Consultant urges PUC to reject FairPoint deal

A Massachusetts-based telecommunications consultant is vigorously recommending that the New Hampshire Public Utilities Commission reject FairPoint Communications’ proposed acquisition of Verizon’s telephone lines in New Hampshire.

In testimony delivered Monday to the PUC on behalf of the commission’s Office of Consumer Advocate, Susan Baldwin said that, although “serious problems exist with Verizon New Hampshire’s present operations,” the acquisition by FairPoint “would be far worse for New Hampshire’s consumers.”

Baldwin — a former director of telecommunications for the Massachusetts Department of Public Utilities — said, “The risks to consumers of FairPoint acquiring Verizon New Hampshire’s operations are high; the benefits are speculative; the magnitude of the proposed transaction is substantial; the transaction itself would be irreversible; and FairPoint’s plans are vague, still evolving, not based on full and complete due diligence, and reliant on a highly leveraged capital structure.”

Baldwin characterized the deal as so badly structured that she can’t envision “any set of conditions that could render the transaction in the public interest.”

She said that if the deal is approved, the North Carolina-based FairPoint would be so highly leveraged in order to fund the acquisition that she is highly doubtful that the company would be able “to provide service at affordable rates” or provide “reasonable service quality levels.”

Baldwin also raised concerns that, a result of the drawn-out regulatory approval process – the deal requires approvals in New Hampshire, Vermont and Maine as well as by federal regulators — “consumers’ interests are being held hostage” by the transaction and “regulatory attention is being diverted away from pressing issues,” including “unacceptable service quality and long-standing pole attachment issues” relating to Verizon.

In her testimony, Baldwin cited several other concerns , including:

• ”The transaction poses serious risks to consumers, not just financially, but also serious managerial and operational risks,” including “brain drain” and cutover challenges.
• FairPoint “has failed to acquaint itself adequately with the operations it intends to take over.”
• FairPoint “appears to lack benchmarks and criteria to even assess whether the SpinCo it inherits will really be maintained at ‘business as usual’ levels — that staffing will remain relatively the same or stable, for example.” (SpinCo is the Verizon subsidiary that owns the northern New England telecom assets.)
• Verizon and FairPoint’s interests and consumers’ interests “diverge in ways that are critical to the commission’s analysis.” According to Baldwin, Verizon seeks to “shed itself of rural areas in order to focus on bundled packages and on its FiOS-based services in more densely populated states, and seeks to do so through a complex tax-free transaction.”

And FairPoint, she said, while it “asserts that its interests are more closely aligned with New Hampshire consumers than are those of Verizon New Hampshire, it has not yet demonstrated its ability and willingness to manage the system to provide public benefits, or even to follow through on promises made in the pre-transaction regulatory context.”

Asked if she could name any conditions that should apply if the PUC does wind up approving the acquisition, Baldwin cited several “critical issues” that should be addressed “to at least partially offset the risks” of the transaction.

Baldwin listed at least nine areas that would have to be addressed before approval, among them:

• Consumers must be assured that service quality problems will be addressed.
• Verizon should not be permitted to transfer its local operations until the proposal includes a detailed plan with a timetable, budget and sanctions for non-compliance to ensure that PUC-established service quality standards “are met or exceeded upon transfer and service quality is raised in those communities that are receiving sub-par service.”
• FairPoint should agree to financial consequences, including penalties and/or automatic customer credits, if PUC-established service quality benchmarks are not met.
• FairPoint should make service quality information and reports available to the public and it should file service quality reports, on a monthly basis and in a Web-based format that can be made available directly to consumers on the PUC Web site.
• FairPoint should commit to offering DSL Internet service at rates that are aligned closely with the incremental cost of adding DSL capability.
• FairPoint should offer unbundled DSL so consumers can obtain access to it without subscribing to voice service.
• FairPoint should establish specific broadband deployment dates and locations, with clearly delineated plans that set forth not only when and where broadband will be deployed but also where it will not be deployed “so that consumers’ expectations are not unnecessarily raised and so that policymakers and industry know where alternative technologies such as wi-fi may be necessary.”
• FairPoint should make funds available to deploy alternative technology to serve under-served or unserved regions of New Hampshire. – JEFF FEINGOLD