March 29 2010
VIA ELECTRONIC FILING
Ms. Marlene H. Dortch, Secretary
Federal Communications Commission
445 12th Street, S.W.
Washington, DC 20554
Re: Notice of Ex Parte Communication, WC Docket Nos. 07-135, 01-
92; 04-223; 06-172; 07-09; 09-135; GN Docket 09-51
Dear Ms. Dortch:
On March 26 2010, Arunas Chesonis, Chief Executive Officer, Mary O?Connell, Senior
Vice President and General Counsel, and William Haas, Vice President of Public Policy
and Regulatory of PAETEC Holding Corp., parent company of PAETEC
Communications, Inc., McLeodUSA Telecommunications Services, Inc. and various US
LEC entities, all of which do business as PAETEC (?PAETEC?) met with Chairman
Julius Genachowski, Colin Crowell, Senior Counselor, Priya Aiyar, Legal Advisor for
Wireline Competition, and Sharon Gillett, Bureau Chief, Wireline Competition Bureau.
PAETEC thanked the Chairman and his broadband team for submitting a comprehensive
National Broadband Plan report to Congress. PAETEC also urged the adoption of
interim relief for special access while the FCC finalized its analytical framework and
completes any required data collection. PAETEC also asked the FCC to adopt a more
granular forbearance test that separately analyzes business and wholesale apart from
residential markets to ensure that forbearance promotes rather than hinders competition in
the upcoming decisions on various forbearance petitions addressing §251(c)(3)
obligations. PAETEC explained how the grant of forbearance in Omaha, Nebraska, has
created a duopoly in the residential broadband market and a near monopoly for
broadband services in most business locations since Qwest continues to have the only last
mile wireline access to the overwhelming majority of business locations in the Omaha
MSA.
PAETEC also expressed for the support for the NBP?s proposed 10 year phase-in for
Intercarrier compensation reform. However, PAETEC urged the FCC to reiterate that
carriers must pay and dispute a tariffed rate, and asked the FCC to establish an expedited
mediation process to resolve disputes about application of intercarrier compensation
rates. Finally, PAETEC asked that any interim rules addressing traffic pumping be
narrowly tailored to address bad actors, and not outlaw reasonable business practices
such as revenue sharing when a LEC actually offers local services in the market.
PAETEC explained that a CLEC should be allowed to compete for business customers
Ms. Marlene H. Dortch, Secretary
March 29 2010
Page 2
A/73333187.1
that generate high traffic volumes using revenue sharing so long as the LEC charges
reasonable rates for access services.
The attached handout was distributed at the meeting.
Sincerely yours,
/s/ electronically signed
William A. Haas
Vice President Public Policy & Regulatory
PAETEC
Enclosure
cc (by e-mail):
Sharon Gillett
Colin Crowell
Priya Aiyar
Caring Culture | Open Communication | Unmatched Service | Personalized Solutions
March 2010
Company Overview
3
Overview
One of the largest Nationwide providers of
Competitive Communications Solutions
(1)
Extensive National Footprint
Presence in 47 of the top 50; 84 of the top
100 MSAs
Industry leading customer satisfaction
27 quarters of positive free cash flow
generation
(1) Based upon revenue
Network
Services
79%
Integrated
Solutions
4%
Carrier
Services
17%
2009 Revenue Composition
Total Revenue = $1.58 Billion
4
Extensive National Footprint with Regional Focus
5
Network Profile
9/30/2008 12/31/2008 3/31/2009 6/30/2009 9/30/2009 12/31/2009
Access line equivalents
(1)
5,580,085 5,669,614 5,737,226 5,819,020 5,834,480 5,852,606
Long-haul fiber route miles 13,346 13,365 13,365 13,937 14,185 14,158
Metro fiber route miles 5,641 5,648 5,748 5,748 5,747 5,924
Total fiber route miles 18,987 19,013 19,113 19,685 19,932 20,082
Circuit switches 88 88 88 88 88 88
IP switches
(2)
30 30 32 33 34 34
Total switches 118 118 120 121 122 122
Collocations
628 628 628 610 603 603
Facilities-Fed Buildings
(3)
n/a n/a n/a 1,912 1,916 1,918
Network Data
6
Industry Leading Long-Term Free Cash Flow
Management, Directors, and employees own 20+% of the equity of the
Company
(1)
.
As significant owners, we are passionate about Free Cash Flow
? 28 quarters of Free Cash Flow
? Every customer is expected to pass profitability thresholds and every customers? profitability is
reviewed 4x per annum
$41
$50
$52
$51
$115
$118
$135
2003 2004 2005 2006 2007 2008 2009
(1) As of December 31, 2009 and assumes conversion, exercise and/or
vesting of all restricted stock units and stock options
(2) Free Cash Flow defined as Adjusted EBITDA less Cap Ex. See Appendix
7
Summary
Focused on diverse, valuable, underserved customer base of
medium and large businesses and institutions
Superior high touch customer service driven by well-trained and
motivated employee base
Capital-efficient, facilities-based network
Proven management team and sales organization
Industry leading track record of profitability ? 28 quarters of positive
free cash flow generation
8
PAETEC National Market Share 2008 - 2.2%
(1)
3.8%
2.5%
1.3%1.1%
(1) Market Opportunity provided by GeoResults. Market Share based
upon total company billed end-user Network Service, core revenues
(See Definitions section)
9
Specialized Focus Across Attractive Industry Verticals
Healthcare
Financial
Government
Higher Education
10
Unmatched Customer Care
~70 dedicated Customer Care
representatives
~240 highly trained NOC technicians
PAETEC strives to answer incoming
calls by a live person in 20 seconds or
less
Customer Advisory Board Program
? 80+ regional forums for knowledge
sharing and relationship building
between PAETEC and our customers
? Discuss business challenges
? Build the foundation for PAETEC?s
product and service investments
through customer feedback
? Access to PAETEC?s senior executives
? Network with peers
Network Operations Center ? Charlotte, NC
Network Operations Center ? Rochester, NY
Network Operations Center ? Cedar Rapids, IA
11
PAETEC Strategic Product Direction
M I
G R
A T
I O
N
T O
I P
INCREASING NETWORK INTELLIGENCE
I P
T r
a d
i t i o
n a
l
Local
CPE Based Network Based
Long
Distance
Internet
MPLS
VPN
Toll-
Free
Hosted E-mail
Security
CPE
Audio/Web
Conferencing
PINNACLE
Security
Intrusion
Detection
Data Centers &
Colocation
Hosted Web
Security
Hosted Broadcast
Notification
Fixed Wireless
Ethernet Access
Managed
Router
Hosted Firewall
Managed CPE
Web Hosting
Data Backup
Dedicated
Server
VoIP
SIP TG
VoIP
Allworx
Original Product New Product
Managed
CPE Firewall
VoIP Hosted
Video
SAAS
12
Continued Migration to Larger, Higher Value Customers
Customers spending >$10K represent the fastest growing segment of
total company revenue
2003
(1)
2009
(2)
(1) Based on monthly RevChain billed data for Network Services, core customers of legacy PAETEC
(2) Based on monthly billed data for Network Services, core customers of legacy PAETEC, legacy
US LEC, and legacy McLeodUSA
$2.5K-$10K$1K-$2.5K<$1K >$10K
30%
36%
22%
12%
26%
19%
25%
30%
13
Chapter 4 of the National Broadband Plan Recognizes Importance of
Policies That Ensure Reasonably Priced Wholesale Inputs to
Promote Retail Broadband Competition
? Reasonably priced special access services are essential to broadband competition (NBP
Recommendation 4.8)
PAETEC provides broadband services using last mile special access services exclusively in the
Verizon regions and the former Bell South and PacBell regions of AT&T
Expiration of AT&T merger condition in June 2010 will allow AT&T to raise SPA prices at a time
when the FCC is determining whether current prices are too high
? UNE Forbearance (NBP Recommendation 4.6 & 4.7)
PAETEC uses unbundled DS1 loops in the Qwest and legacy Ameritech and SBC regions of
AT&T to provide broadband services to business customers
Proposed forbearance standard advocated by PAETEC and other CLECs should be adopted in
evaluating the Qwest Phoenix and Verizon 6 City and Qwest 4 City remand proceedings
? 271 Network Element Pricing (NBP Recommendation 4.7)
Requirement to offer 271 Network elements such as loops and transport was a key component in
the grant of in-region long distance authority to RBOCs
271 network element pricing will provide the missing backstop to 251unbundling that would create
a more stable environment for competitive providers
? Access to ILEC fiber (NBP Recommendation 4.7)
Since the 96 Act, competition has created jobs and innovation in the telecom sector
Access to ILEC fiber will promote more robust competition in the broadband market
14
Chapter 8 of the National Broadband Plan Phase In of Intercarrier
Compensation Reform
? The proposed reform of Intercarrier Compensation in the NBP appears fair and
balanced
? 10 year phase-in is reasonable
? Self help has to be expressly prohibited and punished
FCC should offer expedited mediation or enforcement mechanisms to resolve
disputes
Large IXCs should not be allowed to force a flash cut to the end point rate, and the
only way to deter such behavior is very strong enforcement language
? If NPRM implements interim rules:
Global prohibition on revenue sharing should not be part of interim rules
Traffic pumping prohibition should be narrowly tailored
So long as the customer pays for local services the traffic is legitimate and
subject to applicable access charges
Declaring that VoIP should is subject to interstate access will be somewhat helpful
but not resolve billing disputes because of difficult in distinguishing VoIP from TDM
traffic
15
Caring Culture | Open Communication | Unmatched Service | Personalized Solutions
March 2010