FairPoint Communications 2009 Annual Report Download - page 28

Table of Contents
oversight over the offerings of ILECs to competing carriers of interconnection and non-discriminatory access to certain facilities and services designated
as essential for local competition.
Legacy FairPoint and our Northern New England operations operate under different regulatory regimes in certain respects. For example,
concerning interstate access, all of the pre-Merger regulated interstate services of FairPoint were regulated under a rate-of-return model, while all of the
rate-regulated interstate services provided by the Verizon Northern New England business were regulated under a price cap model. On May 10, 2010,
we received FCC approval to convert our Legacy FairPoint operations in Maine and Vermont to the price cap model. Our Legacy FairPoint operations
in Maine and Vermont will convert to price cap regulation on July 1, 2010. Under price cap regulation, limits are imposed on a company's interstate
rates without regard to its costs or revenue requirements. These limits are adjusted annually based on FCC-specified formulae, such as for inflation, as
well as through occasional regulatory proceedings, but will generally give a company flexibility to adjust its rates within these limits. In contrast, rate of
return regulation permits a company to set rates based upon its allowed costs and projected revenue requirement, including an authorized rate of return
determined by the FCC. We have obtained permission to continue to operate our Legacy FairPoint ILECs outside of Maine and Vermont under the rate-
of-return regime until the FCC completes its general review of whether to modify or eliminate the "all-or-nothing" rule. Without this permission, the all-
or-nothing rule would require that all of our regulated operations be operated under the price cap model for federal regulatory purposes. In addition,
while all of our operations generally are subject to obligations that apply to all LECs, our non-rural operations are subject to additional requirements
concerning interconnection, non-discriminatory network access for competitive communications providers and other matters, subject to substantial
oversight by state regulatory commissions. In addition, the FCC has ruled that our Northern New England operations must comply with the regulations
applicable to the Bell Operating Companies. The rural and non-rural operations are also subject to different regimes concerning universal service.
Federal Regulation
We are required to comply with the Communications Act which requires, among other things, that telecommunications carriers offer
telecommunications services at just and reasonable rates and on terms and conditions that are not unreasonably discriminatory. The Communications
Act was amended in 1996 by the addition of provisions intended to promote competition in the provision of local services, and to lead to deregulation as
markets become more competitive.
On March 16, 2010, the FCC submitted the National Broadband Plan (the "NBP") to the United States Congress ("Congress"). The NBP is a plan
to bring high speed Internet services to the entire country, including remote and high-cost areas. In accordance with the NBP, the FCC has commenced
several rulemakings that concern, among other things, reforming high-cost and low-income programs to promote universal service, to make those funds
more efficient while promoting broadband communications in areas that otherwise would be unserved. We also expect the FCC to undertake new
rulemakings addressing changes to interstate access charges and other forms of intercarrier compensation, classification of broadband providers and
other obligations under federal law. We cannot predict the outcome of these proceedings or the effect that resulting decisions may have on our business.
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