FairPoint Communications 2009 Annual Report Download - page 65

Table of Contents
"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. Our rural and non-rural operations are also subject to
different regimes concerning universal service.
From 2007 through January 2009, we were in the process of developing and deploying new systems, processes and personnel to replace those
used by Verizon to operate and support our network and back-office functions in the Maine, New Hampshire and Vermont operations we acquired
from Verizon. These services were provided by Verizon under the Transition Services Agreement through January 30, 2009. On January 30, 2009, we
began the Cutover, and on February 9, 2009, we began operating our new platform of systems independently from the Verizon systems, processes and
personnel. During the period from January 23, 2009 until January 30, 2009, all retail orders were taken manually and following the Cutover were
entered into the new systems. From February 2, 2009 through February 9, 2009, we manually processed only emergency orders, although we
continued to provide repair and maintenance services to all customers.
Following the Cutover, many of these systems functioned without significant problems, but a number of the key back-office systems, such as
order entry, order management and billing, experienced certain functionality issues as well as issues with communication between the systems. As a
result of these systems functionality issues, as well as work force inexperience on the new systems, we experienced increased handle time by customer
service representatives for new orders, reduced levels of order flow-through across the systems, which caused delays in provisioning and installation,
and delays in the processing of bill cycles and collection treatment efforts. These issues impacted customer satisfaction and resulted in large increases in
customer call volumes into our customer service centers. While many of these issues were anticipated, the magnitude of difficulties experienced was
beyond our expectations.
We have since worked diligently to remedy these issues. The order backlog has been reduced significantly and order handle times continue to be
reduced. Provisioning of new orders has steadily improved and call volumes into the customer service centers have returned to pre-Cutover levels. In
addition, systems functionality supporting our collection efforts continues to improve, but certain functionality is not fully operational. As a result of
these functionality issues and past billing issues, our efforts to collect past due amounts continue to be hampered. During the third quarter of 2009, we
revised the methodology of calculating the allowance for doubtful accounts based on recent collections experience. The issues discussed above and the
change in methodology resulted in a significant increase in our allowance for doubtful accounts during the third quarter of 2009. Overall, delays in
implementing the collections software functionality, together with other Cutover issues, have caused an increase in accounts receivable, which has
adversely impacted our liquidity.
Because of these Cutover issues, during the year ended December 31, 2009 we incurred $28.8 million of incremental expenses in order to operate
our business, including third-party contractor costs and internal labor costs in the form of overtime pay. The Cutover issues also required significant
staff and senior management attention, diverting their focus from other efforts.
In addition to the significant incremental expenses we incurred as a result of these Cutover issues, we were unable to fully implement our operating
plan for 2009 and effectively compete in the marketplace, which we believe had an adverse effect on our business, financial condition, results of
operations and liquidity.
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