FairPoint Communications 2013 Annual Report Download - page 32

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universal service funding were replaced by CAF. See "Item 1. Business—Regulatory Environment" included elsewhere in this
Annual Report.
In the CAF/ICC Order, the FCC replaced all existing USF funding for price cap carriers with CAF funding. The amount of
CAF funding that will be available to us has not been determined nor have the specific obligations that would be associated with
such funding. We risk significant reductions in the amount of CAF funding that will be made available to us compared to current
CAF Phase I frozen support. The specific obligations that will be associated with future CAF funding have not been determined
and we risk not being able to accept CAF funding if the obligations exceed the funding. The CAF/ICC Order fundamentally
reforms the ICC system that governs how communications companies bill one another for terminating traffic, gradually phasing
out these charges. Additional reforms have been proposed. The reforms adopted by the FCC in its order will significantly change
the access charge system and, if not offset by a revenue replacement mechanism, could potentially result in a significant decrease
in or elimination of access charges. Regulatory developments of this type could materially adversely affect our business, financial
condition, results of operations, liquidity and/or the market price of our outstanding securities.
Risk of re-regulation of wholesale network services provided to retail and wholesale customers. Pursuant to forbearance
from the regulation of high-speed interstate services that was deemed granted to Verizon in 2006 and transferred to FairPoint by
the FCC in its order approving the Merger, we offer high-speed interstate services on a deregulated basis. The FCC has initiated
a proceeding to investigate potential changes to the regulation of special access services. Several parties filed petitions in 2011
and 2012 asking the FCC to reverse the 2006 forbearance granted to Verizon. The FCC has issued a comprehensive data request
to gather granular information from all providers of special access-like high speed services, with this data request likely to be due
later in 2014. The purpose of the data request is to provide the FCC with information that can be used to evaluate competition
for special access-like services. It is not clear what actions, if any, the FCC will take in these proceedings. Orders resulting from
these proceedings could adversely affect pricing and regulation of these services.
The FCC also is considering changes to its rules governing who contributes to the USF support mechanisms, and on what
basis. Any changes in the FCC’s rules governing the manner in which entities contribute to the USF could have a material adverse
effect on our business, financial condition, results of operations, liquidity and/or the market price of our outstanding securities.
Risk of loss of statutory exemption from burdensome interconnection rules imposed on ILECs. 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 outstanding securities.
Risks posed by costs of regulatory compliance. Regulations create significant compliance and administrative costs for us.
Our 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 outstanding
securities.
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
subject to the same regulatory requirements that currently apply to 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 or relief 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 outstanding securities. Moreover, we
cannot predict the precise manner in which the FCC will apply the Bell Operating Company regulatory framework to us.
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, pole attachments, 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.