SURW » Topics » Regulation

These excerpts taken from the SURW 10-K filed Mar 16, 2009.

Regulation

Some of the general aspects of telecommunications regulation on the Federal and state levels are outlined above in the discussion of regulation as it applies to the Broadband segment. SureWest Telephone, as an ILEC, is subject to significant regulation by both the CPUC and the FCC. In particular, SureWest Telephone's revenues are influenced greatly by the actions of the CPUC and the FCC.

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All intrastate telecommunications service rates of SureWest Telephone are subject to regulation by the CPUC. The provision of access to the networks of interexchange carriers for long distance calling is governed by access tariffs and by intercarrier agreements, which are subject to the jurisdiction of the CPUC or FCC, or both, depending upon the nature of the transmissions. SureWest Telephone has a tariff on file with the FCC for all elements of interstate access services except carrier common line charges, for which SureWest Telephone concurs with the tariff of the National Exchange Carrier Association ("NECA").

The characterization of traffic as interstate or intrastate, and as a telecommunications or information service has been a significant source of dispute among carriers and others in recent years, as those characterizations can impact the regulatory treatment of the traffic and the payment obligations of the providers which are involved. The characterization of: (i) traffic involved in intercarrier interconnection, (ii) Internet traffic and (iii) traffic that utilizes IP and other transmission technologies are examples of issues that are currently subject to analysis on the state and federal levels, and that are expected to be subject to regulatory action in the future. Both the FCC and CPUC have initiated proceedings to evaluate the appropriate level of regulation for providers of telecommunications services and for IP-enabled services. In addition, various proceedings at the FCC are pending that could lead to significant alteration of the existing compensation arrangements among providers of telecommunications services, and that could adversely impact the amount of the payments we receive from carriers and others for use of our network.

The FCC monitors SureWest Telephone's interstate earnings through the use of annual cost separation studies prepared by SureWest Telephone, which utilize estimated cost information and projected demand usage. The FCC establishes rules that carriers must follow in the preparation of the annual studies. Additionally, under current FCC rules governing rate making, SureWest Telephone is required to establish interstate rates based on projected demand usage for its various services and determine the actual earnings from these rates once actual volumes and costs are known.

With respect to its regulatory authority over SureWest Telephone's rates, the CPUC also has the power, among other things, to establish terms and conditions of intrastate service, to prescribe uniform systems of accounts and to regulate the mortgaging or disposition of public utility properties.

In 2004, we entered into a settlement agreement (the "Settlement Agreement"), which was ultimately approved by the CPUC, to resolve an ongoing regulatory proceeding with various parties. The Settlement Agreement resolved past sharing liabilities and suspended future sharing requirements in the intrastate jurisdiction. In accordance with the Settlement Agreement, SureWest Telephone returned approximately $6,500 plus interest at the 90-day commercial paper rate for non-financial institutions, which was 0.97% as of December 31, 2008, and an imputed rate of 3.15%, to its end users through a consumer dividend. The surcredit was recorded as a reduction of our contractual shareable earnings obligations over a period of approximately four years, which began January 1, 2005 and terminated February 9, 2009. The conclusion of this surcredit satisfied our remaining requirements associated with the settlement agreement as all other requirements were completed in preceding years. A CPUC decision in August 2005 allowed SureWest Telephone to continue receiving our $11,500 annual interim draw from the California High Cost Fund ("CHCF"). The CHCF was previously authorized by the CPUC to offset SureWest Telephone's intrastate regulated operating expenses on an interim basis. In August 2006, we requested permission from the CPUC to implement a graduated phase-down of our annual $11,500 interim draw. In December 2006, the CPUC authorized us to reduce our annual interim draw from the CHCF by $1,300 pursuant to its proposal to offset a portion of the 2004 consumer dividend Settlement Agreement. In September 2007, the CPUC issued Decision 07-09-002 which provides for SureWest Telephone to phase-down its remaining interim annual CHCF draw over a five-year period, to end on January 1, 2012. The phase-down of the interim draw began in January 2007, initially reducing the annual $11,500 interim draw by the aforementioned $1,300 consumer dividend to $10,200, and in each subsequent year will be incrementally reduced by $2,000.

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In an ongoing proceeding relating to the New Regulatory Framework (under which SureWest Telephone has been regulated since 1996), the CPUC adopted Decision 06-08-030 in 2006, which grants carriers broader pricing freedom in the provision of telecommunications services, bundling of services, promotions and customer contracts. This decision adopted a new regulatory framework, the Uniform Regulatory Framework ("URF"), which among other things (i) eliminates price regulation and allows full pricing flexibility for all new and retail services except lifeline and basic residential services which will remain capped at current levels until January 1, 2009, (ii) allows new forms of bundles and promotional packages of telecommunication services, (iii) allocates all gains and losses from the sale of assets to shareholders and (iv) eliminates almost all elements of rate of return regulation, including the calculation of shareable earnings. On September 18, 2008, the CPUC adopted Decision 08-09-042 which allows URF ILECs to increase their basic residential rate by up to $3.25 per year over the next two years. Beginning January 1, 2011, the URF ILECs will be allowed full pricing flexibility for the basic residential rate. In addition, the Division of Ratepayer Advocates and The Utility Reform Network have recently submitted various filings to the CPUC in an effort to extend the price freeze on basic residential rates for three years and to determine through further review and public hearings if full pricing flexibility will ensure the availability of affordable, reliable basic residential telephone service. The results of this proceeding and the potential effects on SureWest Telephone cannot yet be determined.

In December 2007, the CPUC issued a final decision ("FD") in a proceeding investigating the continued need for an intrastate access element called the transport interconnection charge ("TIC"). In September 2008, the CPUC issued a FD in its CHCF-B proceeding. When taken together with the December 2007 FD, it caps SureWest Telephone's intrastate access charges at current levels through 2010 and eliminates the TIC effective January 1, 2011. SureWest Telephone will have an opportunity to recover all or part of our lost TIC revenue elsewhere, including residential rate adjustments subsequent to the expiration on January 1, 2011 of the current residential price freeze, as discussed above.

These actions of the CPUC and of the FCC, as noted above, can affect the rates charged for access and interconnection, and, as a result, the revenues we derive from access and related services. SureWest Telephone's future operations also may be impacted by other proceedings at the FCC and CPUC, including proceedings that address interstate access and other rates and charges, the nature of interconnection between ILEC carriers and others, the collection and distribution of support payments required to assure universal access to basic telephone services and the charges that can be assessed for new forms of service that directly or indirectly utilize carrier networks. The general nature of regulation of telecommunications companies, including SureWest Telephone, is also addressed above in the section captioned Broadband–Regulation.

The long distance business is recognized as being fully competitive and there are many providers of long distance services. Because of the level of competition, regulation of this area of the telecommunications business is light or has been removed altogether. Where it exists, regulation is focused on specific public policy concerns, such as customer account slamming and other consumer protection issues, rather than the rates, terms and conditions of service.

The FCC has opened a number of investigative proceedings to establish long term policies to maintain and promote universal service and intercarrier compensation. Further regulatory actions with respect to these matters may have a material impact on us. We will continue to monitor these matters and the potential effects on our consolidated financial position and results of operations.

Regulation





Some of the general aspects of telecommunications regulation on the Federal and state levels are outlined above in the discussion of regulation as it
applies to the Broadband segment. SureWest Telephone, as an ILEC, is subject to significant regulation by both the CPUC and the FCC. In particular, SureWest Telephone's revenues are influenced greatly
by the actions of the CPUC and the FCC.



10










HREF="#bg40301a_main_toc">Table of Contents



All
intrastate telecommunications service rates of SureWest Telephone are subject to regulation by the CPUC. The provision of access to the networks of interexchange carriers for long distance calling
is governed by access tariffs and by intercarrier agreements, which are subject to the jurisdiction of the CPUC or FCC, or both, depending upon the nature of the transmissions. SureWest Telephone has
a tariff on file with the FCC for all elements of interstate access services except carrier common line charges, for which SureWest Telephone concurs with the tariff of the National Exchange Carrier
Association ("NECA").



The
characterization of traffic as interstate or intrastate, and as a telecommunications or information service has been a significant source of dispute among carriers and others in recent years, as
those characterizations can impact the regulatory treatment of the traffic and the payment obligations of the providers which are involved. The characterization of: (i) traffic involved in
intercarrier interconnection, (ii) Internet traffic and (iii) traffic that utilizes IP and other transmission technologies are examples of issues that are currently subject to analysis
on the state and federal levels, and that are expected to be subject to regulatory action in the future. Both the FCC and CPUC have initiated proceedings to evaluate the appropriate level of
regulation for providers of telecommunications services and for IP-enabled services. In addition, various proceedings at the FCC are pending that could lead to significant alteration of
the existing compensation arrangements among providers of telecommunications services, and that could adversely impact the amount of the payments we receive from carriers and others for use of our
network.



The
FCC monitors SureWest Telephone's interstate earnings through the use of annual cost separation studies prepared by SureWest Telephone, which utilize estimated cost information and projected
demand usage. The FCC establishes rules that carriers must follow in the preparation of the annual studies. Additionally, under current FCC rules governing rate making, SureWest Telephone is required
to establish interstate rates based on projected demand usage for its various services and determine the actual earnings from these rates once actual volumes and costs are known.



With
respect to its regulatory authority over SureWest Telephone's rates, the CPUC also has the power, among other things, to establish terms and conditions of intrastate service, to prescribe uniform
systems of accounts and to regulate the mortgaging or disposition of public utility properties.



In
2004, we entered into a settlement agreement (the "Settlement Agreement"), which was ultimately approved by the CPUC, to resolve an ongoing regulatory proceeding with various parties. The
Settlement Agreement resolved past sharing liabilities and suspended future sharing requirements in the intrastate jurisdiction. In accordance with the Settlement Agreement, SureWest Telephone
returned approximately $6,500 plus interest at the 90-day commercial paper rate for non-financial institutions, which was 0.97% as of December 31, 2008, and an imputed
rate of 3.15%, to its end users through a consumer dividend. The surcredit was recorded as a reduction of our contractual shareable earnings obligations over a period of approximately four years,
which began January 1, 2005 and terminated February 9, 2009. The conclusion of this surcredit satisfied our remaining requirements associated with the settlement agreement as all other
requirements were completed in preceding years. A CPUC decision in August 2005 allowed SureWest Telephone to continue receiving our $11,500 annual interim draw from the California High Cost Fund
("CHCF"). The CHCF was previously authorized by the CPUC to offset SureWest Telephone's intrastate regulated operating expenses on an interim basis. In August 2006, we requested permission from the
CPUC to
implement a graduated phase-down of our annual $11,500 interim draw. In December 2006, the CPUC authorized us to reduce our annual interim draw from the CHCF by $1,300 pursuant to its
proposal to offset a portion of the 2004 consumer dividend Settlement Agreement. In September 2007, the CPUC issued Decision 07-09-002 which provides for SureWest Telephone to
phase-down its remaining interim annual CHCF draw over a five-year period, to end on January 1, 2012. The phase-down of the interim draw began in January
2007, initially reducing the annual $11,500 interim draw by the aforementioned $1,300 consumer dividend to $10,200, and in each subsequent year will be incrementally reduced by $2,000.



11









HREF="#bg40301a_main_toc">Table of Contents



In
an ongoing proceeding relating to the New Regulatory Framework (under which SureWest Telephone has been regulated since 1996), the CPUC adopted Decision 06-08-030 in 2006,
which grants carriers broader pricing freedom in the provision of telecommunications services, bundling of services, promotions and customer contracts. This decision adopted a new regulatory
framework, the Uniform Regulatory Framework ("URF"), which among other things (i) eliminates price regulation and allows full pricing flexibility for all new and retail services except lifeline
and basic residential services which will remain capped at current levels until January 1, 2009, (ii) allows new forms of bundles and promotional packages of telecommunication services,
(iii) allocates all gains and losses from the sale of assets to shareholders and (iv) eliminates almost all elements of rate of return regulation, including the calculation of shareable
earnings. On September 18, 2008, the CPUC adopted Decision 08-09-042 which allows URF ILECs to increase their basic residential rate by up to $3.25 per year over the
next two years. Beginning January 1, 2011, the URF ILECs will be allowed full pricing flexibility for the basic residential rate. In addition, the Division of Ratepayer Advocates and The
Utility Reform Network have recently submitted various filings to the CPUC in an effort to extend the price freeze on basic residential rates for three years and to determine through further review
and public hearings if full pricing flexibility will ensure the availability of affordable, reliable basic residential telephone service. The results of this proceeding and the potential effects on
SureWest Telephone cannot yet be determined.



In
December 2007, the CPUC issued a final decision ("FD") in a proceeding investigating the continued need for an intrastate access element called the transport interconnection charge ("TIC"). In
September 2008, the CPUC issued a FD in its CHCF-B proceeding. When taken together with the December 2007 FD, it caps SureWest Telephone's intrastate access charges at current levels
through 2010 and eliminates the TIC effective January 1, 2011. SureWest Telephone will have an opportunity to recover all or part of our lost TIC revenue elsewhere, including residential rate
adjustments subsequent to the expiration on January 1, 2011 of the current residential price freeze, as discussed above.



These
actions of the CPUC and of the FCC, as noted above, can affect the rates charged for access and interconnection, and, as a result, the revenues we derive from access and related services.
SureWest
Telephone's future operations also may be impacted by other proceedings at the FCC and CPUC, including proceedings that address interstate access and other rates and charges, the nature of
interconnection between ILEC carriers and others, the collection and distribution of support payments required to assure universal access to basic telephone services and the charges that can be
assessed for new forms of service that directly or indirectly utilize carrier networks. The general nature of regulation of telecommunications companies, including SureWest Telephone, is also
addressed above in the section captioned Broadband–
Regulation.



The
long distance business is recognized as being fully competitive and there are many providers of long distance services. Because of the level of competition, regulation of this area of the
telecommunications business is light or has been removed altogether. Where it exists, regulation is focused on specific public policy concerns, such as customer account slamming and other consumer
protection issues, rather than the rates, terms and conditions of service.



The
FCC has opened a number of investigative proceedings to establish long term policies to maintain and promote universal service and intercarrier compensation. Further regulatory actions with
respect to these matters may have a material impact on us. We will continue to monitor these matters and the potential effects on our consolidated financial position and results of operations.




These excerpts taken from the SURW 10-K filed Mar 17, 2008.

Regulation

Because of their use of valuable spectrum resources, wireless services are subject to regulation. The construction, operation, management and transfer of digital wireless systems in the United States are regulated by the FCC and CPUC. However, regulators do not actively review price plans offered to wireless customers.

Regulation





Because of their use of valuable spectrum resources, wireless services are subject to regulation. The construction, operation, management and transfer of digital wireless
systems in the United States are
regulated by the FCC and CPUC. However, regulators do not actively review price plans offered to wireless customers.



This excerpt taken from the SURW 10-K filed Mar 14, 2007.

Regulation

Because of their use of valuable spectrum resources, wireless services are subject to regulation. The construction, operation, management and transfer of digital wireless systems in the United States are regulated by the FCC and CPUC. However, regulators do not actively review price plans offered to wireless customers.

This excerpt taken from the SURW 10-K filed Mar 3, 2006.

Regulation

Because of their use of valuable spectrum resources, wireless services are subject to regulation. The construction, operation, management and transfer of digital wireless systems in the United States are regulated by the FCC and CPUC. However, regulators do not interfere with price plans offered to wireless customers.

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