More detailed information regarding applicable federal, state and local taxes, fees and surcharges is provided below:

Federal, state and local governments assess a variety of taxes and surcharges. Level 3 collects the required taxes and remits the appropriate amounts to the taxing agencies. There are several types of federal, state and local taxes, fees and surcharges that apply to services sold by Level 3 including:

• Federal Universal Service Fund Surcharge (FUSF) – see below section on FUSF for more detail
• Federal, state and local taxes, fees and surcharges – see below section on taxes for more detail
• Other surcharges – see below section on other surcharges for more detail

The information contained in this document is for reference only and is subject to change without notice. It is not intended to replace or supersede any Federal, State or Local laws and regulations. Updated information with respect to changes in Federal, State and Local taxes can be obtained from the respective governmental agencies.

FEDERAL UNIVERSAL SERVICE FUND (FUSF)

The Federal Universal Service Fund (FUSF) charge will equal the FUSF established by the FCC. The rate changes from time to time, generally on a quarterly basis. It is a regulatory charge, not a tax. Below is a chart of previous quarter rates.

• 1Q 2010 14.1%
• 2Q 2010 15.3%
• 3Q 2010 13.6%
• 4Q 2010 12.9%
• 1Q 2011 15.5%
• 2Q 2011 14.9%
• 3Q 2011 14.4%
• 4Q 2011 15.3%
• 1Q 2012 17.9%
• 2Q 2012 17.4%

As of the last publication date, the current FUSF surcharge is equal to 17.4 percent of all applicable charges, excluding Taxes, appearing on a Customer's invoice. The FUSF surcharge applies to telecommunications services subject to direct regulation by the Federal Communications Commission (FCC), as well as to interconnected VoIP. A Customer will not be required to pay the FUSF if it demonstrates to the Company's reasonable satisfaction that it is acquiring the Company's services for resale, i.e., not for its own internal use, and is contributing directly into the government's Universal Service funding programs.

The FUSF will: (i) be calculated after the application of promotional and other discounts; (ii) not be eligible to receive promotional or any other discounts; (iii) not be included to determine satisfaction of usage volume requirements; (iv) be calculated based upon the rates and charges applicable to the Customer's total interstate and international usage, unless otherwise specified; (v) not apply to Taxes, tax‑like, and/or tax‑related surcharges as defined or described herein; and (vi) not apply to calls using Telecommunications Relay Service (TRS) or to calls originated by certified Customers with hearing or speech impairments.

The Federal Universal Fund is a Federal Communications Commission (FCC) program designed to ensure affordable access to telecommunications services to low-income customers, rural areas, school and libraries, and rural healthcare facilities. The fund was established by Congress in order to promote and encourage telecommunications infrastructure and service availability nationwide. The FCC is the agency responsible for the regulation of domestic interstate and U.S.-to-international telecommunications services.

All telecommunications providers that offer interstate and international voice and data, private line, directory assistance and other regulated services in the United States are required by the FCC to contribute on an equitable and nondiscriminatory basis to the FUSF.

This includes customers whose circuits with Level 3 have only one end-point in the United States, even if that circuit is being cross-connected by the customer ultimately to terminate internationally.

Interstate circuits have FUSF applied to 100% of the revenue if both ends of the circuit are within the United States.

International circuits have FUSF applied to 50% of the revenue when only one end-point is in the United States.

Taxes generally are assessed on the FUSF surcharge. It is important to understand that the FUSF surcharge is not a tax. It is a charge that the government imposes on telecommunications carriers on the voice and data revenues they collect. The FCC allows carriers to recover the cost of the surcharge from its end-user customers. Thus, the FUSF surcharge is not considered a tax and must be taxed as normal revenues.

FEDERAL, STATE AND LOCAL TAXES, FEES AND SURCHARGES

BILLED IN ADDITION TO FUSF

Below is a summary list of the various federal, state and local taxes, fees and surcharges that Level 3 bills to its customers in addition to FUSF addressed above. Most of these charges are imposed directly on the customer and are collected and remitted by Level 3 as an agent for the taxing authority.

• Federal Excise Tax
• State, County, City and Special District Sales Taxes
• State and Local Telecommunications Taxes
• E-911 Fees
• Gross Receipts Tax Surcharges
• State Universal Service Fund Surcharges
• State Regulatory Fees
• State and Local Right of Way Fees/Franchise Fees
• Special Taxes and Fees.

In some situations certain customers may be exempt from certain taxes and governmental surcharges. This is usually in the case of customers who are reselling the services they purchase or customers who are exempt charitable, government or religious organizations

Level 3 does not determine a customer's tax-exempt status. It is the customer's responsibility to advise Level 3 of its tax-exempt status.

Level 3 will bill tax and surcharges until proper notice of exempt status and properly executed exemption documentation is provided.

Level 3 Surcharges discussed in the following section are not covered by the standard exemption policy described above.

Combined federal state and local taxes, fees and surcharges can range from 0-40+%.

OTHER SURCHARGES

In addition to FUSF, federal, state and local taxes, fees and surcharges discussed above, Level 3 charges the following surcharges to recover fees imposed on the company for doing business in certain jurisdictions.

• Property Surcharge
• Cost Recovery Fee
• Franchise Cost Recovery Fee
• Texas Recovery Surcharge

These surcharges are associated with certain taxes and fees, and are both consistent with our customer agreements and standard industry practice. These fees are allowed under our standard customer contracts and many carriers recover these fees in the form of surcharges.

PROPERTY SURCHARGE

A tax-related surcharge in addition to the other charges for service will apply equal to 4.25 percent of the total interstate, international and unregulated charges (including usage and non-usage) after the application of applicable discounts and credits, which allows the Company to recover a portion of the property tax that it pays to state and local jurisdictions. Federal Universal Service Fund (FUSF) applies.

COST RECOVERY FEE

A tax related surcharge equal to 2.5 percent of all applicable charges, excluding Taxes, appearing on a Customer's invoice will apply to interstate and international telecommunications services subject to direct regulation by the Federal Communications Commission as well as to Interconnected VoIP service charges treated as interstate under FCC rules. This charge is being imposed to recover amounts incurred by Company for regulatory fees and expenses incurred by Level 3 such as FCC regulatory fees, telecommunications services for the speech and hearing-impaired, North American Numbering Plan administration, various State Public Utilities Commission (PUC) fees, various state business licenses, and various state annual regulatory fees. Federal Universal Service Fund (FUSF) applies.

FRANCHISE COST RECOVERY FEES

A tax related surcharge to recover local government franchise fees and right-of-way costs incurred for use of the public right-of-way will apply to customer invoices. The rates and application vary based on jurisdiction. Rates are provided below:

TEXAS RECOVERY SURCHARGE

A tax related surcharge equal to 0.7 percent of all charges attributable to Texas service locations will apply to customer invoices to recover Texas Franchise Tax imposed by the State of Texas.

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