FairPoint Communications 2006 Annual Report Download - page 31

increases in charges for other services. Moreover, if we raise prices for services to offset loss of Universal Service Fund payments, the increased pricing of our
services may disadvantage us competitively in the marketplace, resulting in additional potential revenue loss.
The Telecommunications Act provides that eligible communications carriers, including competitors to rural local exchange carriers, may obtain the same
per line support as the rural local exchange carriers receive if a state commission determines that granting such support to competitors would be in the public
interest. In fact, wireless communications providers in certain of our markets have obtained matching support payments from the Universal Service Fund,
but that has not led to a loss of revenues for our rural local exchange carriers under existing regulations. Any shift in universal service regulation, however,
could have an adverse effect on our business, revenue and/or profitability.
During the last four years, pursuant to recommendations made by the Multi Association Group and the Rural Task Force, the Federal Communications
Commission has made certain modifications to the universal service support system that changed the sources of support and the method for determining the
level of support. These changes have been revenue neutral to our operations. It is unclear whether the changes in methodology will continue to accurately reflect
the costs incurred by our rural local exchange carriers, and whether it will provide for the same amount of Universal Service Fund support that our rural local
exchange carriers have received in the past. In addition, several parties have raised objections to the size of the Universal Service Fund and the types of
services eligible for support. A number of issues regarding the source and amount of contributions to, and eligibility for payments from, the Universal Service
Fund are pending and will likely be addressed by the Federal Communications Commission or Congress in the near future. For example, a number of
proposals to be examined by the Federal Communications Commission in its current rulemaking with respect to the reform of the intercarrier compensation
system include reforms of the Universal Service Fund. The outcome of any regulatory proceedings or legislative changes could affect the amount of Universal
Service Fund support that we receive, and could have an adverse effect on our business, revenue or profitability.
On February 28, 2005, the Federal Communications Commission issued a press release announcing additional requirements for the designation of
competitive Eligible Telecommunications Carriers for receipt of high-cost support. In its corresponding order, released on March 17, 2005, the Federal
Communications Commission adopted additional mandatory requirements for Eligible Telecommunications Carriers designation in cases where it has
jurisdiction, and encourages states that have jurisdiction to designate Eligible Telecommunications Carriers to adopt similar requirements. The Federal
Communications Commission is still considering revisions to the methodology by which contributions to the Universal Service Fund are determined. The
Federal Communications Commission adopted interim changes to this methodology in June 2006, and further revisions will be part of an overall rulemaking
regarding Universal Service Support that remains pending.
 Our rural local
exchange carriers are exempt from the Telecommunications Act’s more burdensome requirements governing the rights of competitors to interconnect to
incumbent local exchange carrier networks and to utilize discrete network elements of the incumbent’s network at favorable rates. If state regulators decide that
it is in the public’s interest to impose these more burdensome interconnection requirements on us, we would be required to provide unbundled network
elements to competitors. As a result, more competitors could enter our traditional telephone markets than are currently expected and we could incur additional
administrative and regulatory expenses, and experience additional revenue losses.
 Regulations create significant compliance costs for us. Our subsidiaries that provide intrastate
services are generally subject to certification, tariff filing and other ongoing regulatory requirements by state regulators. Our interstate access services are
provided in accordance with tariffs filed with the Federal Communications Commission. Challenges to our tariffs by
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