FairPoint Communications 2009 Annual Report Download - page 64

Table of Contents

The following discussion should be read in conjunction with our financial statements and the notes thereto included elsewhere in this Annual
Report. The following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing
development of our business, actions of regulatory authorities and competitors and other factors which could cause actual results to differ materially
from the results referred to in the forward-looking statements, see "Item 1A.—Risk Factors" in this Annual Report.
On October 26, 2009, the Company filed the Chapter 11 Cases. For a description of the Chapter 11 Cases and the Plan, see "Item. 1—Business
—Chapter 11 Cases."
Overview
We are a leading provider of communications services in rural and small urban communities, offering an array of services, including local and long
distance voice, data, Internet, television and broadband product offerings. We operate in 18 states with 1.6 million access line equivalents (including
voice access lines and high speed data lines, which include DSL, wireless broadband, cable modem and fiber-to-the-premises) in service as of
December 31, 2009.
We were incorporated in Delaware in February 1991 for the purpose of acquiring and operating incumbent telephone companies in rural and small
urban markets. Many of our telephone companies have served their respective communities for over 75 years.
As our primary source of revenues, access lines are an important element of our business. Over the past several years, communications companies,
including FairPoint, have experienced a decline in access lines due to increased competition, including competition from wireless carriers and cable
television operators, the introduction of DSL services (resulting in customers substituting DSL for a second line) and challenging economic conditions.
In addition, while we were operating under the Transition Services Agreement, we had limited ability to change current product offerings. Upon
completion of the Cutover from the Verizon systems to the new FairPoint systems, we expected to be able to modify bundles and prices to be more
competitive in the marketplace. However, due to certain systems functionality issues (as described herein), we have had limited ability during 2009 to
make changes to our product offerings. In late June 2009, we began actively marketing and promoting our DSL product for the first time since the
Cutover.
We are subject to regulation primarily by federal and state governmental agencies. At the federal level, the FCC generally exercises jurisdiction
over the facilities and services of communications common carriers, such as FairPoint, to the extent those facilities are used to provide, originate or
terminate interstate or international communications. State regulatory commissions generally exercise jurisdiction over common carriers' facilities and
services to the extent those facilities are used to provide, originate or terminate intrastate communications. In addition, pursuant to the 1996 Act, which
amended the Communications Act of 1934, state and federal regulators share responsibility for implementing and enforcing the domestic pro-
competitive policies introduced by that legislation.
Legacy FairPoint's operations 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. 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
59