Windstream 2010 Annual Report Download - page 70

Windstream Corporation
Form 10-K, Part I
Inter-carrier Compensation
In October 2007, Verizon filed a complaint with the Ohio Public Utility Commission (“PUC”) alleging that the
Company’s intrastate access rates are excessive and should be reduced to the same levels charged by the largest ILECs
in Ohio, or in the alternative, to the Company’s interstate access rate levels. In November 2010, the Ohio PUC opened
a generic proceeding and released a proposed plan to reform inter-carrier compensation. If the proposed plan is
adopted, it will not have a material impact on the Company’s operations.
In December 2007 and February 2008, Verizon filed complaints with the Kentucky PSC and the Georgia PSC similar
to the complaint filed in Ohio. In these cases, Verizon also alleged that the Company’s intrastate access rates are
excessive and should be reduced to the level currently charged by AT&T. In November 2010, the Kentucky PSC
closed Verizon’s complaint and opened a comprehensive investigation into the reasonableness of the intrastate
switched access rates of all local exchange carriers in Kentucky. The Company cannot estimate at this time the
financial impact, if any, that may result from changes to the inter-carrier compensation mechanism in Kentucky. In
June 2010, Georgia enacted a new law that requires ILECs to reduce intrastate switched access rates to interstate levels
over a five-year period. To compensate for switched access revenue reductions, the law permits ILECs to increase local
rates and established a new state universal service fund. The new law is not expected to have a material impact on the
Company’s revenues and expenses.
In March 2009, AT&T filed a complaint with the Pennsylvania PUC alleging that intrastate access rates charged by
many ILECs, including the Company, are not just and reasonable and should be reduced to interstate access rate levels.
Parties to this proceeding have presented their case and are awaiting a final decision by the Pennsylvania PUC. The
Pennsylvania PUC is not required to take action by a specific date. At this time, the Company cannot estimate the
financial impact of this decision due to the various options the PUC could consider if it ruled in Complainant’s favor.
In November 2009, Sprint requested that the North Carolina Utilities Commission (“NCUC”) reduce intrastate
switched access rates as charged by many companies, including Windstream, to an updated cost-basis or, in the
alternative, to interstate access rate levels. The NCUC ordered carriers to develop an inter-carrier compensation reform
plan by January 2011. The proposed plan recommends reducing intrastate switched access rates to interstate levels over
a three-year period coupled with modest local rate increases and the establishment of a state universal service fund.
The proposed plan, if adopted by the NCUC, will not have a material impact on the Company’s revenues and expenses.
Universal Service
We recognize revenue from the receipt of state universal service funds in a limited number of states in which we
operate. In 2010, Windstream recognized $135.8 million in state universal service revenue. These payments are
intended to provide additional support, beyond the federal universal service receipts, for the high cost of operating in
certain rural markets. For the year ended December 31, 2010, Windstream received approximately $99.3 million from
the Texas USF. There are two high-cost programs of the Texas USF, one for large companies and another for small
companies. In 2010, Windstream received $88.2 million from the large company program and $11.1 million from the
small company program. The purpose of the Texas USF is to assist telecommunications providers in providing basic
local telecommunications services at reasonable rates to customers in high cost rural areas and to qualifying
low-income and disabled customers. By order of the Texas PUC, the Texas USF distributes support to eligible carriers
serving areas identified as high cost, on a per-line basis. Texas USF support payments are based on the number of
actual lines in service and therefore are subject to reductions when customers discontinue service or migrate to a
competitive carrier. All service providers of telecommunications services in Texas contribute to the Texas USF through
the payment of a monthly surcharge by their customers.
The Pennsylvania PUC is currently conducting a review of its universal service fund. The review is focused on various
aspects of the fund as they pertain to the basic rates of eligible USF recipient companies and the impact of their
alternative regulation plans. The Company receives $13.3 million annually from the fund. The Company cannot
estimate at this time the financial impact that would result from the changes, if any, to the Pennsylvania universal
service fund.
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