FairPoint Communications 2010 Annual Report Download - page 52

Table of Contents
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 converted 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 “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 acquired from Verizon. These
services were provided by Verizon under the Transition Services Agreement from March 31, 2008 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.
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. Because of these Cutover
issues, we have incurred incremental costs in order to operate our business, including third-party contractor costs and internal labor costs in the form of
overtime pay. By the end of 2010, we have substantially stabilized the back-office systems. We continue to work on improving our processes and systems to
support revenue growth, enhance customer service and increase operational efficiency.
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Upon our emergence from Chapter 11 on January 24, 2011, we adopted fresh start accounting pursuant to which our reorganization value, which
represents the fair value of an entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity
immediately after the reorganization, has been allocated to the fair value of assets in conformity with guidance under the applicable accounting rules for
business combinations, using the purchase method of accounting for business combinations. In addition to fresh start accounting, our future consolidated
financial statements will reflect all effects of the transactions contemplated by the Plan, therefore our future statements of financial position and statements of
operations will not be comparable in many respects to our consolidated statements of financial position and consolidated statements of operations for periods
prior to our adoption of fresh start accounting and prior to accounting for the effects of the reorganization, including the financial statements contained in this
Annual Report on Form 10-K.
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