Verizon-FairPoint Deal Raises Concern Among Lawmakers for Broadband Build-out

Contact: Rand Wilson, 617-803-0799 or Candice Johnson, CWA Communications, 202-434-1168. Read the full testimony at www.stopthesalenow.org

CWA: There are alternatives to this sale and proposed stipulations

Montpelier, Vermont -- The proposed settlements and modifications in the sale of Verizon Communications landlines to FairPoint Communications simply fail the test of financial fitness and place a growing burden on FairPoint, already a financially risky company, to meet service quality and changing technological standards.

That's the finding of the expert witness who testified today before the Vermont Senate Economic Development Committee, chaired by Senator Vincent Illuzzi. Illuzzi and other lawmakers have raised concerns with the state Public Service Board that the Verizon-FairPoint deal may make it virtually impossible for FairPoint to meet the goal established by the General Assembly that all residences and businesses have access to affordable broadband services no later than the end of 2010. 

Expert Randy Barber, who testified on behalf of CWA and the IBEW, told the committee that FairPoint has only committed to provide broadband service to everyone in 50 percent of its exchanges by 2010, falling far short of the assembly's goals. Barber testified earlier this week before the Vermont Public Service Board.

FairPoint is not the only alternative, he reminded the committee. Verizon could spin off its northern New England operations as an independent company, without the huge debt load that burdens FairPoint.

"An independent company would have local management and employees dedicated to northern New England – not distant executives more interested in milking assets to pay high dividends to investors and use the Verizon 'assets' as a springboard for additional – and perhaps much larger – acquisitions. If it chose to do so, Verizon could spin off an independent northern New England telephone company without the $1.7 billion in debt that FairPoint will have to take on as part of its deal with Verizon," Barber told the committee.

As they currently stand, however, the proposed stipulations relating to service quality, rates, additional capital investments and dividend restrictions "only exacerbate FairPoint's already unacceptably risky prospects. FairPoint simply will not have the financial resources to meet all the additional commitments it has made, and Verizon's contribution is woefully inadequate. FairPoint does not meet reasonable standards of financial fitness," Barber said.

And the proposed Vermont stipulation yet again lets Verizon off the hook for the hundreds of millions of dollars it should be putting into this transaction. Instead, it forces FairPoint to dig itself even further in the hole and pay for every single provision that the Department of Public Service extracted from it.

"This transaction could create profound, even perverse, incentives for FairPoint to cut expenses and capital expenses…just when it should be continuing to invest heavily in rebuilding the communications network," Barber said.

The Vermont proposal does not include any amount from Verizon dedicated for the state, although Maine regulators required Verizon to provide an additional $12 million for broadband investment (and $100 million to offset rate reductions) and the New Hampshire stipulation requires Verizon to provide an additional investment of $50 million.

Barber also provided an update today to members of the Vermont House Commerce Committee.