October 10-13, 2006 San Diego Convention Center, San Diego California Regulation for VoIP Providers What’s the impact on your business plan? Carol Mattey, Director, Deloitte & Touche LLP October 2006

Copyright © 2006 Deloitte Development LLC. All rights reserved.2 Overview An Introduction to our Panelists: - Ron Del Sesto, Counsel, Bingham McCutchen LLP - Staci Pies, Vice President – Regulatory & Governmental Affairs, PointOne - John Sumpter, Vice President – Regulatory, PacWest Impact of Regulation on the Business Case Study: New USF Contribution Requirements for VoIP Providers Concluding Thoughts: Operationalizing Regulatory Compliance

Copyright © 2006 Deloitte Development LLC. All rights reserved.3 This presentation contains general information only and is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax or other professional services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte & Touche LLP shall not be responsible for any loss sustained by any person who relies on this publication.

Copyright © 2006 Deloitte Development LLC. All rights reserved.4 Impact of Regulation on the Business New service offerings Tech. change driving new approach to regulation Technology Competition Technology enabling innovative market strategies Adoption of new regulations Demand better/more service capabilities Tech. Disruption Forcing new business models Across- borders and Segments Political Env’t Communications Industry Regulation/ Government Policy Markets/ Customer Consumer choices driving new regulatory policies Deregulation/Regulatory instability The complexity of today’s communications industry can be daunting. The driving forces of regulation, technology, competition and customers all impact your operations. A solid compliance framework is necessary not just to meet regulatory requirements but to support the overall business’ strategic initiatives.

Copyright © 2006 Deloitte Development LLC. All rights reserved.5 A Case Study: New USF Contribution Requirements for VoIP New requirements for interconnected VOIP providers to report revenues effective as of August 1, 2006 FCC Form 499-Q filing. - Providers of VoIP service, who were not historically required to contribute to USF, must now contribute based on end user revenues. - Interstate “safe harbor” set at 64.9% for interconnected VoIP. - VoIP carriers that cannot or do not separately identify interstate and international telecom revenues from intrastate revenues permitted to apply “safe harbor” percentage to determine the interstate amount or utilize approved traffic study to estimate intra/interstate allocation. New rules applicable to interconnected VoIP services that: - Enable real-time, two-way voice communications; - Require broadband connection from user’s location; - Require IP-compatible customer premise equipment; and - Permit users to receive calls from and terminate calls to the public switched telephone network. FCC and USAC may closely scrutinize methodologies used to report interstate/international revenues.

Copyright © 2006 Deloitte Development LLC. All rights reserved.6 USF Contribution (10.5%) Total Revenue Telecom Revenue Interstate Revenue Intra State Inter State Non Telecom USF Case Study Methodology for determining USF contributions: - Identify telecommunications revenue - Identify interstate/international portion of telecommunications revenue Interstate safe harbor: 64.9% Report actual: risk of state regulation Submit traffic study for pre-approval Bundled product safe harbor: attribute 100% to telecom or value telecom service based on a la carte pricing for telecom and information services Other methodology

Copyright © 2006 Deloitte Development LLC. All rights reserved.7 USF Case Study: Managing Regulatory Change Regulatory Change Presents Both Challenges and New Opportunities 1. Baseline Info2. Data3. Analysis Services Pricing Critical Data Identify baseline regulatory, financial, and operating environment Collect functional data necessary to perform analyses Analyze internal data and compare with industry benchmarks Baseline Environment Company Views Regulatory Environment Industry Trends Industry Data and Practice Internal Data Call Detail 4. Opportunities5. Implementation Evaluation of options, including implications of each approach Development of detailed implementation roadmap Regulatory Safe Harbor Telecom – Non-Telecom Revenue Interstate Traffic Study Tax Implications Regulatory Filings Traffic Studies Q1Q2Q3Q4Q1Q2 Xxxxxx Minimize Reporting Burden. Maximize Competitive Pricing Advantage USF Contributions 6. Results Implement solutions that manage regulatory compliance in a cost effective manner and optimize competitive positioning

Copyright © 2006 Deloitte Development LLC. All rights reserved.8 USF Case Study: Key Considerations Develop an acceptable methodology distinguishing telecommunications from non-telecommunications revenue Weigh the pros and cons of traffic studies vs. using safe harbor to report interstate revenues Anticipate FCC traffic study review and approval process Conduct traffic studies in accordance with FCC expectations Achieve regulatory objectives as rapidly as possible and thereby minimize true-up implications Minimize end-user USF pass through charges Evaluate appropriate regulatory treatment against tax positions and significance of potential conflicts Maximize competitive pricing advantage

Copyright © 2006 Deloitte Development LLC. All rights reserved.9 Operationalizing Regulatory Compliance Current State Assessment - Evaluate current regulatory requirements, controls and risks - Identify control redundancies - Identify common requirements and controls across a portfolio of regulations - Assess technology utilization relative to regulatory requirements and controls Structuring the Overall Corporate Compliance Program - Establish new, and strengthening existing, compliance policies, to help prevent, detect, assess and remediate areas of risk within the organization Compliance Training & Communications - Develop and deliver compliance training for staff responsible for compliance related activities Sustained Compliance Road-Map / Strategy - Develop a controls consolidation and technology roadmap for enabling sustainable compliance Self-Assessment, Monitoring, Auditing and Reporting Activities - Develop a compliance scorecard to identify and manage areas of highest risk - Develop tools for maintaining/monitoring on-going compliance activities

Copyright © 2006 Deloitte Development LLC. All rights reserved.10 Carol E. Mattey National Leader Regulatory Consulting Services Technology, Media & Telecommunications Deloitte & Touche LLP Tel: Contact Information

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