Report Download - page 40

Table of Contents
The amount of access charge revenues that we currently receive is based on rates set by federal and state regulatory bodies, and those
rates could change in the future. Further, from time to time federal and state regulatory bodies conduct rate cases, “earnings” reviews, or
make adjustments to price cap formulas that may result in rate changes. In addition, reforms of the federal and state access charge
systems, combined with the development of competition, have caused the aggregate amount of access charges paid by long distance
carriers to decrease. See “Item 1. Business — Regulatory Environment — Federal Regulation — Interstate Access Charges.” If any of the
currently proposed reforms were adopted by the FCC it would likely involve significant changes in the access charge system and, if not
offset by a revenue replacement mechanism, could potentially result in a significant decrease in or elimination of access charges.
Decreases in or loss of access charges may or may not result in offsetting increases in local, subscriber line or universal service support
revenues. Regulatory developments of this type could adversely affect our business, financial condition and results of operations.
  We receive Universal Service Fund revenues (and equivalent state
universal service support) to support our operations in high cost areas. These federal revenues include universal service service support
payments for local switching support, interstate common line support or interstate access support. High cost support for our rural and
non-rural operations is determined pursuant to different methodologies, aspects of which are now under review. See “Item 1. Business —
Regulatory Environment — Federal Regulation — Universal Service Support.” Any changes to the existing rules could reduce the
Universal Service Fund revenues we receive following the merger. Corresponding changes in state universal service support could likewise
have a negative effect on the revenues we receive.
Further, the total payments from the Universal Service Fund to our rural operations will fluctuate based upon our rural company
average cost per loop compared to the national average cost per loop and are likely to decline based on historical trends. See “Item 1.
Business — Regulatory Environment — Federal Regulation — Universal Service Support.” We will also receive other Universal Service
Fund support payments, including Interstate Access Support, in all three of our price cap study areas following the merger (Maine, New
Hampshire and Vermont) and Interstate Common Line Support in our rate-of-return study areas. If we were unable to receive such
support, or if that support was reduced, many of the operations of the Northern New England business would be unable to operate as
profitably as they have historically. Moreover, if we raise prices for services to offset losses of Universal Service Fund payments, the
increased pricing of our services may disadvantage us competitively in the marketplace, resulting in additional potential revenue loss.
Furthermore, any changes in the FCC’s rules governing the distribution of such support or the manner in which entities contribute to the
Universal Service Fund could have a material adverse effect on our business, financial condition or results of operations. See “Item 1.
Business — Regulatory Environment — Federal Regulation — Universal Service Support.”

 Our rural local exchange carriers are exempt from the 1996 Act’s more burdensome requirements governing the rights of
competitors to interconnect to incumbent local exchange carrier networks and to utilize discrete network elements of the incumbent’s
network at favorable rates. To the extent that state regulators decide that it is in the public interest to extend some or all of these
requirements to our rural local exchange carriers, we would be required to provide unbundled network elements to competitors in our rural
telephone company areas. As a result, more competitors could enter our traditional telephone markets than are currently expected, which
could have a material adverse effect on our business, financial condition and results of operations.
 Regulations create significant compliance costs for us, and are expected to
continue to do so. Subsidiaries that provide intrastate services are generally subject to certification, tariff filing and other ongoing
regulatory requirements by state regulators. Our interstate access services are currently provided in accordance with tariffs filed with the
FCC and state regulatory authorities. Challenges in the future to our tariffs by regulators or third parties or delays in obtaining
certifications and regulatory approvals could cause us to incur substantial legal and administrative expenses, and, if successful, these
challenges could adversely affect the rates that we are able to charge our customers.
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