FairPoint Communications 2009 Annual Report Download - page 30

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average cost per loop increases and our operating costs and average cost per loop remain constant or decrease, the payments we will receive from the
Universal Service Fund will decline. Based on historical trends, we believe the total high-cost support payments from the Universal Service Fund to our
rural operations likely will continue to decline. Universal Service Support revenue accounted for approximately 3% of our total revenue in the year
ended December 31, 2009.
Universal Service Fund disbursements may be distributed only to carriers that are designated as "eligible telecommunications carriers" ("ETCs")
by a state regulatory commission. All of our non-rural and rural LECs are designated as ETCs
On May 1, 2008, the FCC adopted an interim emergency cap on the amount of high-cost support that competitive ETCs may receive, pending the
FCC's adoption of comprehensive reform. Such support for each state was capped at the level of support that competitive ETCs were eligible to receive
during March 2008 on an annualized basis. The cap became effective on August 1, 2008 and is expected to constrain growth in the total amount of
high-cost support available to competitive ETCs. The FCC is currently considering other revisions to the distribution mechanisms for Universal Service
Fund high-cost support. The proposals under consideration include using "reverse auctions" to determine recipients of rural high-cost support, using a
model to determine the appropriate level of support in all areas where there is no private sector business case for providing voice and broadband
services, and accelerating targeted funding toward broadband deployment in unserved areas. The FCC is also seeking comment on near-term proposals
to reduce current high-cost fund payments. These and other proposed rule changes could reduce our support in the future, reduce the support available
to our competitors or provide for new support, such as for broadband services. We cannot predict what course the FCC will take on universal service
distribution reform, but it is possible that the remedy selected by the FCC could materially affect the amount of universal service funding we will
receive. If our rural LECs were unable to receive Universal Service Fund payments, or if those payments were reduced, many of our rural LECs would
be unable to operate as profitably as they have historically in the absence of the implementation of 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.
We receive additional support under the FCC's rules in the forms of Interstate Access Support ("IAS") and Interstate Common Line Support
("ICLS"). We receive IAS support in all three of our federal price cap study areas (Maine, New Hampshire and Vermont). We also continue to receive
ICLS support in our rate-of-return study areas. These forms of support replace revenues previously collected through interstate access charges. The
FCC is seeking comment on a proposal to eliminate IAS and transfer the funding to a "Connect America Fund" for broadband. We have no assurance
that either of these support programs will remain unchanged if the FCC revises its rules governing universal service and inter-carrier compensation.
We also benefit indirectly from support to low-income users under the Lifeline and Link-Up universal service programs. The FCC has asked the
Federal-State Joint Board for Universal Service to recommend changes to these low-income programs to address, among other things, access to
broadband and eligibility for support. We have no assurance whether we or our competitors will be affected by any such changes.
Universal Service Contributions
Federal universal service programs are currently funded through a surcharge on interstate and international end-user telecommunications revenues.
Declining long-distance revenues, the popularity of service bundles that include local and long-distance services, and the growth in size of the fund, due
primarily to increased funding to competitive ETCs, all prompted the FCC to consider alternative means for collecting this funding. As an interim step,
the FCC has ordered that providers of certain
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