Frontier Communications 2014 Annual Report Download - page 15

the long-term impact at this time but believe that the 2011 Order will provide a stable regulatory
framework to facilitate our ongoing focus on the deployment of broadband into our rural markets.
Effective December 29, 2011, the 2011 Order required providers to pay interstate access rates for
the termination of VoIP toll traffic. On April 25, 2012, the FCC, in an Order on Reconsideration,
specified that changes to originating access rates for VoIP traffic would not be implemented until July
2014. The 2011 Order has been challenged by certain parties in court and certain parties have also
petitioned the FCC to reconsider various aspects of the 2011 Order. The net impact of the 2011 Order
during the period from July 2012 through December 2014 was insignificant. The net effect of this
change to originating access after July 1, 2014 is dependent upon the percentage of VoIP traffic.
Future reductions in our subsidy or switched access revenues may directly affect our profitability
and cash flows. Switched access and subsidy revenues continued to decline in 2014, as compared to
2013, and are expected to decline further in 2015.
The FCC also has an ongoing proceeding considering whether to make changes to its regulatory
regime governing special access services, including whether to mandate lower rates, change
standards for deregulation and pricing flexibility, or to require changes to other terms and conditions.
When and how these proposed changes will be addressed is unknown and, accordingly, we are unable
to predict the impact of future changes on our results of operations.
Certain state regulatory commissions regulate some of the rates ILECs charge for intrastate
services, including rates for intrastate access services paid by providers of intrastate long distance
services. The 2011 Order, however, removes much of the states’ authority to set terminating intrastate
switched access rates. This aspect of the 2011 Order has been challenged by certain parties in court.
Certain states also have their own open proceedings to address reform to intrastate access charges
and other intercarrier compensation and state universal service funds. Although the FCC has pre-
empted state jurisdiction on most access charges, many states could consider moving forward with
their proceedings. We cannot predict when or how these matters will be decided or the effect on our
subsidy or switched access revenues.
Regulators at both the federal and state levels continue to address whether VoIP services are
subject to the same or different regulatory and intercarrier compensation regimes as traditional voice
telephony. The FCC has concluded that VoIP and facilities-based broadband Internet access providers
must comply with the Communications Assistance for Law Enforcement Act, a decision that the
United States Court of Appeals for the District of Columbia Circuit has upheld. The FCC has also
required VoIP providers to provide enhanced 911 emergency calling capabilities. In the 2011 Order,
the FCC has determined that VoIP-originated traffic terminating on the Public Switched Telephone
Network is subject to interstate access rates. Additionally, the 2011 Order requires VoIP providers to
pay interstate terminating interconnection charges and requires all carriers terminating traffic to provide
appropriate call information, thus prohibiting so-called “phantom traffic.” However, the FCC declined to
address other VoIP-related issues, and the FCC has stated its intent to address open questions
regarding the treatment of VoIP services in its ongoing “IP-Enabled Services Proceeding.” Internet
telephony may have an advantage in the marketplace over our traditional services if this service
remains less regulated.
Current and potential Internet regulatory obligations
In connection with our Internet access offerings, we could become subject to laws and regulations
as they are adopted or applied to the Internet, including so-called “net neutrality” rules that are
intended to preserve the openness of the Internet. There is currently only limited regulation applicable
to these services.
The FCC has classified wireline broadband Internet access service (whether provided over cable
or telecommunications facilities), mobile wireless based broadband Internet access service and other
forms of broadband Internet access services as “information services” not subject to mandatory
common carriage regulation. Specifically, the FCC has determined that these information services are
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES