FairPoint Communications 2013 Annual Report Download - page 42

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(1) On January 31, 2013, we completed the sale of our operations in Idaho which accounted for 5,604 and 5,536 access
line equivalents as of December 31, 2012 and 2011, respectively.
Voice Services Revenues
We receive revenues through the provision of local calling services to business and residential customers, generally for a
fixed monthly charge and service charges for special calling features. We also generate revenue through long distance services
within our service areas on our network and through resale agreements with national interexchange carriers. In addition, through
our wholly-owned subsidiary, FairPoint Carrier Services, Inc., we provide wholesale long distance services to communications
providers that are not affiliated with us. For the years ended December 31, 2013 and 2012, voice access lines in service decreased
7.7% and 7.8% year-over-year, respectively, which directly impacts local voice services revenues and our opportunity to provide
long distance services to our customers, resulting in a decrease of minutes of use. Excluding divestitures, on a pro forma basis,
voice access lines in service for the years ended December 31, 2013 and 2012 would have declined 7.1% and 7.7% year-over-
year, respectively. We expect the trend of decline in voice access lines in service, and thereby a decline in aggregate voice services
revenue, to continue as customers are turning to the use of alternative communication services as a result of ever-increasing
competition.
We were subject to retail service quality plans in the states of Maine, New Hampshire and Vermont for the years ended
December 31, 2012 and 2011, pursuant to which we incurred SQI penalties resulting from any failure to meet the requirements
of the respective plans. In New Hampshire, the retail service quality plan was eliminated by SB 48, which was effective August
10, 2012, thereby extinguishing our exposure to SQI penalties in that state. In Vermont, effective March 31, 2013 we were no
longer subject to the retail service quality plan based on our achievement of certain retail service quality metrics. We were still
subject to the retail service quality plan in Maine through July 31, 2013; however, under the Maine Deregulation Legislation
enacted in August 2012, SQI penalties were eliminated starting in August 2013.
We adopted a separate performance assurance plan ("PAP") for certain services provided on a wholesale basis to CLECs in
each of the states of Maine, New Hampshire and Vermont, pursuant to which we are required to issue performance credits in the
event we are unable to meet the provisions of the respective PAP. Our maximum exposure to penalties under the PAPs has not
been reduced by deregulation legislation in Maine and New Hampshire or by the IRP adopted in Vermont.
We receive support to supplement the amount of local service revenue received by us to ensure that basic local service rates
for customers in high-cost areas are consistent with rates charged in lower cost areas. Prior to 2012, these subsidies were provided
through the USF high-cost support program. Beginning in 2012, all forms of support under the USF were replaced with CAF
Phase I frozen support. A portion of the CAF Phase I frozen support represents high-cost loop funding and is recorded as voice
services revenue. We expect to receive the same level of CAF Phase I frozen support revenue in 2014, plus or minus small
adjustments recorded during the respective quarters and adjusted for the divestiture of the Idaho operations, until the FCC completes
its proceedings to adopt a CAF cost model and develop CAF Phase II for our operating areas. The FCC has announced its expectation
to complete its CAF II model development, establish all obligations associated with the CAF II program, and offer support to
price cap carriers by the end of 2014. If so, CAF II funding could be implemented during 2015. We cannot determine whether
we will accept or refuse any funding under the CAF Phase II support programs until all obligations associated with the funding
have been determined.
The following table reflects the primary drivers of year-over-year changes in voice services revenues (in millions):
Year Ended Year Ended
December 31, 2013 December 31, 2012
Increase (Decrease) % Increase (Decrease) %
Local voice services revenues, excluding: $ (33.5) $ (27.5)
Divestiture of Idaho-based operations (2.9) —
(Increase) decrease in accrual of PAP penalties (1) 2.1 (1.3)
Decrease in high-cost loop credits to customers (2) 0.8 2.7
(Increase) decrease in accrual of SQI penalties (3) 0.3 (3.9)
Long distance services revenues (7.8) (7.6)
Total changes in voice services revenues $ (41.0) (9)% $ (37.6) (8)%
(1) During the years ended December 31, 2013, 2012 and 2011, local voice services revenues were reduced by $0.7 million,
$2.8 million and $1.5 million, respectively, as a result of our failure to meet specified performance standards as defined
by the provisions of the separate PAPs in Maine, New Hampshire and Vermont. In fiscal years 2012 and 2011, a majority
of the penalty credits resulting from these commitments were recorded as a reduction to local voice services revenues