Commitments and Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies [Abstract]

Commitments and Contingencies

(11)    Commitments and Contingencies

(a) Leases

The Company does not have any leases with contingent rental payments or any leases with contingency renewal, purchase options, or escalation clauses.

(b) Legal Proceedings

From time to time, the Company is involved in litigation and regulatory proceedings arising out of its operations. The Company’s management believes that it is not currently a party to any legal or regulatory proceedings, the adverse outcome of which, individually or in the aggregate, would have a material adverse effect on the Company’s financial position or results of operations. Notwithstanding that the Company emerged from Chapter 11 protection on the Effective Date, five of the Chapter 11 Cases are still being resolved.

(c) Service Quality Penalties

The Company’s Northern New England operations are subject to certain retail service quality requirements under separate SQI plans in Maine, New Hampshire and Vermont. The Company’s actual operating performance is measured by certain metrics set forth in the respective SQI plans and failure to meet the stated benchmarks for these performance metrics may result in the assessment of penalties under the respective plans. The Merger Orders or subsequent regulation plan in each state provide that any penalties assessed under the plans be paid by the Company in the form of credits applied to retail customer bills subject to the exception described below with respect to the Vermont Public Service Board (“VPSB”).

As of March 31, 2012 and December 31, 2011, the Company recognized an estimated liability of $3.9 million and $7.5 million, respectively, for service quality penalties based on the Company’s actual results relative to the benchmarks for the performance metrics set forth in the respective SQI plans. Of the estimated liability, $1.5 million and $3.9 million are included in other accrued liabilities, while the remainder of the March 31, 2012 and December 31, 2011 liabilities, respectively, are included in the Claims Reserve.

During the quarter ended March 31, 2012, the VPSB approved the Company’s request to use $2.5 million of the Amended Retail Service Quality Plan penalties to deploy broadband into unserved areas. Approximately $1.1 million of this amount is a pre-bankruptcy liability and, therefore, was included in the Claims Reserve as of December 31, 2011, but has subsequently been reclassified to other accrued liabilities as of March 31, 2012.

All penalties incurred under Maine’s SQI plan through the end of Maine’s last completed fiscal year, July 31, 2011, have been issued in the form of credits applied to retail customers’ bills as of December 31, 2011. No such credits have been issued in New Hampshire or Vermont as of March 31, 2012. However, in New Hampshire, as the result of a New Hampshire PUC (“NHPUC”) order, the Company is required to issue one-time credits to retail customers in June 2012, subject to a decision by the NHPUC on the Company’s petition to use the SQI penalties for an alternative use.

Based on the Company’s current estimate of its service quality penalties in the Northern New England operations, changes in the accrual impacting revenue and payments are as follows (in thousands):

		000000000000			000000000000			000000000000
							Predecessor Company
	Three Months Ended			Sixty-Six Days Ended			Twenty-Four Days Ended
	March 31, 2012			March 31, 2011			January 24, 2011
Increase (decrease) in liability recorded as a reduction (increase) to revenue	$	(1,088	)	$	(16	)	$	401
SQI penalties paid out in the form of customer rebates	$	—		$	(1,804	)	$	(631	)

(d) Performance Assurance Plan Credits

As part of the Merger Orders, the Company adopted a PAP that measures the Company’s performance in the provision for wholesale services to CLECs in the states of Maine, New Hampshire and Vermont. Failure to meet specified performance standards as defined in the provisions of the separate plans in each state may result in penalties being incurred and issued in the form of credits to affected CLECs. As of March 31, 2012 and December 31, 2011, the Company has recorded a reserve of $0.3 million and $4.9 million, respectively, for the estimated amount of PAP penalties incurred that have not yet been credited to CLECs. Penalties assessed in Maine and New Hampshire are recorded as a reduction to accounts receivable since they are paid by the Company in the form of credits applied to CLEC bills. Penalties for Vermont are recorded as liabilities since a significant portion of these penalty amounts are paid to the VUSF, while the remaining credits assessed in Vermont are paid by the Company in the form of credits applied to CLEC bills. At December 31, 2011, $4.1 million of the total reserve is recorded in the Claims Reserve. None of the reserve is recorded in the Claims Reserve as of March 31, 2012.

During the quarter ended March 31, 2012, the VPSB approved the Company’s request to use $4.1 million of certain accrued PAP penalties to deploy broadband into unserved areas. These accrued PAP penalties were pre-bankruptcy penalties designated to be paid into the VUSF and, therefore, were included in the Claims Reserve as of December 31, 2011, but have subsequently been reclassified to other accrued liabilities as of March 31, 2012.

Based on the Company’s current estimate of its PAP credits in the Northern New England operations, changes in the accrual impacting revenue and payments are as follows (in thousands):

		00000000000000			00000000000000			00000000000000
							Predecessor Company
	Three Months Ended			Sixty-Six Days Ended			Twenty-Four Days Ended
	March 31, 2012			March 31, 2011			January 24, 2011
Increase in estimated reserve recorded as a reduction to revenue	$	205		$	785		$	629
PAP credits paid out	$	(588	)	$	(2,033	)	$	(531	)

The NHPUC has ordered an audit of the Company's existing PAP in the state of New Hampshire, which commenced in October 2011 and is ongoing. The existing PAP in Maine and Vermont may also be subject to audit, as determined by the Maine PUC and the VPSB, respectively.

(e) Capital Expenditure Obligations

Under a regulatory settlement in New Hampshire, the Company is required to make certain capital expenditures in New Hampshire. Beginning from the date of the Merger, the Company is required to spend $350.4 million through March 31, 2015 in New Hampshire, of which approximately $279.2 million has been spent as of March 31, 2012. The Company expects to timely satisfy the expenditure requirements.