Earthlink 2010 Annual Report Download - page 33

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Table of Contents
Decisions by the Federal Communications Commission relieving incumbent carriers of certain regulatory requirements, and possible further
deregulation in the future, may restrict our ability to provide services and may increase the costs we incur to provide these services.
We rely in significant part on purchasing wholesale services and leasing network facilities from AT&T and other incumbent carriers. Over
the past several years, the FCC has reduced or eliminated a number of regulations governing the incumbent carriers' offerings, including removal
of local switching and other network elements from the list of elements that the incumbent carriers must provide on an unbundled basis at
TELRIC cost-
based rates, as well as the grant of broad pricing flexibility to incumbents for their special access services in many areas. If the
incumbent carriers do not continue to permit us to purchase these services from them under commercial arrangements at reasonable rates, our
business could be adversely affected and our cost of providing local service could increase. This can have a significant adverse impact on our
operating results and cash flows. If the FCC, Congress, state legislatures or state regulatory agencies were to adopt measures further reducing the
local competition-
related obligations of the incumbents or allowing those carriers to increase further the rates we must pay, we could experience
additional increases in operating costs that would negatively affect our operating results and cash flows.
Our wholesale services, including our broadband transport services, will be adversely affected by pricing pressure, network overcapacity,
service cancellations and other factors.
ITC^DeltaCom experienced, and we expect to continue to experience, adverse trends related to wholesale service offerings, including our
broadband transport services and local interconnection business, which have resulted primarily from a reduction in rates charged to our
customers due to overcapacity in the broadband services business and from service cancellations by some customers. Pending or contemplated
consolidations in our industry also may continue to affect adversely our wholesale services business by improving the resources of the
consolidating companies and reducing their demand for our services as those companies upgrade their own networks and consolidate their voice
and data traffic on those networks. We expect that these factors will result in continued declines in revenues and cash flows from our wholesale
service offerings. Such declines will have a disproportionately adverse effect on our operating results because of the higher gross margins
associated with our wholesale services.
Our operating performance will suffer if we are not offered competitive rates for the access services we need to provide our long distance
services.
We depend on other communications companies to originate and terminate a significant portion of the long distance traffic initiated by our
customers. Our operating performance will suffer if we are not offered these access services at rates that are substantially equivalent to the costs
of, and rates charged to, our competitors and that permit profitable pricing of our long distance services. The charges for access services
historically have made up a significant percentage of our overall cost of providing long distance service. Some of our Internet-
based competitors
generally have been exempt from these and other regulatory charges, which could give them a significant cost advantage over us in this area. The
FCC currently is considering what charges, if any, should be assessed on long distance and other interconnected voice services provided over the
Internet.
We may experience reductions in switched access and reciprocal compensation revenue.
Over the past several years, ITC^DeltaCom experienced a decline in its revenues for switched access and reciprocal compensation. These
switched access and reciprocal compensation revenues may continue to decline as a result of lower volume of traditional long distance voice
minutes and FCC and state regulations compelling a reduction of switched access and reciprocal compensation rates. The FCC has been
considering proposals for an integrated intercarrier compensation regime under which all traffic exchanged between carriers would be subject to
a unified rate. Such changes could materially reduce our switched access revenue from other carriers. We cannot predict the outcome of pending
FCC rule makings
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