Earthlink 2012 Annual Report Download - page 30

Table of Contents
are not recognized until launched against a target. We may be required to use significant capital and other resources to remedy, protect against or
alleviate these and related problems, and we may not be able to remedy these problems in a timely manner, or at all. A material security breach
could damage our reputation, increase our security costs, expose us to litigation and lead to the loss of existing or potential customers. If our
services are perceived as not being secure, our business, including our strategy to serve as an IT services company for small and medium-
sized
businesses with IT and network security needs, may be adversely affected.
Interruption or failure of our network and information systems and other technologies could impair our ability to provide our services, which
could damage our reputation and harm our operating results.
Our success depends on our ability to provide reliable service. Our network, network operations centers, central offices, corporate
headquarters and those of our third party service providers are vulnerable to damage or interruption from fires, earthquakes, hurricanes, tornados,
floods and other natural disasters, terrorist attacks, power loss, capacity limitations, telecommunications failures, software and hardware defects
or malfunctions, break ins, sabotage and vandalism, human error and other disruptions that are beyond our control. Some of our systems are not
fully redundant, and our disaster recovery planning may not be adequate. We have experienced interruptions in service in the past due to factors
such as vulnerabilities in equipment, configuration, design and operating procedures. We also experience interruptions due to cable damage,
theft of our equipment, power outages, inclement weather and service failures of our third-
party service providers. We may experience service
interruptions or system failures in the future. We are investing significant capital to enhance, expand and increase the reliability of our network,
but these capital expenditures may not achieve the results we expect. The occurrence of any disruption or system failure may result in a loss of
business, increase expenses, damage our reputation for providing reliable service, subject us to additional regulatory scrutiny or expose us to
litigation and possible financial losses, any of which could adversely affect our business, financial position, results of operations and cash flows.
Government regulations could adversely affect our business or force us to change our business practices.
Our services are subject to varying degrees of federal, state and local regulation. Federal, state and local regulations governing our
services are the subject of ongoing judicial proceedings, rulemakings and legislative initiatives that could change the manner in which our
industry operates and affect our business. Changes in regulations or in governing legislation, such as the Telecommunications Act of 1996, could
have a significant effect on our business, particularly if the change impairs our ability to interconnect with incumbent carrier networks, lease
portions of other carriers' networks or resell their services at reasonable prices, or lease elements of networks of the ILECs under acceptable
rates, terms and conditions. We cannot predict the outcome of any ongoing legislative initiatives or administrative or judicial proceedings or
their potential impact upon the communications and information technology industries generally or upon us specifically.
Failure to make proper payments for federal USF assessments, FCC regulatory fees or other amounts mandated by federal and state
regulations; failure to maintain proper state tariffs and certifications; failure to comply with federal, state or local laws and regulations; failure to
obtain and maintain required licenses, franchises and permits; imposition of burdensome license, franchise or permit requirements for us to
operate in public rights-of-
way; and imposition of new burdensome or adverse regulatory requirements could limit the types of services we
provide or the terms on which we provide these services.
Our business also is subject to a variety of other U.S. laws and regulations from various entities, including the Federal Trade
Commission, the Environmental Protection Agency and the Occupational Safety and Health Administration, as well as by state and local
regulatory agencies, that could subject us to liabilities, claims or other remedies. Compliance with these laws and regulations is complex and
may require significant costs. In addition, the regulatory framework relating to Internet and communications services is evolving and both the
federal government and states from time to time pass legislation that impacts our business. It is likely that additional laws and regulations will be
adopted that would affect our business. We cannot predict the impact future laws, regulatory changes or developments may have on our
business, financial condition, results of operations or cash flows. The enactment of any additional laws or regulations, increased enforcement
activity of existing laws and regulations, or claims by individuals could significantly impact our costs or the manner in which we conduct
business, all of which could adversely affect our results of operations and cause our business to suffer.
Regulatory audits have in the past, and could in the future, result in increased costs.
We are subject to regulatory audits in the ordinary course of business with respect to various matters, including audits by the Universal
Service Administrative Company on USF assessments and payments. These audits can cover periods for several years prior to the date the audit
is undertaken and could result in the imposition of liabilities, interest and penalties if our positions are not accepted by the auditing entity. Our
financial statements contain reserves for certain of such potential liabilities which we consider reasonable. During the second quarter of 2012, we
recorded an $8.3 million charge to increase our reserves for regulatory
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