FairPoint Communications 2013 Annual Report Download - page 27

25
The geographic concentration of our operations in Maine, New Hampshire and Vermont make our business susceptible to
local economic and regulatory conditions and consumer trends, and an economic downturn, recession or unfavorable regulatory
action in any of those states may materially adversely affect our business, financial condition, results of operations, liquidity
and/or the market price of our outstanding securities.
Our service territory spans 17 states. As of December 31, 2013, we had approximately 1.2 million access line equivalents,
of which approximately 85% are located in Maine, New Hampshire and Vermont (including certain of our Telecom Group service
companies). As a result of this geographic concentration, our financial results will depend significantly upon economic conditions
and consumer trends in these markets. From January 1, 2013 through December 31, 2013, our operations in Maine, New Hampshire
and Vermont (including certain of our Telecom Group service companies) experienced a 5.0% decline in total access line equivalents
in service, compared to a decline of 5.3% for the remainder of our operations during the same period on a pro forma basis after
giving effect to the divestiture of our operations in Idaho. Deterioration in economic conditions in any of these markets could
result in a further decrease in demand for our services and resulting loss of access line equivalents which could have a material
adverse effect on our business, financial condition, results of operations, liquidity and/or the market price of our outstanding
securities.
In certain areas of our service territory, the need for our services is seasonal (including either winter or summer), which may
result in revenue fluctuations quarter over quarter. While we attempt to forestall seasonal disconnects or seasonal suspends, some
revenue fluctuations continue to occur and once a customer disconnects or suspends, he or she may not return as a customer.
In addition, if state regulators in Maine, New Hampshire or Vermont were to take an action that is adverse to our operations
in those states, we could suffer greater harm from that action by state regulators than we would from action in other states because
of the concentration of our operations in those states.
We may need to defend ourselves against claims that we infringe upon others' intellectual property rights or may need to seek
third-party licenses to expand our product offerings.
From time to time, we receive notices from third parties or are named in lawsuits filed by third parties claiming we have
infringed or are infringing upon their intellectual property rights. We may receive similar notices or be involved in similar lawsuits
in the future. Responding to these claims may require us to expend significant time and money defending our use of affected
technology, may require us to enter into licensing agreements requiring license payments that we would not otherwise have to pay
or may require us to pay damages. If we are required to take one or more of these actions, our operating expenses may increase.
In addition, in responding to these claims, we may be required to stop selling or redesign one or more of our products or services,
which could significantly and adversely affect the way we conduct business.
Similarly, from time to time, we may need to obtain the right to use certain patents or other intellectual property from third
parties to be able to offer new products and services. If we cannot license or otherwise obtain rights to use any required technology
from a third party on reasonable terms, our ability to offer new products and services may be restricted, made more costly or
delayed.
We depend on third party providers for certain of our billing functions, IT services, including network support and improvements,
and for the provision of our long distance and bandwidth services.
We have agreements with outside service providers to perform a portion of our billing functions and for our provision of
long distance and bandwidth services. We also rely on certain third parties for IT services, including network support and
improvements.
If these service providers are unable to adequately perform such services or if one of them experiences a significant degradation
or failure with respect to such services, it could result in disruptions in our billing, IT systems and/or our long distance and
bandwidth services. Furthermore, if these agreements are terminated for any reason, we may be unable to find an alternative service
provider in a timely manner or on terms acceptable to us, and may be unable ourselves to perform the services they provide.
With respect to the agreements governing our long distance and bandwidth services, these agreements are based, in part, on
our estimate of future supply and demand and may contain minimum volume commitments. If we overestimate demand, we may
be forced to pay for services we do not need. If we underestimate demand, we may need to acquire additional capacity on a short-
term basis at unfavorable prices, assuming additional capacity is available. If additional capacity is not available, we may not be
able to meet this demand. In addition, if we cannot meet any minimum volume commitments, we may be subject to underutilization
charges, termination charges or rate increases.
If any of the foregoing events occur with respect to our third-party providers, our business, financial condition, results of
operations, liquidity and/or the market price of our outstanding securities could be materially adversely affected.