Exhibit 99.1  RISK FACTORS  Except as
otherwise required by the context, references to we, ''us, or our refer to
the combined business of FairPoint Communications, Inc. and all of its
subsidiaries. Except as otherwise required by the context, all references to
the Company refer to FairPoint Communications, Inc. excluding its
subsidiaries. Capitalized terms have the meanings ascribed to them in the
Quarterly Report.  Any of the following risks could materially
adversely affect our business, consolidated financial condition, results of
operations or liquidity or the market price of our common stock. The risks
described below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial
may also materially and adversely affect our business operations.  Risks Relating to
Our Common Stock and Substantial Indebtedness  Our stockholders may not receive the level of
dividends provided for in the dividend policy our board of directors has
adopted or any dividends at all.  Our board of directors has adopted a dividend policy which reflects an
intention to distribute a substantial portion of the cash generated by our
business in excess of operating needs, interest and principal payments on our indebtedness,
dividends on our future senior classes of capital stock, if any, capital
expenditures, taxes and future reserves, if any, as regular quarterly dividends
to our stockholders. Our board of directors may, in its discretion, amend or
repeal this dividend policy. Our dividend policy is based upon our directors
current assessment of our business and the environment in which we operate, and
that assessment could change based on regulatory, competitive or technological
developments (which could, for example, increase our need for capital
expenditures) or new growth opportunities. In addition, future dividends with
respect to shares of our common stock, if any, will depend on, among other
things, our cash flows, cash requirements, financial condition, contractual
restrictions, provisions of applicable law and other factors that our board of
directors may deem relevant. Our board of directors may decrease the level of
dividends provided for in the dividend policy or entirely discontinue the
payment of dividends. Our credit facility contains significant restrictions on our
ability to make dividend payments, and the terms of our future indebtedness are
expected to contain similar restrictions. There can be no assurance that we
will generate sufficient cash from continuing operations in the future, or have
sufficient surplus or net profits, as the case may be, under Delaware law, to
pay dividends on our common stock in accordance with the dividend policy. The
reduction or elimination of dividends may negatively affect the market price of
our common stock.  To operate and expand our business, service our
indebtedness and complete future acquisitions, we will require a significant
amount of cash. Our ability to generate cash will depend on many factors beyond
our control. We may not generate sufficient funds from operations to pay
dividends with respect to shares of our common stock, to repay or refinance our
indebtedness at maturity or otherwise, or to consummate future acquisitions.  A significant amount of our cash flow from operations will be dedicated
to capital expenditures and debt service. In addition, we currently expect to
distribute a significant portion of our cash flow to our stockholders in the
form of quarterly dividends. As a result, we may not retain a sufficient amount
of cash to finance growth opportunities, including acquisitions, or
unanticipated capital expenditures or to fund our operations.  Our ability to make payments on our indebtedness will depend on our
ability to generate cash flow from operations in the future. This ability, to a
certain extent, will be subject to general economic, financial, competitive,
legislative, regulatory and other factors that will be beyond our control.
There can be no assurance that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us in an amount
sufficient to enable us to service our indebtedness, to make payments of principal
at maturity or to fund our other liquidity needs.  We may also be forced to raise additional capital or sell assets and,
if we are forced to pursue any of these options under distressed conditions, our
business and the value of our common stock could be adversely affected. In
addition, these alternatives may not be available to us when needed or on
satisfactory terms due to prevailing market


conditions, a decline in our business, legislative and regulatory
factors or restrictions contained in the agreements governing our indebtedness.  If we have insufficient cash flow to cover
the expected dividend payments under our dividend policy due to costs
associated with the Merger or other factors, we will be required to reduce or
eliminate dividends or, to the extent permitted under the agreements governing our
indebtedness, fund a portion of our dividends with additional borrowings.  If we do not have sufficient cash to fund dividend payments, we would
either reduce or eliminate dividends or, to the extent we are permitted to do
so under the agreements governing our indebtedness, fund a portion of our dividends
with borrowings or from other sources. If we were to use borrowings to fund
dividends, we would have less cash available for future dividends and other
purposes, which could negatively impact our business, financial condition and
our results of operations.  Our substantial indebtedness could restrict our
ability to pay dividends on our common stock and have an adverse impact on our
financing options and liquidity position.  We have a significant amount of indebtedness. This substantial
indebtedness could have important adverse consequences to the holders of our
common stock, including:  limiting our ability to pay dividends on our common
stock or make payments in connection with our other obligations, including
under our credit facility;  limiting our ability in the future to obtain
additional financing for working capital, capital expenditures or acquisitions;  causing us to be unable to refinance our indebtedness
on terms acceptable to us or at all;  limiting our flexibility in planning for, or
reacting to, changes in our business and the communications industry generally;  requiring a significant portion of our cash flow
from operations to be dedicated to the payment of interest, and to a lesser
extent, principal on our indebtedness, thereby reducing funds available for
future operations, dividends on our common stock, capital expenditures or
acquisitions;  making us more vulnerable to economic and industry
downturns and conditions, including increases in interest rates; and  placing us at a competitive disadvantage compared to
those of our competitors that have less indebtedness.  Subject to the covenants in the agreements governing our indebtedness, we
may incur additional indebtedness. Any additional indebtedness that we may
incur would exacerbate the risks described above.  In anticipation of the Merger, we will spend
a significant amount of money on assets and services that are not useful in our
existing business.  Prior to the closing of the Merger, we expect
to spend approximately $95 million to $110 million on infrastructure and
network systems integration and planning in connection with the transaction. Verizon
has agreed to reimburse us for up to $40 million of these pre-closing
transition costs. A significant portion of the amount we expect to spend on
pre-closing transition costs will be spent on assets and services which will
not be useful in our existing business. In addition, the amounts actually spent
on such transition costs may exceed budgeted amounts.  The Cempany is a holding company and relies
on dividends, interest and other payments, advances and transfers of funds from
its operating subsidiaries and investments to meet its debt service and other
obligations.


The Company is a holding company and conducts all of its operations
through its operating subsidiaries. The Company currently has no significant
assets other than equity interests in its subsidiaries. As a result, the
Company relies on dividends and other payments or distributions from its
operating subsidiaries to pay dividends with respect to its common stock and to
meet its debt service obligations generally. The ability of the Companys
subsidiaries to pay dividends or make other payments or distributions to the
Company will depend on their respective operating results and may be restricted
by, among other things:  the laws of their jurisdiction of organization;  the rules and regulations of state regulatory
authorities;  agreements of those subsidiaries;  the terms of agreements governing indebtedness of
those subsidiaries; and  regulatory orders.  The Companys subsidiaries have no obligation, contingent or otherwise,
to make funds available to the Company, whether in the form of loans, dividends
or other distributions.  Our credit facility contains covenants that
limit our business flexibility by imposing operating and financial restrictions
on our operations and the payment of dividends.  Covenants in our credit facility impose significant operating and
financial restrictions on us. These restrictions prohibit or limit, among other
things:  the incurrence of additional indebtedness and the
issuance by our subsidiaries of preferred stock;  the payment of dividends on, and purchases or
redemptions of, capital stock;  a number of other restricted payments, including
investments;  the creation of liens;  the ability of each of our subsidiaries to guarantee
indebtedness;  specified sales of assets;  the creation of encumbrances or restrictions on the
ability of our subsidiaries to distribute and advance funds or transfer assets
to us or any other subsidiary;  specified transactions with affiliates;  sale and leaseback transactions;  our ability to enter lines of business outside the
communications business; and  certain consolidations and mergers and sales and/or
transfers of assets by or involving us.  Our credit facility also contains covenants which require us to
maintain specified financial ratios and satisfy financial condition tests,
including, without limitation, a maximum total leverage ratio and a minimum
interest coverage ratio.


Our ability to comply with these covenants, ratios or tests contained
in our credit facility may be affected by events beyond our control, including
prevailing economic, financial and industry conditions. A breach of any of
these covenants, ratios or tests could result in a default under the agreements
governing our indebtedness. Events of default under our credit facility would
prohibit us from making dividend payments on our common stock. In addition,
upon the occurrence of an event of default under our credit facility, the
lenders could elect to declare all amounts outstanding under our credit
facility, together with accrued interest, to be immediately due and payable. If
we were to be unable to repay those amounts, the lenders could proceed against
the security granted to them to secure that indebtedness. If the lenders
accelerate the payment of the indebtedness under our credit facility, our
assets may not be sufficient to repay in full the indebtedness under our credit
facility and our other indebtedness, if any.  As
a result of general economic conditions, conditions in the lending markets, the
results of our business or for any other reason, we may elect or be required to
amend or refinance our credit facility, at or prior to maturity, or enter into
additional agreements for indebtedness. Any such amendment, refinancing or
additional agreement may contain covenants which could limit in a significant
manner our operations and our ability to pay dividends on our common stock.  Limitations on usage of net operating loss
carryforwards, and other factors requiring us to pay cash taxes in future
periods, may affect our ability to pay dividends to our stockholders.  Our initial public offering in February 2005 resulted in an ownership
change within the meaning of the U.S. federal income tax laws addressing net
operating loss carryforwards, alternative minimum tax credits and other similar
tax attributes. As a result of this ownership change, there are specific
limitations on our ability to use our net operating loss carryforwards and
other tax attributes from periods prior to the initial public offering.
Although it is not expected that these limitations will materially affect our
U.S. federal and state income tax liability in the near-term, it is possible in
the future that these limitations could limit our ability to utilize the
carryforwards and, therefore, result in an increase in our U.S. federal and
state income tax payments. In addition, in the future we will be required to
pay cash income taxes because all of our net operating loss carryforwards have
been used or have expired. Limitations on our usage of net operating loss
carryforwards, and other factors requiring us to pay cash taxes in the future,
would reduce the funds available for the payment of dividends and might require
us to reduce or eliminate the dividends on our common stock.  The price of our common stock may fluctuate
substantially, which could negatively affect holders of our common stock.  The market price of our common stock may fluctuate widely as a result
of various factors, such as period-to-period fluctuations in our operating results,
the volume of sales of our common stock, developments in the communications
industry, the failure of securities analysts to cover the common stock or
changes in financial estimates by analysts, competitive factors, regulatory
developments, economic and other external factors, general market conditions
and market conditions affecting the stock of communications companies in
particular. Communications companies have in the past experienced extreme
volatility in the trading prices and volumes of their securities, which has
often been unrelated to operating performance. High levels of market volatility
may have a significant adverse effect on the market price of our common stock.
In addition, in the past, securities class action litigation has often been
instituted against companies following periods of volatility in their stock
prices. This type of litigation could result in substantial costs and divert
managements attention and resources.  Our certificate of incorporation and by-laws and
several other factors could limit another partys ability to acquire us and deprive
our investors of the opportunity to obtain a takeover premium for their
securities.  A number of provisions in our certificate of incorporation and by-laws
make it difficult for another company to acquire us and for our stockholders to
receive any related takeover premium for their securities. For example, our
certificate of incorporation provides that certain provisions of the
certificate of incorporation can only be amended by a vote of two-thirds or
more in voting power of all the outstanding shares of capital stock, that
stockholders generally may not act by written consent, and only stockholders
representing at least 50% in voting power may request that the board of
directors call a special meeting. Our certificate of incorporation provides for
a classified board of directors and authorizes the issuance of preferred stock
without stockholder approval and upon such terms as the board of directors


may determine. The rights of the holders of shares of our common stock are
subject to, and may be adversely affected by, the rights of holders of any
class or series of preferred stock that may be issued in the future.  We may, under certain circumstances, suspend
the rights of stock ownership the exercise of which would result in any
inconsistency with, or violation of, any applicable communications law.  Our certificate of incorporation provides that so long as we hold any
authorization, license, permit, order, filing or consent from the Federal
Communications Commission or any state regulatory commission having
jurisdiction over us, we will have the right to request certain information
from our stockholders. If any stockholder from whom such information is
requested should fail to respond to such a request or we conclude that the
ownership of, or the existence or exercise of any rights of stock ownership
with respect to, shares of our capital stock by such stockholder, could result
in any inconsistency with, or violation of, any applicable communications law, we
may suspend those rights of stock ownership the existence or exercise of which
would result in any inconsistency with, or violation of, any applicable
communications law, and we may exercise any and all appropriate remedies, at
law or in equity, in any court of competent jurisdiction, against any stockholder,
with a view towards obtaining such information or preventing or curing any
situation which would cause an inconsistency with, or violation of, any
provision of any applicable communications law.  Risks Related to Our
Business  We provide services to customers over access
lines, and if we lose access lines, our business, financial condition and
results of operations may be adversely affected.  We generate revenue by delivering voice and data services over access
lines. We have experienced net voice access line losses in the past few years. We
experienced a 14.6% decline in the number of access lines (adjusted for
acquisition and divestitures) for the period from January 1, 2002 through March 31,
2007 and a 3.8% decrease for the period from April 1, 2006 through March 31,
2007. These losses resulted mainly from competition and technology substitution
and, to a lesser degree, challenging economic conditions and the introduction
of DSL services, which prompts some customers to cancel second line service. Our
inability to retain access lines could adversely affect our business, financial
condition and results of operations.  The Merger may present significant challenges
to our management that could divert managements attention from day-to-day
operations and have a negative impact on our business.  There is a
significant degree of difficulty and management distraction inherent in the
process of closing the Merger and preparing to integrate our business and the
Spinco business which could cause an interruption of, or loss of momentum in,
the activities of our existing business. Prior to the closing of the Merger,
our management team may be required to devote considerable amounts of time to
this integration process, which will decrease the time they will have to manage
our business, service existing customers, attract new customers and develop new
products or strategies. One potential consequence of such distractions could be
the failure of management to realize opportunities to respond to the increasing
forms of competition that our business is facing, which could increase the rate
of access line loss that our business has experienced in recent years. If our
senior management is not able to effectively manage the process leading up to
the Merger, or if any significant business activities are interrupted as a
result of the integration process, our business could suffer.  We are subject to competition that may
adversely impact our business, financial condition and results of operations.  As
an incumbent carrier, we historically have experienced little competition in
our rural telephone company markets. Nevertheless, the market for
communications services is highly competitive. Regulation and technological
innovation change quickly in the communications industry, and changes in these
factors historically have had, and may in the future have, a significant impact
on competitive dynamics. In most of our rural markets, we face competition from
wireless technology, which may increase as wireless technology improves. We also
face competition from wireline and cable television operators. We may face
additional competition from new market entrants, such as providers of wireless
broadband, VoIP, satellite


communications and
electric utilities. The Internet services market is also highly competitive,
and we expect that competition will intensify. Many of our competitors have
brand recognition, offer online content services and have financial, personnel,
marketing and other resources that are significantly greater than ours. In addition,
consolidation and strategic alliances within the communications industry or the
development of new technologies could affect our competitive position. We
cannot predict the number of competitors that will emerge, especially as a
result of existing or new federal and state regulatory or legislative actions,
but increased competition from existing and new entities could have a material
adverse effect on our business, financial conditions and results of operations.  Competition
may lead to loss of revenues and profitability as a result of numerous factors,
including:  loss of
customers (in general, when we lose a customer for local service we also lose
that customer for all related services);  reduced
usage of our network by our existing customers who may use alternative
providers for long distance and data services;  reductions
in the prices for our services which may be necessary to meet competition;
and/or  increases in
marketing expenditures and discount and promotional campaigns.  In
addition, our provision of long distance service is subject to a highly
competitive market served by large nation-wide carriers that enjoy brand name
recognition.  We may not be able to successfully integrate
new technologies, respond effectively to customer requirements or provide new
services.  The communications industry is subject to rapid and significant changes
in technology, frequent new service introductions and evolving industry
standards. We cannot predict the effect of these changes on our competitive
position, profitability or industry. Technological developments may reduce the
competitiveness of our networks and require unbudgeted upgrades or the
procurement of additional products that could be expensive and time consuming.
In addition, new products and services arising out of technological
developments may reduce the attractiveness of our services. If we fail to adapt
successfully to technological changes or obsolescence or fail to obtain access to
important new technologies, we could lose customers and be limited in our
ability to attract new customers and sell new services to our existing
customers. Our ability to respond to new technological developments may be
diminished or our response thereto delayed while our management devotes
significant effort and resources to closing the Merger and preparing to
integrate our business and Spincos business.  Our relationships with other communications
companies are material to our operations and their financial difficulties may
adversely affect our business, financial condition and results of operations.  We originate and terminate calls for long distance carriers and other
interexchange carriers over our network. For that service, we receive payments
for access charges. These payments represent a significant portion of our
revenues. Should these carriers go bankrupt or experience substantial financial
difficulties, our inability to then collect access charges from them could have
a negative effect on our business, financial condition and results of operations.  We face risks associated with acquired
businesses and potential acquisitions.  We have grown rapidly by acquiring other businesses and expect that a
portion of our future growth will result from additional acquisitions, some of
which may be material. Growth through acquisitions, including the Merger,
entails numerous risks, including:  strain on our financial, management and operational
resources, including the distraction of our management team in identifying
potential acquisition targets, conducting due diligence and negotiating
acquisition agreements;


difficulties in integrating the network, operations,
personnel, products, technologies and financial, computer, payroll and other
systems of acquired businesses;  difficulties in enhancing our customer support resources
to adequately service our existing customers and the customers of acquired
businesses;  the potential loss of key employees or customers of
the acquired businesses;  unanticipated liabilities or contingencies of
acquired businesses;  unbudgeted costs which we may incur in connection
with pursuing potential acquisitions which are not consummated;  failure to achieve projected cost savings or cash
flow from acquired businesses;  fluctuations in our operating results caused by
incurring considerable expenses to acquire businesses before receiving the
anticipated revenues expected to result from the acquisitions;  difficulties in finding suitable acquisition
candidates;  difficulties in making acquisitions on attractive
terms due to a potential increase in competitors; and  difficulties in obtaining and maintaining any
required regulatory authorizations in connection with acquisitions.  The size of Spincos business in
relation to our existing business may exacerbate the above risks with respect
to the Merger.  In the future, we may need additional capital to continue growing
through acquisitions. This additional capital may be raised in the form of
additional debt, which would increase our leverage and could have an adverse
effect on our ability to pay dividends. We may not be able to raise sufficient
additional capital on terms that we consider acceptable, or at all.  There can be no assurance that we will be able to successfully complete
the integration of Spinco or other businesses that we have recently acquired or
successfully integrate any businesses that we might acquire in the future. If we
fail to do so, or if we do so but at greater cost than anticipated, our
business, financial condition and results of operations may be adversely
affected.  A network disruption could cause delays or
interruptions of service, which could cause us to lose customers.  To be successful, we will need to continue to provide our customers
reliable service over our expanded network. Some of the risks to our network
and infrastructure include:  physical damage to access lines;  wide spread power surges or outages;  software defects in critical systems; and  disruptions beyond our control.  Disruptions may cause interruptions in service or reduced capacity for
customers, either of which could cause us to lose customers and incur expenses.


Our billing systems may not function properly.  The
failure of any of our billing systems could result in our inability to
adequately bill and provide service to our customers. We are in the process of
converting all of our companies to a single outsourced billing platform. The
conversion is expected to be complete by the middle of 2007. At the completion
of this project, we will have a single integrated billing platform for our
end-user customers. The failure to successfully complete this conversion or the
failure of any of our billing systems could have a material adverse effect on
our business, financial condition and results of operations.  We depend on third parties for our provision
of long distance and bandwidth services.  Our provision of long distance and bandwidth services is dependent on
underlying agreements with other carriers that provide us with transport and
termination services. These agreements are based, in part, on our estimate of
future supply and demand and may contain minimum volume commitments. If we
overestimate demand, we may be forced to pay for services we do not need. If we
underestimate demand, we may need to acquire additional capacity on a
short-term basis at unfavorable prices, assuming additional capacity is
available. If additional capacity is not available, we will not be able to meet
this demand. In addition, if we cannot meet any minimum volume commitments, we
may be subject to underutilization charges, termination charges, or rate
increases which may adversely affect our business, financial condition and
results of operations.  We may not be able to maintain the necessary
rights-of-way for our networks.  We are dependent on rights-of-way and other permits from railroads,
utilities, state highway authorities, local governments and transit authorities
to install and maintain conduit and related communications equipment for any
expansion of our networks. We may need to renew current rights-of-way for our
networks and there can be no assurance that we would be successful in renewing
these agreements on acceptable terms. Some of our agreements may be short-term,
revocable at will, or subject to termination upon customary default provisions,
and we may not have access to existing rights-of-way after they have expired or
terminated. If any of these agreements were terminated or could not be renewed,
we could be required to remove our then-existing facilities from under the streets
or abandon our networks. Similarly, we may not be able to obtain right-of-way
agreements on favorable terms, or at all, in new service areas, and, if it is
unable to do so, our ability to expand our networks could be impaired.  Our success depends on our ability to attract
and retain qualified management and other personnel.  Our success depends upon the talents and efforts of our senior
management team. With the exception of Eugene B. Johnson, our Chairman and
Chief Executive Officer, none of these senior executives are employed by us
pursuant to an employment agreement. The loss of any member of our senior
management team, due to retirement or otherwise, and the inability to attract
and retain highly qualified technical and management personnel in the future,
could have a material adverse effect on our business, financial condition and
results of operations.  We may face significant future liabilities or compliance costs in
connection with environmental and worker health and safety matters.  Our operations and properties are subject to federal, state and local
laws and regulations relating to protection of the environment, natural
resources, and worker health and safety, including laws and regulations
governing the management, storage and disposal of hazardous substances,
materials and wastes. Under certain environmental laws, we could be held
liable, jointly and severally and without regard to fault, for the costs of
investigating and remediating any contamination at owned or operated
properties; or for contamination arising from the disposal by us or our
predecessors of hazardous wastes at formerly owned properties or at third-party
waste disposal sites. In addition, we could be held responsible for third-party
property or personal injury claims relating to any such contamination or
relating to violations of environmental laws. Changes in existing laws or
regulations or future acquisitions of businesses could require us to incur
substantial costs in the future relating to these matters.  We are exposed to risks relating to
evaluations of controls required by Section 404 of the Sarbanes-Oxley Act.


Changing laws, regulations and standards relating to corporate
governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and
related regulations implemented by the SEC, the New York Stock Exchange and the
Public Company Accounting Oversight Board, are creating uncertainty for public
companies, increasing legal and financial compliance costs and making some
activities more time consuming. We evaluate our internal control systems to
allow management to report on, and our independent auditors to attest to, our
internal controls as required by Section 404 of the Sarbanes-Oxley Act.
Our evaluation of our internal controls may result in our identifying material
weaknesses in our internal controls. If we fail to maintain effective controls
and procedures, we may be unable to provide financial information in a timely
and reliable manner.  Risks Relating to
Our Regulatory Environment  We are subject to significant regulations
that could change in a manner adverse to us.  We operate in a heavily regulated industry, and the majority of our
revenues are supported by regulations, including access revenue and Universal
Service Fund support for the provision of telephone services in rural areas.
Laws and regulations applicable to us and our competitors may be, and have
been, challenged in the courts, and could be changed by Congress or regulators.
In addition, any of the following have the potential to have a significant
impact on us:  Risk of loss or reduction of network access
charge revenues.A significant portion of our revenues
come from network access charges, which are paid to us by intrastate and
interstate long distance carriers for originating and terminating calls in the
regions served. This also includes Universal Service Fund payments for local
switching support, long term support and interstate common line support. In
recent years, several of these long distance carriers have declared bankruptcy.
Future declarations of bankruptcy by a carrier, although less likely due to
recent industry consolidation, that utilizes our access services could
negatively impact our business, financial condition and results of the
operations. The amount of access charge revenues that we currently receive is
based on rates set by federal and state regulatory bodies. Further, from time
to time federal and state regulatory bodies conduct rate cases, earnings
reviews, or adjustments to price cap formulas which may result in rate changes.
The Federal Communications Commission has reformed and continues to reform the
federal access charge system. States often mirror these federal rules in
establishing intrastate access charges. In 2000 and 2001, the Federal
Communications Commission reformed the system to reduce interstate access
charges for price cap and rate-of-return carriers and shift a portion of cost
recovery, which historically has been based on minutes-of-use, to flat-rate,
monthly per line charges on end-user customers rather than long distance
carriers. As a result, the aggregate amount of access charges paid by long
distance carriers to access providers, such as our local exchange carriers, has
decreased and may continue to decrease. Although these changes were implemented
on a revenue neutral basis (with commensurate increases in other charges and
Universal Service Fund support), there is no assurance that future changes in
access charge rates will be implemented on a revenue neutral basis.
Furthermore, to the extent the rural local exchange carriers operated by us
become subject to competition, access charges could be paid to competing
communications providers rather than to us. Additionally, the access charges we
receive may be reduced as a result of competition from wireless, VoIP or other
new technology utilization. Finally, the Federal Communications Commission is
currently weighing several proposals to comprehensively reform the intercarrier
compensation regime in order to create a uniform system of intercarrier payments.
Any proposal of this nature eventually adopted by the Federal Communications
Commission will likely involve significant changes in the access charge system
and could potentially result in a significant decrease or elimination of access
charges altogether. Decreases or losses of access charges may or may not result
in offsetting increases in local, subscriber line or Universal Service Fund
revenues. Regulatory developments of this type could adversely affect our
business, financial condition and results of operations.  Risk of loss or reduction of Universal
Service Fund support.We receive Universal Service
Fund revenues to support the high cost of operations in high cost areas.
Current Federal Communications Commission rules provide different methodologies
for the determination of federal universal service payments to rural and
non-rural telephone company areas. In general, the rules provide high cost
support to rural telephone company study areas where the companys actual costs
exceed a preset nationwide benchmark level. High cost support for non-rural
telephone company areas, on the other hand, is determined by a nationwide proxy
cost model. The Federal-State Joint Board on Universal Service is considering
proposals to update the proxy model upon which non-rural high-cost funding is
determined. These changes could have a negative impact on the Universal Service
Fund revenues.


The high cost loop support we receive from the Universal Service Fund
is based upon our average cost per loop compared to the national average cost
per loop benchmark. This revenue stream will fluctuate based upon our rural
company average cost per loop compared to the national average cost per loop.
For example, if the national average cost per loop increases and our rural company
operating costs (and average cost per loop) remain constant or decrease, the
payments we receive from the Universal Service Fund would decline. Conversely,
if the national average cost per loop decreases and our operating costs (and
average cost per loop) remain constant or increase, the payments we receive
from the Universal Service Fund would increase. The national average cost per
loop in relation to our historic average cost per loop has increased and we
believe that the national average cost per loop will likely continue to
increase in relation to our average cost per loop. As a result, the payments we
receive from the rural Universal Service Fund have declined and the payments
that we will receive will likely continue to decline. This support has
fluctuated based upon the historical costs of our rural operating companies. In
addition to the Universal Service Fund high cost loop support, we also receive
other Universal Service Fund support payments for our rural company service
areas, which include local switching support, long term support, and interstate
common line support that used to be included in our interstate access charge
revenues (the Federal Communications Commission has recently merged long term
support into interstate common line support). If our rural local exchange
carriers were unable to receive support from the Universal Service Fund, or if
that support was reduced, many of our rural local exchange carriers would be
unable to operate as profitably as they have historically, in the absence of
implementation of increases in charges for other services. Moreover, if we
raise prices for services to offset loss of Universal Service Fund payments,
the increased pricing of our services may disadvantage us competitively in the
marketplace, resulting in additional potential revenue loss.  The Telecommunications Act provides that eligible communications
carriers, including competitors to rural local exchange carriers, such as
wireless operators, may obtain the same per line support as the rural local
exchange carriers receive if a state commission determines that granting
support to competitors would be in the public interest. In fact, wireless
communications providers in certain of our markets have obtained matching
support payments from the Universal Service Fund, but this matching has not led
to a loss of revenues for our rural local exchange carriers under existing
regulations. Any shift in universal service regulation, however, could have an
adverse effect on our business, financial condition and results of operations.  During the last four years, pursuant to recommendations made by the
Multi Association Group and the Rural Task Force, the Federal Communications
Commission has made certain modifications to the universal service support
system for rural carriers that changed the sources of support and the method
for determining the level of support. To date, these changes have been revenue
neutral to our operations. It is unclear whether the changes in methodology
will continue to accurately reflect the costs incurred by our rural local
exchange carriers and whether the revised methodology will provide for the same
amount of Universal Service Fund support that our rural local exchange carriers
have received in the past. In addition, several parties have raised objections
to the size of the Universal Service Fund and the types of services eligible
for support. A number of issues regarding the source and amount of
contributions to, and eligibility for payments from, the Universal Service Fund
are pending and will likely be addressed by the Federal Communications
Commission or Congress in the near future. For example, a number of proposals
to be examined by the Federal Communications Commission in its current
rulemaking with respect to the reform of the intercarrier compensation system
include reforms of the Universal Service Fund. The outcome of any regulatory
proceedings or legislative changes could affect the amount of Universal Service
Fund support that we receive, and could have an adverse effect on our business,
financial condition and results of operations.  On February 28, 2005, the Federal Communications Commission issued
a press release announcing additional requirements for the designation of
competitive Eligible Telecommunications Carriers for receipt of high-cost
support. In its corresponding order, released on March 17, 2005, the
Federal Communications Commission adopted additional mandatory requirements for
Eligible Telecommunications Carriers designation in cases where it has jurisdiction,
and encourages states that have jurisdiction to designate Eligible
Telecommunications Carriers to adopt similar requirements. The Federal
Communications Commission is still considering revisions to the methodology by
which contributions to the Universal Service Fund are determined. These
revisions will be part of an overall rulemaking regarding Universal Service
Support which will be dealt with in future proceedings.  Risk of loss of statutory exemption from
burdensome interconnection rules imposed on incumbent local exchange carriers.Our
rural local exchange carriers are exempt from the Telecommunications Acts more
burdensome requirements governing the rights of competitors to interconnect to
incumbent local exchange carrier networks and to


utilize discrete network elements of the incumbents network at
favorable rates. If state regulators decide that it is in the publics interest
to impose these more burdensome interconnection requirements on us, we would be
required to provide unbundled network elements to competitors in our rural
telephone company areas. As a result, more competitors could enter our
traditional telephone markets than are currently expected and we could incur
additional administrative and regulatory expenses, and experience additional
revenue losses.  Risks posed by costs of regulatory compliance.Regulations create significant compliance costs for us,
and are expected to continue to do so. Our subsidiaries that provide intrastate
services are generally subject to certification, tariff filing and other
ongoing regulatory requirements by state regulators. Our interstate access
services are currently provided in accordance with tariffs filed with the
Federal Communications Commission. Challenges in the future to our tariffs by
regulators or third parties or delays in obtaining certifications and
regulatory approvals could cause us to incur substantial legal and
administrative expenses, and, if successful, these challenges could adversely
affect the rates that we are able to charge our customers.  Our business also may be impacted 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 and Federal Communications
Commission regulations implementing 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. We cannot predict whether and when the Federal Communications
Commission might modify its Communications Assistance for Law Enforcement Act
rules or any other rules or what compliance with new rules might cost. Similarly,
we cannot predict whether or when federal or state legislators or regulators
might impose new security, environmental or other obligations on our business.  Regulatory changes in the communications
industry could adversely affect our business by facilitating greater
competition, reducing potential revenues or raising our costs.  The Telecommunications Act provides for significant changes and
increased competition in the communications industry, including the local
communications and long distance industries. This statute and the Federal
Communications Commissions implementing regulations remain subject to judicial
review and additional rulemakings of the Federal Communications Commission,
thus making it difficult to predict what effect the legislation will have on us,
including our operations and our revenues and expenses, and our competitors.
Several regulatory and judicial proceedings have recently concluded, are
underway or may soon be commenced, that address issues affecting our operations
and those of our competitors. We cannot predict the outcome of these
developments, nor can there be any assurance that these changes will not have a
material adverse effect on us or our industry.  The failure to obtain necessary regulatory
approvals could impede the consummation of a potential acquisition.  Our acquisitions likely will be subject to federal, state and local
regulatory approvals. We cannot assure you that we will be able to obtain any
necessary approvals, in which case a potential acquisition could be delayed or
not consummated.  The consummation of the Merger is subject to certain state and federal
regulatory approvals. We cannot assure you that we will be able to obtain the
necessary approvals that could delay or prevent the consummation of the Merger.