FairPoint Communications 2011 Annual Report Download - page 23

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Table of Contents

On December 23, 2010, the Vermont Board provided its approvals in Vermont, including the Regulatory Settlement for Vermont (the “Vermont
Regulatory Settlement”). The Vermont Regulatory Settlement provides for, among other things, the following:

• In general, all of the service quality programs contained in the January 8, 2008 settlement agreement among Verizon, the Company and the
Department of Public Service (“DPS”) (the “VT 2008 Settlement”) and the February 15, 2008 Order RE: MODIFIED PROPOSAL IN
Docket Number 7270 (the “VT 2008 Order”) will remain in place subject to certain modifications described in the Vermont Regulatory
Settlement.
• Final settlement of SQI penalties for 2008 and 2009 was deferred until our 2010 SQI results were approved by the Vermont Board. Ten
performance metrics were identified, and for each metric that we met in 2010, the 2008 and 2009 penalties would be reduced by 10%. Our
final 2010 SQI results in Vermont indicated that we had met nine of the ten service level requirements resulting in 90% of the deferred SQI
penalties for 2008 and 2009 being waived. We requested that the remaining Amended Retail Service Quality Plan and performance
assurance plan (“PAP”) Mode of Entry penalties of $6.6 million be used to deploy broadband into unserved areas of Vermont. The
Vermont Board has approved this request.

• We would undertake to deploy broadband services to 95% of all access lines in those exchanges that had been identified for 100%
broadband availability in the VT 2008 Order (the “100% Exchanges”) by June 30, 2011. We believe we met this obligation. With respect to
the remaining 5% of lines in the 100% Exchanges, we will deploy broadband to any requesting customer using an extended service interval
of 90 days from the date of the receipt of the order from the customer, provided such order was made no sooner than June 30, 2011.
Failure to meet such requirements will require us to waive certain service charges.
• We also will request that the Vermont Board authorize us to use high-cost USF funds for three consecutive years to upgrade local loop
plant and infrastructure in order to improve our service quality and network reliability. If the Vermont Board authorizes us to use the high-
cost USF funds, and to the extent permitted by FCC rules, we may invest the high-cost USF funds in network infrastructure that will
support the deployment of broadband services to an additional 5% of access lines on a timeline that varies depending on the date of the
Vermont Board’s authorization. This request is no longer applicable due to a similar provision included in a successor incentive regulation
plan (the “2011 Incentive Regulation Plan”) which is further described below.
• We will have the option to resell terrestrial (non-satellite) based service providers’ broadband service offerings in order to fulfill our
broadband build-out and/or service requirements as contained in the VT 2008 Order, provided that the services meet or exceed all
requirements of the VT 2008 Order as modified by the Vermont Regulatory Settlement and the resold services are purchased through and
serviced by us.
• Penalty amounts resulting from any failure to meet broadband deployment requirements will be managed by us with funds deposited into
an escrow account with an escrow agent, which will reimburse us for costs incurred for additional network projects completed within 18
months of the date of the penalty, such projects subject to the approval of the DPS. We believe that we have completed the build-out
obligation and are not subject to any penalties.

• We believe that we have met the capital commitment of the VT 2008 Order to invest $120 million by March 31, 2011.

• Certain of the financial conditions of the VT 2008 Settlement and the VT 2008 Order are replaced by the terms of the Vermont Regulatory
Settlement and are satisfied or rendered moot by the debt reductions resulting from the Plan.

• Our board of directors is required to consist of a supermajority of newly appointed independent directors and at least one member of the
board of directors must reside in northern New England. We are in compliance with this obligation.
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