FairPoint Communications 2010 Annual Report Download - page 23

Table of Contents

The 1996 Act provides, in general, for the removal of barriers to market entry in order to promote competition in the provision of local telecommunications
and information services. As a result, competition in our local exchange service areas will continue to increase from CLECs, wireless providers, cable
companies, Internet service providers, electric companies and other providers of network services. Many of these competitors have a significant market
presence and brand recognition, which could lead to more competition and a greater challenge to our future revenue growth.
Under the 1996 Act, all LECs, including both ILECs and CLECs, are required to: (i) allow others to resell their services; (ii) ensure that customers can
keep their telephone numbers when changing carriers, referred to as local number portability; (iii) ensure that competitors’ customers can use the same number
of digits when dialing and receive nondiscriminatory access to telephone numbers, operator service, directory assistance and directory listing; (iv) ensure
competitive access to telephone poles, ducts, conduits and rights of way; and (v) compensate competitors for the cost of completing calls to competitors’
customers from the other carrier’s customers.
In addition to these obligations, ILECs are subject to additional requirements to: (i) interconnect their facilities and equipment with any requesting
telecommunications carrier at any technically feasible point; (ii) unbundle and provide nondiscriminatory access to certain network elements, referred to as
unbundled network elements (“UNEs”), including some types of local loops and transport facilities, at regulated rates and on nondiscriminatory terms and
conditions, to competing carriers that would be “impaired” without them; (iii) offer their retail services for resale at wholesale rates; (iv) provide reasonable
notice of changes in the information necessary for transmission and routing of services over the ILEC’s facilities or in the information necessary for
interoperability; and (v) provide, at rates, terms and conditions that are just, reasonable and nondiscriminatory, for the physical co-location of equipment
necessary for interconnection or access to UNEs at the ILEC’s premises. Competitors are required to compensate the ILEC for the cost of providing these
services.
Our non-rural operations are subject to all of the above requirements. In addition, our non-rural operations are subject to additional unbundling obligations
that apply only to Bell Operating Companies. In contrast to the unbundling obligations that apply generally to ILECs, these Bell Operating Company-specific
requirements mandate access to certain facilities (such as certain types of local loops and inter-office transport, and local circuit switching) even where other
carriers would not be “impaired” without them.
Our Legacy FairPoint rural operations are exempt from the additional ILEC requirements until the applicable rural carrier receives a bona fide request for
these additional services and the applicable state authority determines that the request is not unduly economically burdensome, is technically feasible and is
consistent with the universal service objectives set forth in the 1996 Act. This exemption will be effective for all of our existing Legacy FairPoint rural ILEC
operations, except in Florida where the legislature has determined that all ILECs are required to provide the additional services as prescribed in the 1996 Act. If
a request for any of these additional services is filed by a potential competitor with respect to one of our other existing rural operating territories, we will likely
ask the relevant state regulatory commission to retain the exemption. If a state regulatory commission rescinds an exemption in whole or in part and does not
allow us adequate compensation for the costs of providing the interconnection, our costs could increase significantly; we could face new competitors in that
state; and we could suffer a significant loss of customers and incur a material adverse effect on our business, financial condition, results of operations and
liquidity. In addition, we could incur additional administrative and regulatory expenses as a result of the interconnection requirements. Any of these could
result in a material adverse effect on our business, financial condition, results of operations and liquidity.
Under the 1996 Act, rural LECs may request from state regulatory commissions suspension or modification of any or all of the requirements described
above. A state regulatory commission may grant such a request if it determines that doing so is consistent with the public interest and is necessary to avoid a
significant adverse economic impact on communications users, and where imposing the requirement would be technically infeasible or unduly economically
burdensome. If a state regulatory commission denies all or a portion of a request made by one of our rural LECs, or does not allow us adequate compensation
for the costs of providing interconnection, our costs could increase and our revenues could decline. In addition, with such a denial, competitors could enjoy
benefits that would make their services more attractive than if they did not receive interconnection rights. With the exception of certain requests by us to
modify the May 24, 2004 implementation date for local number portability in certain states, we have not encountered a need to file any requests for suspension
or modification of the interconnection requirements.
22