FairPoint Communications 2011 Annual Report Download - page 38

Table of Contents
 . We receive federal Universal Service Fund Support, referred to as the Universal Service
Fund, and in some cases, state universal support, to support our operations in high-cost areas. Through 2011, these federal revenues include Universal
Service Support payments for local switching support, ICLS, or Interstate Access Support (“IAS”). High-cost support for our Northern New England
operations, referred to as our non-rural operations or non-rural LECs, and for Telecom Group’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. Effective January 1, 2012, the FCC
has replaced all pre-2012 universal service programs with new CAF programs. These changes could result in a reduction to the USF revenues we receive. If we
were unable to receive such support, or if that support was reduced, our Telecom 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 CAF/ICC Order in “Item 1. Business – Regulatory
Environment.”
The FCC also is considering changes to its rules governing who contributes to the Universal Service Fund Support mechanisms, and on what basis.
Any changes in the FCC’s rules governing 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.
 . 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 that it is in the public interest to extend some or all of these requirements to our
rural LECs, we may be required to provide UNEs to competitors in our rural telephone company areas. As a result, more competitors could enter our
traditional telephone markets than are currently expected, which could have a material adverse effect on our business, financial condition, results of
operations, liquidity and/or the market price of our Common Stock.
. Regulations create significant compliance costs for us. Subsidiaries that provide intrastate services are
generally subject to certification, tariff filing and other ongoing regulatory requirements by state regulators. Our interstate and intrastate access services are
currently provided in accordance with tariffs filed with the FCC and state regulatory authorities, respectively. Challenges in the future to our tariffs by
regulators or third parties or delays in obtaining certifications and regulatory approvals could cause us to incur substantial legal and administrative expenses,
and, if successful, these challenges could adversely affect the rates that we are able to charge our customers, which could have a material adverse effect on our
business, financial condition, results of operations, liquidity and/or the market price of our Common Stock.
In addition, our non-rural operations are subject to regulations not applicable to our rural operations, including but not limited to requirements relating to
interconnection, the provision of UNEs, and the other market-opening obligations set forth in the 1996 Act. In approving the transfer of authorizations to us
in the Merger, the FCC determined that our non-rural operations would be regulated as a Bell Operating Company following the completion of the Merger,
subject to the same regulatory requirements that currently apply to the other Bell Operating Companies. The FCC also stated that we would be entitled to the
same regulatory relief that Verizon New England had obtained in the region. Any changes made in connection with these obligations could increase our non-
rural operations’ costs or otherwise have a material adverse effect on our business, financial condition, results of operations, liquidity and/or the market price
of our Common Stock. Moreover, we cannot predict the precise manner in which the FCC will apply the Bell Operating Company regulatory framework to us.
State regulators have also imposed conditions in various regulatory proceedings that could materially adversely affect our business, financial condition,
results of operations, liquidity and/or the market price of our Common Stock. For example, in connection with the Merger and the Chapter 11 Cases, state
regulatory authorities in Maine, New Hampshire and Vermont imposed certain requirements with respect to our operations in those states. See “Item 1.
Business – Regulatory Environment – State Regulation – Regulatory Conditions to the Merger, as Modified in Connection with the Plan.”
Our business also may be affected by legislation and regulation imposing new or greater obligations related to open Internet access, assisting law
enforcement, bolstering homeland security, minimizing environmental impacts, protecting customer privacy or addressing other issues that affect our
business. We cannot predict whether or to what extent the FCC might modify its rules or what compliance with those new rules might cost. Similarly, we
cannot predict whether or to what extent federal or state legislators or regulators might impose new network access, security, environmental or other obligations
on our business.
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