Maine FairPoint Settlement Fails to Protect Public Interest; Battle Shifts to Regulators in New Hamp

The Maine Public Utilities Commission approved a previously labeled “partial, contested” settlement of the sale of Verizon Communications operations to FairPoint Communications subject to certain additional requirements in late night deliberations on January 3.  CWA and IBEW had urged commissioners to “reject the proposed stipulation and reject the transaction as being contrary to the public good.”   

The Commission initially asked Verizon to reduce FairPoint’s debt by $100 million by cutting the cost of the fees it will charge FairPoint for services rendered during the transition from FairPoint to Verizon.  After Verizon refused to do this, the Commission adopted a FairPoint alternative proposal to pay down its debt by $150 million in 2012 if the company does not meet a certain debt ratio by the end of 2011. 

This condition could be counter-productive.  It will place significant pressure on FairPoint to cut costs in 2011 in order to make the target debt ratio.  It could include cuts in capital expenditures, workforce levels, broadband build out, and service quality.  If the company still does not make the debt ratio target by the end of that year, it would have to institute a “slash and burn” policy to come up with $150 million in 2012.  

“The Commission had it right when it initially asked Verizon to cut FairPoint’s fees by about $100 million.  That would have been an upfront cash infusion taking pressure off FairPoint.  Instead, the Commission placed more pressure on FairPoint to cut its investment in capital, service quality or the labor force,” said Pete McLaughlin, Business Manager of IBEW Local 2327.  “We are proud of the work our members and thousands of citizens have done to raise issues about FairPoint’s financial weakness, and the importance of ensuring public safety and promoting universal access to high speed Internet.  We made it front page news.  Sadly, our commissioners made a compromise that falls far short of what telephone customers and the public need.”  

“We feel that the Commission did not obtain enough to make FairPoint financially viable.  While the Commission addressed the important issue of FairPoint’s financial weakness, we fear it actually made things worse, said Cheryl Ahern, President of CWA Local 1400. “We hope that regulators in New Hampshire and Vermont reject the Maine settlement as insufficient to protect the public,” said Myles Calvey, who chairs a New England-wide coalition of IBEW local unions.  “If the regulators still want to make a deal, any additional requirements should be paid by Verizon, otherwise FairPoint’s financial circumstances will erode even further and customers and workers will be worse off.” The Verizon FairPoint settlement in Maine is deficient because it:
· Requires Verizon to reduce FairPoint’s debt by significantly less that the $600 to $700 million recommended by the Hearing Examiner and previously by the Public Advocate.  

· Permits FairPoint to pay out hundreds of millions of dollars more in common stock dividends than FairPoint expects to earn in net income.
 
· Does not enable FairPoint to weather foreseeable adverse financial circumstances (such as reductions in revenues, increases in expenses, or increases in capital expenditures) without jeopardizing the financial health of the public utility.  

· Does not provide FairPoint with the financial capability to eliminate or substantially modify its plan to dramatically reduce its workforce through attrition during the next eight years.  

· Allows FairPoint to invest $40-$50 million a year less in capital expenditures than Verizon’s historic annual levels in Maine, New Hampshire, and Vermont.   

· Does not require FairPoint to fund any of the more than $500 million in projected retiree health care liabilities it will incur through 2015 and does not provide FairPoint with the financial capability to reasonably meet these liabilities.  

· Changes significant aspects of FairPoint’s previously filed financial model, including its projections of revenues, expenses, capital expenditures and cash flows, while handcuffing New Hampshire and Vermont from getting FairPoint to further address their state specific concerns. 

More information about why citizens are mobilizing to stop the Verizon sale to FairPoint is at: www.stopthesalenow.org and www.no-deal.org.  For information about ending the digital divide visit: www.speedmatters.org.