June 11, 2007
Collect call | Is the FairPoint-Verizon deal a bad connection?
By Sara Donnelly
Its been four months since Verizon announced plans to sell its 1.5 million access lines in northern New England to North Carolina-based FairPoint Communications, and opposition to what would be the largest telecommunications sale in Maine history has moved faster than an email petition beamed through a fiber-optic cable. If approved, the sale would affect approximately 180,000 DSL customers and 600,000 long-distance customers in Maine, New Hampshire and Vermont.
While officials at FairPoint promise to improve service in Maine if the deal is approved, small-business owners, labor leaders and Maine's Public Advocate Richard Davies worry the small company won't be able to maintain the current network, let alone complete the kind of multi-million-dollar upgrade from today's copper-based telephone and DSL Internet network to the state-of-the-art fiber optic cabling needed to keep pace with telecommunications trends.
In Maine, 71 individuals and groups have received intervenor status to testify and present evidence during the Maine Public Utilities Commission's consideration of the deal, which
PUC spokesperson Nicole Clegg expects will begin sometime this fall. Public hearings on the proposal will begin around the state this September.
"When this was first announced we thought it was a good idea," says Fletcher Kittredge, CEO of Great Works Internet, a dial-up and high-speed Internet access provider in Biddeford. "But as we looked into the nature of the deal we were a lot more concerned."
GWI serves around 35,000 customers statewide. Kittredge worries FairPoint's limitations would set his company, which currently leases land lines from Verizon, back years. As a result, he's collaborating with the state branches of the International Brotherhood of Electricity Workers and the Communications Workers of America, two telecommunications labor unions, to scrutinize the sale in the upcoming PUC hearings. He says that while Verizon was often slow to respond to service complaints, he believes the smaller FairPoint would be even worse. Kittredge points to FairPoint's rocky financials (the company's Standard & Poor's bond rating is DD- and an S&P analyst has reportedly expressed concerns over operations risks involved with the merger), its assumption of $1.7 billion in debt to complete the sale and the enormous infrastructure needs in the three states as proof that the company is getting in over its head.
"There needs to be a lot of investment in rural broadband and FairPoint can't promise that," he says.
Phone bill
FairPoint Communications currently operates just over 300,000 telephone lines in rural and small-urban markets in 18 states and owns six small telephone companies in Maine, including China Telephone Co. in South China and Standish Telephone Co. According to the Maine Public Utilities Commission's most recent annual report, in 2005 the state received "numerous consumer complaints about billing errors and the customers' inability to reach FairPoint by telephone to discuss the billing errors."
Despite mixed reviews on the company's performance and financials, FairPoint is going after the biggest acquisition in its 14-year history with gusto. Under the terms of the deal, Verizon shareholders would receive roughly $1 billion in FairPoint stock. Meanwhile, FairPoint would assume $1.7 billion in Verizon debt to complete the three-state deal, which Verizon valued at $2.72 billion. If the utilities sale is approved by the states' oversight boards, it would increase Fairpoint's market capitalization from $600 million to more than $1.5 billion and rocket it from its current ranking as the country's 14th largest telecom company to the eighth largest.
Maine's IBEW and CWA union chapters, who together account for about 1,300 technical and clerical telecommunications workers in the state, plan to fight the sale in Augusta as well as before the PUC. The unions are supporting LD 1866, "An Act to Revise Maine's Utility Reorganization Laws." The legislation, sponsored by Sen. Nancy Sullivan (D-York), was prompted by the proposed sale and would require the Maine Public Utilities Commission to impose a higher standard on telecommunications deals in Maine. The bill is currently in committee.
Public commissions in the three involved states ˆ Maine, Vermont and New Hampshire ˆ have yet to decide on the deal. On May 29, U.S. Rep. Dennis Kucinich (D-Ohio), who is a candidate for president, sent a letter to the chairman of the Federal Communications Commission expressing concerns about the Verizon-FairPoint merger. Kucinich wrote that maintenance, installation and repair services would suffer, and that the debt FairPoint would accrue in the sale may spike prices. Kucinich also referred to speculation that Verizon chose to sell to a small company to avoid federal corporate income tax in a process called the "reverse Morris Trust."
Walter Leach, FairPoint's executive vice president for corporate development, is confident critics of the deal have it wrong. He says it's impossible for observers to dismiss the deal's financials, since those details remain private. The balance of the company's debt to equity, he maintains, is acceptable, and FairPoint projects "a substantial cushion of cash flow each and every year after everything is covered" that would be used to upgrade northern New England's phone and Internet lines.
FairPoint, Leach points out, intends to create 600 new jobs (a figure the unions dispute), expand broadband coverage to speeds of up to six megabytes per second (Fairpoint currently offers DSL speeds up to 1.5 megabytes through its six Maine companies, according to Maine's public advocate) and maintain the roughly 3,000 jobs, at their current benefits and pay, Verizon currently supports in the region. Leach says the tax loophole that may be the reason Verizon selected FairPoint in the first place is commonly used in deals like this.
"For a typical customer," Leach says, "the only change they'll see is, when this is over, they'll get their bill and it will say FairPoint instead of Verizon."
While officials at FairPoint promise to improve service in Maine if the deal is approved, small-business owners, labor leaders and Maine's Public Advocate Richard Davies worry the small company won't be able to maintain the current network, let alone complete the kind of multi-million-dollar upgrade from today's copper-based telephone and DSL Internet network to the state-of-the-art fiber optic cabling needed to keep pace with telecommunications trends.
In Maine, 71 individuals and groups have received intervenor status to testify and present evidence during the Maine Public Utilities Commission's consideration of the deal, which
PUC spokesperson Nicole Clegg expects will begin sometime this fall. Public hearings on the proposal will begin around the state this September.
"When this was first announced we thought it was a good idea," says Fletcher Kittredge, CEO of Great Works Internet, a dial-up and high-speed Internet access provider in Biddeford. "But as we looked into the nature of the deal we were a lot more concerned."
GWI serves around 35,000 customers statewide. Kittredge worries FairPoint's limitations would set his company, which currently leases land lines from Verizon, back years. As a result, he's collaborating with the state branches of the International Brotherhood of Electricity Workers and the Communications Workers of America, two telecommunications labor unions, to scrutinize the sale in the upcoming PUC hearings. He says that while Verizon was often slow to respond to service complaints, he believes the smaller FairPoint would be even worse. Kittredge points to FairPoint's rocky financials (the company's Standard & Poor's bond rating is DD- and an S&P analyst has reportedly expressed concerns over operations risks involved with the merger), its assumption of $1.7 billion in debt to complete the sale and the enormous infrastructure needs in the three states as proof that the company is getting in over its head.
"There needs to be a lot of investment in rural broadband and FairPoint can't promise that," he says.
Phone bill
FairPoint Communications currently operates just over 300,000 telephone lines in rural and small-urban markets in 18 states and owns six small telephone companies in Maine, including China Telephone Co. in South China and Standish Telephone Co. According to the Maine Public Utilities Commission's most recent annual report, in 2005 the state received "numerous consumer complaints about billing errors and the customers' inability to reach FairPoint by telephone to discuss the billing errors."
Despite mixed reviews on the company's performance and financials, FairPoint is going after the biggest acquisition in its 14-year history with gusto. Under the terms of the deal, Verizon shareholders would receive roughly $1 billion in FairPoint stock. Meanwhile, FairPoint would assume $1.7 billion in Verizon debt to complete the three-state deal, which Verizon valued at $2.72 billion. If the utilities sale is approved by the states' oversight boards, it would increase Fairpoint's market capitalization from $600 million to more than $1.5 billion and rocket it from its current ranking as the country's 14th largest telecom company to the eighth largest.
Maine's IBEW and CWA union chapters, who together account for about 1,300 technical and clerical telecommunications workers in the state, plan to fight the sale in Augusta as well as before the PUC. The unions are supporting LD 1866, "An Act to Revise Maine's Utility Reorganization Laws." The legislation, sponsored by Sen. Nancy Sullivan (D-York), was prompted by the proposed sale and would require the Maine Public Utilities Commission to impose a higher standard on telecommunications deals in Maine. The bill is currently in committee.
Public commissions in the three involved states ˆ Maine, Vermont and New Hampshire ˆ have yet to decide on the deal. On May 29, U.S. Rep. Dennis Kucinich (D-Ohio), who is a candidate for president, sent a letter to the chairman of the Federal Communications Commission expressing concerns about the Verizon-FairPoint merger. Kucinich wrote that maintenance, installation and repair services would suffer, and that the debt FairPoint would accrue in the sale may spike prices. Kucinich also referred to speculation that Verizon chose to sell to a small company to avoid federal corporate income tax in a process called the "reverse Morris Trust."
Walter Leach, FairPoint's executive vice president for corporate development, is confident critics of the deal have it wrong. He says it's impossible for observers to dismiss the deal's financials, since those details remain private. The balance of the company's debt to equity, he maintains, is acceptable, and FairPoint projects "a substantial cushion of cash flow each and every year after everything is covered" that would be used to upgrade northern New England's phone and Internet lines.
FairPoint, Leach points out, intends to create 600 new jobs (a figure the unions dispute), expand broadband coverage to speeds of up to six megabytes per second (Fairpoint currently offers DSL speeds up to 1.5 megabytes through its six Maine companies, according to Maine's public advocate) and maintain the roughly 3,000 jobs, at their current benefits and pay, Verizon currently supports in the region. Leach says the tax loophole that may be the reason Verizon selected FairPoint in the first place is commonly used in deals like this.
"For a typical customer," Leach says, "the only change they'll see is, when this is over, they'll get their bill and it will say FairPoint instead of Verizon."
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