Windstream 2006 Annual Report Download - page 82

Windstream Corporation
Form 10-K, Part I
Item 1A. Risk Factors
Future revenues, costs, and capital investment in our wireline business could be adversely affected by material changes to
these regulations, including, but not limited to, changes in inter-carrier compensation, state and federal USF support, UNE
and UNE-P pricing and requirements, and VoIP regulation. Federal and state communications laws may be amended in
the future, and other laws may affect our business. In addition, certain laws and regulations applicable to us and our
competitors may be, and have been, challenged in the courts and could be changed at any time. We cannot predict future
developments or changes to the regulatory environment or the impact such developments or changes would have.
In addition, these regulations could create significant compliance costs for us. Delays in obtaining certifications and
regulatory approvals could cause us to incur substantial legal and administrative expenses, and conditions imposed in
connection with such approvals could adversely affect the rates that we are able to charge our customers. Our business
also may be affected by legislation and regulation imposing new or greater obligations related to assisting law
enforcement, bolstering homeland security, minimizing environmental impacts, or addressing other issues that impact
our business. For example, existing provisions of the Communications Assistance for Law Enforcement Act require
communications carriers to ensure that their equipment, facilities, and services are able to facilitate authorized
electronic surveillance. Our compliance costs will increase if future legislation, regulations or orders continue to
increase our obligations.
In 2006, the Company received approximately 8% of its revenues from state and federal Universal Service Funds,
and any adverse regulatory developments with respect to these funds could adversely affect our profitability.
We receive state and federal USF revenues to support the high cost of providing affordable telecommunications
services in rural markets. Such support payments constituted approximately 8% of the Company revenues for the year
ended December 31, 2006. A portion of such fees are based on relative cost structures, and we expect receipt of such
fees to decline as we continue to reduce costs. Pending regulatory proceedings could, depending on the outcome,
materially reduce our USF revenues.
We will be required to make contributions to state and federal USFs each year. Current state and federal regulations
allow us to recover these contributions by including a surcharge on our customers’ bills. If state and/or federal
regulations change, and we become ineligible to receive support, such support is reduced, or we become unable to
recover the amounts we contribute to the state and federal USFs from our customers, our earnings and cash flow from
operations would be directly and adversely affected.
We may be affected by significant restrictions with respect to certain actions that could jeopardize the tax-free status
of our July 17, 2006 merger and spin-off.
The July 17, 2006 merger agreement restricts us from taking certain actions that could cause the spin-off to be taxable
to Alltel under Section 355(e) of the Internal Revenue code or otherwise jeopardize the tax-free status of the spin-off or
the merger (which the merger agreement refers to as “disqualifying actions”), including:
• Generally, for two years after the spin-off, taking, or permitting any of our subsidiaries to take, an action that
might be a disqualifying action without receiving the prior consent of Alltel;
• For two years after the spin-off, entering into any agreement, understanding or arrangement or engaging in any
substantial negotiations with respect to any transaction involving the acquisition of our stock or the issuance of
shares of our stock, or options to acquire or other rights in respect of such stock, in excess of a permitted basket of
71,130,989 shares (as adjusted for stock splits, stock dividends, recapitalizations, reclassifications and similar
transactions), unless, generally, the shares are issued to qualifying employees or retirement plans, each in
accordance with “safe harbors” under regulations issued by the IRS;
• For two years after the spin-off, repurchasing our shares, except to the extent consistent with guidance issued by
the IRS;
• For two years after the spin-off, permitting certain wholly-owned subsidiaries that were wholly-owned subsidiaries
of Alltel Holding Corp. at the time of the spin-off to cease the active conduct of the Windstream business to the
extent so conducted by those subsidiaries immediately prior to the spin-off; and
• For two years after the spin-off, voluntarily dissolving, liquidating, merging or consolidating with any other
person, unless (1) we are the survivor of the merger or consolidation or (2) prior to undertaking such action, we
receive the prior consent of Alltel.
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