Verizon's Savings From Tax Loophole in FairPoint Deal Would Fund High-Speed Internet in Northern New

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

Washington, DC -- The $600 million tax windfall Verizon is due to receive in its proposed sale of telephone operations in northern New England, if invested in network upgrades, would be enough to provide high-speed Internet access to every residential customer in the company's service area, according to a new report released today.

Verizon has structured the sale of its phone business in Maine, New Hampshire and Vermont to financially strapped FairPoint Communications so as to avoid paying any federal taxes on the profits through an arcane tax loophole, the report by the Communications Workers of America and the International Brotherhood of Electrical Workers states. 

That $600 million, if put into a Broadband Infrastructure Fund – as the unions have recommended to the Federal Communications Commission as a condition for approval of the sale – would allow for:

• Providing lightening-fast fiber optic service (such as Verizon's FiOS Internet) to 84 percent or 857,000 of the residential customers served by Verizon in the three states;

• Or, providing access to DSL high-speed service to nearly 100 percent of homes and FiOS to 75 percent of customers in the three states.

According to the report, data from the FCC show that the three states currently rank at or near the bottom in terms of broadband availability in the United States. New Hampshire is last, Vermont is next to last and Maine is fourth from bottom of the 50 states in the percentage of homes with DSL access.  Only 64 percent of homes in the three states have broadband access as compared with the national average of 79 percent.

Taxpayers are providing a $600 million tax break to Verizon through a loophole called the "Reverse Morris Trust," according to the report entitled, "You Make the Call – High Speed Broadband for All or Tax Loopholes for Verizon?"

Verizon can qualify for the tax loophole because FairPoint, a small telecom company based in North Carolina, is smaller than Verizon's northern New England operations and Verizon's shareholders will own more than 50 percent of FairPoint if the deal is approved.  If Verizon sold its properties to a larger corporation for the same price of $2.7 billion, it would owe more than $600 million because its proceeds from the sale would be taxed at the corporate tax rate of 35 percent, according to the report.   Because of the advantage of the Reverse Morris loophole, Verizon has an incentive to sell to a small company with limited financial resources rather than rural telecom companies such as Embarq or Citizens, which would be better able to invest in advanced communications networks, the report stated.

"If this deal is approved as currently structured, U.S. taxpayers will be subsidizing Verizon for abandoning its operations in northern New England and leaving these states as a communications backwater for years to come," said Kenneth Peres, PhD economist for CWA and the report's author.

Advisory staff for the public utilities commissions in all three states, as well as the offices of the consumer and public advocates in New Hampshire and Maine, all have urged rejection of the proposed deal, and have called for stringent conditions to be imposed if the commissioners ignore their advice and approve the transaction.  The Maine and New Hampshire commission staff urged that, at the very least, Verizon's sale price be cut substantially – the Maine PUC staff recommended $600 million -- to reduce the debt burden that the deal would load onto FairPoint.

The regulatory commissioners in the three states are expected to announce their decisions on whether to approve, reject or impose conditions on the proposed sale later this month. The report is being sent to governors and every member of the state legislatures in the three state region. The report is available at www.stopthesalenow.org and ga.cwa-union.org.