FairPoint Communications 2010 Annual Report Download - page 43

Table of Contents
required contributions could have a material adverse impact on our business, financial condition, results of operations, liquidity and/or the market price of
our Common Stock.
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We operate in a heavily regulated industry. Laws and regulations applicable to us and our competitors may be, and have been, challenged in the courts, and
could be changed by Congress or regulators. In addition, the following factors could have a significant impact on us:
Risk of loss or reduction of network access charge revenues. A portion of our revenues comes from network access charges, which are paid to us by
intrastate and interstate interexchange carriers for originating and terminating communications in the regions served. This also includes Universal Service
Support payments for local switching support, long-term support, and ICLS. In recent years, several of these long-distance carriers have declared bankruptcy.
Future declarations of bankruptcy by a carrier that utilizes our access services could negatively affect our business, financial condition, results of operations,
liquidity and/or the market price of our Common Stock.
The amount of access charge revenues that we receive is based on rates set by federal and state regulatory bodies, and those rates could change in the future.
Further, from time to time federal and state regulatory bodies conduct rate cases, “earnings” reviews, or make adjustments to price cap formulas that may
result in rate changes. In addition, reforms of the federal and state access charge systems, combined with the development of competition, have caused the
aggregate amount of access charges paid by long-distance carriers to decrease. Additional reforms have been proposed. If any of the currently proposed reforms
were adopted by the FCC it would likely involve significant changes in the access charge system and, if not offset by a revenue replacement mechanism,
could potentially result in a significant decrease in or elimination of access charges. Decreases in or loss of access charges may or may not result in offsetting
increases in local, subscriber line or Universal Service Support revenues. Regulatory developments of this type could materially adversely affect our business,
financial condition, results of operations, liquidity and/or the market price of our Common Stock.
Risk of loss or reduction of Universal Service Fund support . We receive federal Universal Service Support, referred to as the Universal Service Fund,
and in some cases, state universal support, to support our operations in high-cost areas. These federal revenues include Universal Service Support payments
for local switching support, ICLS, or IAS. High-cost support for our Northern New England operations, referred to as our non-rural operations or non-rural
LECs, and for Legacy FairPoint’s traditional, rural local exchange operations, referred to as our rural operations or rural LECs, is determined pursuant to
different methodologies, aspects of which are now under review. The 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. See discussion of FCC NPRM in “Part I— Item 1. Business — Regulatory Environment — Universal Service Support.”
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 the Universal Service Fund could have a material adverse effect on our business, financial condition, results of operations,
liquidity and/or the market price of our Common Stock.
Risk of loss of statutory exemption from burdensome interconnection rules imposed on ILECs . 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
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