Windstream 2014 Annual Report Download - page 132

F-16
Discontinued Operations, net of tax
On December 5, 2013, we completed the sale of Pinnacle Software Company, a software business acquired as part of the PAETEC
acquisition, which provided comprehensive solutions for supporting the full lifecycle of information technology and
telecommunications services. On June 15, 2012, we completed the sale of the energy business also acquired as part of the PAETEC
acquisition, which operated as a competitive energy supplier and sold electricity to business and residential customers in certain
geographic regions in the state of New York. The operating results of the software and energy businesses have been separately
presented as discontinued operations in the accompanying consolidated statements of operations. See Note 14 to the consolidated
financial statements for additional information.
Regulatory Matters
We are subject to regulatory oversight by the FCC for particular interstate matters and state public utility commissions (“PUCs”)
for certain intrastate matters. We are also subject to various federal and state statutes that direct such regulations. We actively
monitor and participate in proceedings at the FCC and PUCs and engage federal and state legislatures on matters of importance
to us.
From time to time federal and state legislation is introduced dealing with various matters that could affect our business. Most
proposed legislation of this type never becomes law. Accordingly, it is difficult to predict what kind of legislation, if any, may be
introduced and ultimately become law.
Federal Regulation and Legislation
Intercarrier Compensation and USF Reform
On November 18, 2011, the FCC released an order (“the Order”) that established a framework for reform of the intercarrier
compensation system and the federal USF. The Order included two primary 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, mitigated in some cases by two recovery mechanisms; and
 the provision of USF support for voice and broadband services.
In reforming the USF, the Order established the Connect America Fund (“CAF”), which included a short-term (“CAF Phase 1”)
and a longer-term (“CAF Phase 2”) framework. CAF Phase 1 provides for continued legacy USF funding frozen at 2011 levels
as well as the opportunity for incremental broadband funding to a number of unserved and underserved locations. In Round 2 of
CAF Phase I incremental support, we were authorized to receive an additional $86.7 million in support for upgrades and new
deployments of broadband service. Of the total amount of $86.7 million made available to us, we received $60.7 million in
December 2013 and the remaining $26.0 million in the first quarter of 2014. Pursuant to commitments we made while the FCC
was considering the rules for Round 2, we will match, on at least a dollar-for-dollar basis, the total amount of Round 2 funding
received. The portion of capital expenditures funded by us are included in our capital expenditure totals for each period presented
in the accompanying consolidated statements of cash flow.
The FCC recently established final rules for CAF Phase II funding based on a forward-looking cost model to further extend
broadband to high-cost areas. The FCC anticipates making the offer of CAF Phase II support for right-of-first-refusal (“ROFR”)
elections to price cap carriers, including us, in early 2015. When that offer occurs, the deadline for acceptance will be 120 days
later, anticipated to be in mid-2015. If we decline the ROFR election for any state, we will still be eligible to participate in a bidding
process, along with other interested competitors, for support in that state. In an order released in December 2014, the FCC stated
that it expected to be prepared to conduct the competitive bidding process in 2016. The rules for that process are still under
consideration by the FCC. At this time, we cannot predict what effects that the final CAF Phase II rules may have on our future
consolidated revenues, expenses, or cash flows. The final rules impose additional capital expenditure requirements for broadband
service expansion, which could have an adverse impact on our future liquidity. Until the implementation of CAF Phase II is
complete, the annual “legacy” USF funding will continue to be frozen at 2011 levels. We were required to use one-third of the
frozen legacy support to operate and build broadband networks in areas substantially unserved by an unsubsidized competitor in
2013. In 2014, this condition applied to two-thirds of the frozen legacy support, and in 2015 it increases to 100 percent. Our
expectation is that our legacy federal USF support will continue to be approximately the same until CAF Phase II is implemented.