Earthlink 2010 Annual Report Download - page 23

Table of Contents
interconnection agreements between the incumbent carriers and competitive carriers such as us when one of the parties elects to have it do so.
Under the Telecommunications Act, the decisions of state public utility commissions with regard to interconnection disputes may be appealed to
federal courts. There remain important unresolved issues regarding the scope of the authority of public utility commissions and the extent to
which the commissions will adopt policies that promote local telephone service competition.
States also regulate the intrastate carrier access services of incumbent carriers. We are required to pay access charges to incumbent carriers
when they originate or terminate our intrastate long distance traffic. We could be harmed by high access charges or increases to access charges,
particularly to the extent that incumbent carriers do not incur the same level of costs with respect to their own intrastate long distance services or
to the extent that they are able to offer their long distance affiliates better access pricing. States also regulate or legislate changes to the level of
intrastate access charges assessed by competitive local exchange carriers such as us. Some states have ordered maximum rate caps for intrastate
access charges of competitive carriers that could result in a decrease in access charge revenues and the inability of competitive carriers to recover
fully the costs of providing these services. In one such action, which was effective in March 2008, Virginia capped the intrastate access charges
of competitive carriers at the rates charged by the incumbent in whose territory the competitive carrier provides service.
Several states have also initiated intrastate universal service charges that parallel the interstate charges created by the FCC. The impact of
these changes is not yet known. In addition, state legislatures are considering, and in some cases enacting, new laws that limit the authority of the
state public utility commissions to regulate and oversee the business dealings of the incumbent carriers. We could be harmed by these actions.
We will be affected by how states regulate the retail prices of the incumbent carriers with which we compete. As the degree of intrastate
competition is perceived to increase, states are offering incumbent carriers increased pricing flexibility and deregulation of particular services
deemed to be competitive. This flexibility and deregulation may present the incumbent carriers with an opportunity to subsidize services that
compete with our services with revenues generated from their non-
competitive services, thereby allowing them to offer competitive services at
prices lower than most or all of their competitors. For example, AT&T has obtained authority to create affiliates that would operate on a much
less regulated basis and, therefore, could provide significant competition in addition to the local services historically offered by a much more
regulated AT&T. We cannot predict the extent to which these developments may affect our business.
Many states require prior approval for transfers of control of certified carriers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock offerings and incurrence by carriers of significant debt obligations.
These requirements can delay and increase the cost we incur to complete various financing transactions, including future stock or debt offerings,
the sale of part or all of our regulated business or the acquisition of assets and other entities to be used in our regulated business.
Local Government Authorizations and Related Rights
-of-Way
We are subject to numerous local regulations such as building codes, municipal franchise requirements and licensing. Such regulations vary
on a city-by-city and county-by-
county basis and can affect our provision of both network services and carrier services. We are required to
obtain street use and construction permits and licenses or franchises to install and expand our fiber optic network using municipal rights-of-
way.
In some municipalities where we have installed network equipment, we are required to pay license or franchise fees based on a percentage of
gross revenues or a per linear foot basis. Following the expiration of existing franchises, these fees are at risk of increasing. In many markets,
incumbent carriers do not pay these franchise fees or pay fees that are substantially lower than those required to be paid by us, although the
Telecommunications Act requires that, in the future, such fees be
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