FairPoint Communications 2011 Annual Report Download - page 17

Table of Contents
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 Telecom Group 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 the Telecom Group 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.
Long-Distance Operations
The FCC has required that ILECs that provide interstate long-distance services originating from their local exchange service territories must do so in
accordance with “non-structural separation” rules. These rules have required that our long-distance affiliates (i) maintain separate books of account, (ii) not
own transmission or switching facilities jointly with the local exchange affiliate and (iii) acquire any services from their affiliated LEC at tariffed rates, terms
and conditions. The Bell Operating Companies are subject to a different set of rules allowing them to offer both long-distance and local exchange services in the
regions where they operate as Bell Operating Companies, subject to certain conditions with which we comply. In addition, our operations have been obligated
under the FCC’s “equal access” scripting requirement to read new customers a list of all available long-distance carriers presented in random order. Not all of
our competitors must comply with these requirements. Therefore, these requirements may put us at a competitive disadvantage in the interstate long-distance
market. The FCC recently ruled that the Bell Operating Companies need no longer comply with these rules for their long-distance services in order to avoid
classification as a dominant carrier, and that their ILEC affiliates need no longer comply with the separation rules for their long-distance services, provided
that they comply with certain existing and additional safeguards, such as providing special access performance metrics, offering low-volume calling plans and
making available certain monthly usage information on customers’ bills. The FCC also has ruled that the Bell Operating Companies and their ILEC affiliates
are no longer required to comply with the equal access scripting requirement. However, until similar relief is granted in each state by the state public utility
commission (“PUC”), we will continue to comply with the equal access scripting requirements.
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