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Table of Contents
offered by the incumbent carriers could place us at a competitive disadvantage, both as a purchaser of access and as a vendor of access to other
carriers or end-user customers.
Universal Service.
The Communications Act and the FCC's rules provide for a federal USF, which is intended to subsidize
communications services in rural and high-cost areas, services for low-
income consumers, and services for schools, libraries and rural health
care providers. Currently, the FCC assesses all telecommunications providers, including us, a percentage of interstate revenues received from
retail customers. Providers are permitted to pass through a specified percentage of their USF contribution assessment to their customers in a
manner consistent with FCC billing regulations.
In November 2008, the FCC proposed to base USF assessments on the number of telephone numbers that a telecommunications carrier
actively provides to residential customers and a "connections-
based" contribution methodology for business customers, rather than on a
percentage of collected interstate revenues. The objective behind the proposal is to capture USF revenues from the expanding number of new
service providers using different technologies to offer communications services. In February 2011, the FCC issued another notice of proposed
rulemaking to consider whether to limit the number of recipients of USF proceeds in a specified geographic region and whether to select these
recipients through a "reverse auction" process, in which the company willing to serve the region using the least amount of USF proceeds would
be selected as the proceeds recipient. Separately, various states maintain, or are in the process of implementing, their own universal service
programs, and the rules governing these state programs are also subject to changes. It is difficult to predict how those changes might affect the
telecommunications industry or us.
In addition, in November 2011, the FCC expanded the USF to include broadband services as part of a "Connect America Fund." The new
fund also includes a Mobility Fund, making mobile broadband an independent universal service objective. Further, FCC reform of the USF
contribution methodology is expected to be addressed in 2012. The application and effect of these changes, and similar state requirements, on the
telecommunications industry generally and on certain of our business activities cannot be predicted.
National Broadband Plan.
As part of the American Recovery and Reinvestment Act of 2009, Congress directed the FCC, in coordination
with the National Telecommunications and Information Administration, to develop a national broadband plan to ensure that Americans have
access to broadband capability and to establish benchmarks in service of that goal. The FCC delivered its plan to Congress on March 16, 2010.
The plan outlines at a high level the FCC's policies concerning middle-
mile transport, intercarrier compensation, the USF, pole attachments,
rights-of-way, spectrum allocation and broadband adoption.
The plan contains numerous recommendations for future actions by the FCC and Congress to further the goal of nationwide broadband
access. We anticipate that the FCC will propose rule changes consistent with the plan and will seek additional comments before any final rules
are adopted. The development of the FCC's plan may lead to changes in the legal and regulatory environment in which we operate. We cannot
predict the nature and extent of the impact which the outcome of these proceedings will have on us or our operations.
Customer Proprietary Network Information and Privacy.
The Communications Act and the FCC's rules require carriers to implement
measures to prevent the unauthorized disclosure of Customer Proprietary Network Information, or CPNI. CPNI includes information related to
the quantity, technological configuration, type, destination and the amount of use of a communications service. CPNI rules include restrictions
on telecommunications carriers and providers of interconnected VoIP service. We must file a verified certification of compliance by March 1 of
each year that affirms the existence of training and other sales and marketing processes designed to prevent improper use and unauthorized
release of CPNI. An inadvertent violation of these and related CPNI requirements by us could subject our company to significant fines or other
regulatory penalties.
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