Windstream 2011 Annual Report Download - page 123

F-15
Federal Regulation and Legislation
Intercarrier Compensation and USF Reform
On November 18, 2011, the FCC released an order ("the Order") which established a framework for reform of the intercarrier
compensation system and the federal USF. The Order included two major provisions:
• the elimination of terminating switched access rates and other per-minute terminating charges between service
providers by 2018, through annual reductions in the rates, and
• the provision of additional USF support on a temporary basis.
In reforming USF support, the Order also established interim rules for the establishment of the Connect America Fund
("CAF"), which could result in our incumbent subsidiaries being eligible for increased universal service support to expand
broadband service to areas that are unserved today. We have filed a petition for reconsideration with the FCC to ensure we are
eligible to receive incremental universal service support during the interim period. Longer term, the FCC opened an additional
rule-making to develop and adopt final rules to the CAF funding based on a forward-looking cost model to extend broadband to
high-cost areas. We believe the Order provides reasonable opportunities to recover a majority of the revenue losses resulting
from the elimination of access charges through modest end-user rate increases.
We believe the steps we have taken to diversify our revenue streams and focus on growth opportunities will help us navigate
through this transition without significant adverse effects. However, our analysis is based on significant assumptions and our
interpretation of this Order and there may be contravening views and different assumptions that could lead to a more adverse
financial impact.
In 2011 and 2010, we received $301.5 million and $310.5 million in intercarrier compensation revenues, respectively. In
addition, intercarrier and reciprocal compensation expense totaled $81.6 million and $98.7 million for the years ended
December 31, 2011 and 2010, respectively. In addition, during 2011 and 2010, we received $169.7 million and $160.0 million,
respectively, in federal universal service support.
Broadband Stimulus
On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (“ARRA”) was signed into law. Among other
things, the ARRA allocated approximately $7.2 billion for the expansion of broadband services to unserved and underserved
areas. The Rural Utilities Service ("RUS"), which is part of the United States Department of Agriculture, approved eighteen of
our applications in thirteen states. The total estimated cost of these projects is $241.7 million, of which the RUS will fund 75
percent, or $181.3 million, and we will fund the remaining 25 percent, or $60.4 million. We began these projects in the first
quarter of 2011, and we expect to substantially complete the RUS projects by the end of 2013 and complete the projects well
before June 30, 2015. To date, we have received reimbursement for $4.0 million in grant funds and have requested
reimbursement for an additional $1.7 million. Additionally, we have a receivable of $16.0 million for eligible capital
expenditures that we have not yet filed for reimbursement.
Selected information related to the broadband stimulus expenditures and receipts for the year ended December 31, 2011 is as
follows:
(Millions)
Stimulus capital expenditures funded by RUS
Stimulus capital expenditures funded by Windstream (a)
Total stimulus capital expenditures
Funds received from RUS
$ 21.7
7.2
28.9
$ 4.0
(a) Stimulus capital expenditures funded by Windstream are included in our capital expenditure totals for each period
presented in the statements of cash flows.
By accepting the grant funds, we agreed to certain long-term conditions. The RUS will have a retained security interest in the
assets over their economic life, which varies by grant but is up to 23 years. In the event of default of terms of the agreement,
the government could exercise the rights under its retained security interest to gain control and ownership of these assets. In
addition, in the event of a proposed change in control of Windstream, the acquiring party would need to receive approval from
the RUS prior to effectuating the proposed transaction, for which pre-approval will not be reasonably withheld.