FairPoint Communications 2009 Annual Report Download - page 56

Table of Contents
FCC has proposed changes to the Universal Service Fund. Any changes to the existing rules could reduce the Universal Service Fund revenues we
receive. If we were unable to receive such support, or if that support was reduced, our Northern New England operations would be unable to operate as
profitably as they have historically. Moreover, if we raise prices for services to offset these losses of Universal Service Fund payments, the increased
pricing of our services may disadvantage us competitively in the marketplace, resulting in additional potential revenue loss.
Further, the total payments from the Universal Service Fund to our rural operations will fluctuate based upon our rural company average cost per
loop compared to the national average cost per loop and are likely to decline based on historical trends. We receive IAS in all of our price cap study
areas (Maine, New Hampshire and Vermont) and ICLS in our rate-of-return study areas. The FCC also is considering changes to its rules governing
who contributes to the Universal Service Support mechanisms, and on what basis. Any changes in the FCC's rules governing the distribution of such
support or the manner in which entities contribute to Universal Service could have a material adverse effect on our business, financial condition, results
of operations and liquidity.
 Our rural LECs generally are exempt from the
more burdensome requirements of the 1996 Act governing the rights of competitors to interconnect to ILEC networks and to utilize discrete network
elements of the incumbent's network at favorable rates. To the extent state regulators decide that it is in the public interest to extend some or all of these
requirements to our rural LECs, we would be required to provide UNEs to competitors in our rural telephone company areas. As a result, more
competitors could enter our traditional telephone markets than are currently expected, which could have a material adverse effect on our business,
financial condition, results of operations and liquidity.
 Regulations create significant compliance costs for us. Subsidiaries that provide intrastate
services are generally subject to certification, tariff filing, and other ongoing regulatory requirements by state regulators. Our interstate and intrastate
access services are currently provided in accordance with tariffs filed with the FCC and state regulatory authorities, respectively. Challenges in the
future to our tariffs by regulators or third parties or delays in obtaining certifications and regulatory approvals could cause us to incur substantial legal
and administrative expenses, and, if successful, these challenges could adversely affect the rates that we are able to charge our customers.
In addition, our non-rural operations are subject to regulations not applicable to our rural operations, including but not limited to requirements
relating to interconnection, the provision of UNEs, and the other market-opening obligations set forth in the 1996 Act. In approving the transfer of
authorizations to us, the FCC determined that our non-rural operations would be regulated as a Bell Operating Company following the completion of the
Merger, subject to the same regulatory requirements that currently apply to the other Bell Operating Companies. The FCC also stated that we would be
entitled to the same regulatory relief that Verizon New England has obtained in the region. Any changes made in connection with these obligations
could increase our non-rural operations' costs or otherwise have a material adverse effect on our business, financial condition, results of operations and
liquidity. Moreover, we cannot predict the precise manner in which the FCC will apply the Bell Operating Company regulatory framework to us.
State regulators have also imposed conditions on their approval of the transactions that could adversely affect our business, financial condition,
results of operations and liquidity.
Our business also may be affected by legislation and regulation imposing new or greater obligations related to open Internet access, assisting law
enforcement, bolstering homeland security, minimizing environmental impacts, protecting customer privacy, or addressing other issues that affect our
business. We cannot predict whether or to what extent the FCC might modify its rules or what compliance with those new rules might cost. Similarly,
we cannot predict whether or to what extent
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