Unions Urge Vermont Public Service Board to Deny Verizon-FairPoint Transaction

For More Information: Jeff Miller or Candice Johnson, CWA Communications, 202-434-1168. jmiller@cwa-union.org and cjohnson@cwa-union.org

The full testimony is available at:

http://files.cwa-union.org/national/verizon/20070524_VTPSB_KenPeres.pdf

http://files.cwa-union.org/national/verizon/20070524_VTPSB_RandyBarber.pdf

Montpelier, Vermont -- In testimony to the State of Vermont Public Service Board, the Communications Workers of America and the International Brotherhood of Electrical Workers made a strong case as to why the board should deny the proposed transaction between Verizon New England and FairPoint Communications.

Verizon is proposing to sell its holdings in Vermont, as well as in Maine and New Hampshire, to FairPoint. Unions, community organizations, elected officials and other concerned citizens oppose this sale, citing concerns about quality and maintenance of service for customers.

Kenneth R. Peres, a PhD economist for CWA, pointed out that consumers will be in a worse position if the transaction is approved, because FairPoint will have fewer resources to improve service quality than Verizon. "FairPoint will have to maintain Verizon's service quality performance where it has consistently met service standards, and, if it does not want to incur penalties, improve performance in areas where Verizon has not provided consistently good service," Peres said. Verizon's service quality has deteriorated in a number of categories since 2001. However, FairPoint to date also has had a number of problems with its service quality in relation to the disconnect rate and consumer complaints, he noted.

Peres cited data from the Department of Public Service which showed that FairPoint's rate of consumer complaints in 2006 was 2.4 per 1,000 access lines, significantly higher than Verizon's rate of 0.46 complaints per 1,000 lines, he said.

Peres concluded that "if Verizon wanted to, it has the resources to improve service quality. Even if FairPoint wanted to improve service quality, it would be very difficult to achieve given its limited and strained resources." Peres recommended that the Board not approve the transaction.

Also testifying was Randy Barber, head of the Center for Economic Organizing. He examined the deal's financial details for CWA and pointed out that "FairPoint's approach to business is to invest as little as possible in capital plant and siphon the rest of the cash out of the operating companies to support its extraordinarily high dividend payment," a position that cannot be sustained.

"FairPoint pays very high dividends, yielding over 8.5 percent at current share prices. Its dividend payments are significantly more than FairPoint earns," he said. In fact, in the last two years, FairPoint has paid dividends equal to nearly twice its level of net income, a kind of "cannibalization," Barber said.

Barber also pointed out that the deal would result in FairPoint, which now owns 14 percent of access lines in the state, controlling 86 percent of access lines, an operation seven times larger than its current size. The only time that FairPoint had a similarly sized operation was in 1998, when it took over a competitive local exchange carrier – CLEC – through a subsidiary. After three years, when FairPoint decided to discontinue operations, "it had accumulated several hundred million dollars in losses, laid off at least 365 employees and came perilously close to bankruptcy," Barber said. .

Based on a review of risk, capacity and credibility, Barber concluded that “the proposed FairPoint acquisition of the Verizon Northern New England properties is not in the best interests of Verizon’s customers or employees, or the state of Vermont as a whole.”