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from: Portland Press Herald

Verizon sale to FairPoint approved PUC
Vermont and New Hampshire regulators and the FCC must give
their approvals for the sale to become final.

By TUX TURKEL, Staff Writer January 4, 2008

AUGUSTA — The Maine Public Utilities Commission voted late
Thursday to approve the sale of Verizon's telephone network in
Maine to FairPoint Communications.

The three commissioners acted after an exhaustive, 12-hour
session, and only after FairPoint made significant financial
concessions designed to reduce its debt after the $2.7 billion
purchase.

Regulators in Vermont and New Hampshire, and the Federal
Communications Commission, also must give their approvals for
the sale to become final. Verizon and FairPoint hope to close by
Jan. 31.

The case before the PUC was considered among the most
important telecommunications decisions facing the agency in a
generation. The outcome and its conditions will affect virtually
every home and business customer that now gets telephone or
Internet services through Verizon.

Verizon is Maine's dominant local telephone service provider. It
owns more than 600,000 access lines, roughly 85 percent of
Maine's total. The lines also support Internet access for
thousands of home and business customers.

The PUC's approval included the following conditions:

n FairPoint will reduce the rate for basic home and business
telephone service by more than $4 a month, for at least five
years. The rate now is $19.29 a month.

– FairPoint will make high-speed Internet service available to 83
percent of all lines within two years, and 90 percent over five
years.

– Prices for existing Verizon high-speed DSL service will be
frozen at $15 a month with a two-year contract and $18 with a
one-year contract, for at least two years.

FairPoint also will have to meet strict service quality standards,
or face increasing financial penalties.

Both FairPoint and consumer advocates said they were pleased
with the outcome.

"I'm feeling great," said Gene Johnson, FairPoint's chief
executive officer and board chairman. "We're close to the end.
I'm feeling wonderful."

Dick Davies, the state's Public Advocate, said the deal would be
good for Maine phone customers, and that the negotiations and
conditions that accompanied the sale put FairPoint in a stronger
financial position to fulfill its promises.

"You're getting a company that really wants to be here," Davies
said.

Those feelings were not shared by organized labor.
Representatives of the International Brotherhood of Electrical
Workers and the Communications Workers of America opposed
the sale, arguing that FairPoint lacked the financial resources to
honor its obligations to workers, among other things.

The three commissioners shared some of labor's concerns. In
the end, however, they faced a dilemma that Kurt Adams, the
PUC's chairman, summed up this way:

Verizon is a large, financially strong company, but it no longer
wants to do business in Maine. The result has been inadequate
expansion of Internet access and declining service quality.
FairPoint is a much smaller company that will take on high debt
to buy Verizon's assets, but it wants to focus its business on
northern New England.

"One company doesn't want to serve Maine," Adams said.
"Another wants to, but may not be able to."

To reduce this risk, Verizon, FairPoint, the Public Advocate and
other parties negotiated a settlement agreement – which was
accepted Thursday by the PUC with modifications – that
addressed some of the concerns.

In the agreement, Verizon effectively knocked $250 million off
the $2.7 billion sale price. That seemed like a good compromise
to the public advocate. But it fell far short of the $600 million
price cut that the PUC's hearing examiner called for in earlier
recommendations to the commission, as a way to cut FairPoint's
debt after the sale.

Ultimately, the need for more debt reduction was shared by the
commissioners. "It seems to me there needs to be another $100
million in the deal," Adams said during the deliberations.

Adams based his reasoning on FairPoint's calculation, contained
in the settlement agreement, to improve its financial standing to
so-called investment grade by 2014. That deadline is important
because the company will need to refinance its debt by then – at
higher interest rates.

Adams worried that FairPoint won't be able to achieve the better
credit rating, based on projections that it would lose customers
each year to competitors such as Time Warner Cable, which
offers a package of cable, phone and Internet service.

The two other commissioners, Vendean Vafiades and Sharon
Reishus, shared those concerns.

One way to get another $100 million out of Verizon, the
commissioners decided, was to put off for six months the
payments that FairPoint will have to make to Verizon for billing
and customer service during the transition period following the
sale. But after consulting with top management, a lawyer
representing Verizon told the commission that wasn't possible.

With the entire agreement at risk, a solution came from Johnson,
in the form of a proposal. If the company doesn't meet a
favorable debt ratio by 2012, it will suspend dividend payments
and sell key assets, measures valued at $150 million.

The compromise was acceptable to the three commissioners,
clearing the way for Thursday's decision.

Staff Writer Tux Turkel can be contacted at 791-6462 or at

tturkel@pressherald.com