Verizon-Frontier Merger Costs Customers, Workers, Taxpayers as Verizon Gets Government Dollars Under

Washington, DC---Verizon's plan to sell 4.8 million rural landlines in 14 states to Frontier Communications will cost taxpayers $600 million and will cost communities even more. If this proposed sale goes through, communities, especially in rural areas, won't have access to high speed broadband and other telecommunications advances, expanding the digital divide and setting back economic growth.

Legislation to eliminate the Reverse Morris Trust (RMT) loophole, which allows deals like the Verizon-Frontier sale to go forward, was announced today by U.S. Rep. Paul Hodes (D-N.H.) with support from labor, consumers, and Reps. Alan Mollohan and Nick Rahall (D-WVa.). West Virginia will be adversely affected by the sale. 

To qualify for RMT, a selling company's shareholders must own a majority of the post-merger acquiring firm. As is the case with the Verizon-Frontier sale, the buyer company must be much smaller than the properties to be acquired. Frontier would be acquiring $3.3 million in debt if the deal goes through.

Rep. Hodes said New Hampshire suffered after Verizon engineered a similar deal in 2007 with the now-bankrupt FairPoint Communications, avoiding $300 million in taxes. "Now more than ever, our corporations should be paying their fair share in taxes," Hodes said. "By closing this loophole, we can prevent corporations from taking advantage of the system and protect consumers."

"The Reverse Morris tax loophole tax means the government is spending hundreds of millions of dollars to subsidize large companies to exit the business of investing in our network.  It is backward thinking and bad public policy," said CWA President Larry Cohen.

"We need to bring high speed broadband to West Virginia and communities across the country, to foster economic growth. Instead, these kind of tax loopholes have the effect of using government money to block larger companies that could provide services to communities from moving into these areas," he said.

Members of Congress from West Virginia, which ranks in the bottom five states for broadband service, said this merger would strongly affect their constituents. "Verizon is avoiding $600 million in taxes on this deal," said Rep. Mollohan, who participated in a teleconference today with Rep. Hodes, Cohen, IBEW President Ed Hill and Ben Scott of Free Press. "This money could bring our state's telecom infrastructure to parity with the rest of the country. Instead, it's lining the pockets of one of the most profitable companies in the nation."

Rep. Rahall agreed that the tax code should be changed.  "This legislation will help us instill some fiscal discipline in an arena where there is little evidence of a national benefit to this tax maneuver," he said.

Despite Frontier's promises of better service and expanded coverage, the scenario is comparable to the doomed deal in New England that left FairPoint consumers and employees high and dry.

"Verizon is knowingly putting good jobs at risk and taking a $600 million tax break subsidized by the taxpayers," said IBEW President Edwin Hill. "Our members work hard to make sure people have good broadband and telephone service. We don't want to see that service undermined by a company like Verizon that's all too eager to shed itself of the landline business."

CWA and the International Brotherhood of Electrical Workers (IBEW) represent more than 10,000 Verizon workers in the 14 states affected by this deal.

More information about the Verizon-Frontier deal can be found at http://verizonfrontierdeal.org/rmt.