This is the first in a series of articles documenting the trials and tribulations of residents in New Hampshire, Vermont, and Maine when their incumbent telephone company Verizon abandoned them, leaving them at the mercy of an inexperienced, financially shaky, and downright lousy replacement — FairPoint Communications.  This are many lessons to be learned, and we’ll be following what was promised, what went wrong, and why it creates a nightmare for rural and small town America.  Some may wonder why focusing on this story is relevant to our issues.  The reasons:

• Broadband service in rural America is either unavailable, expensive, slow, and/or capped.  Smaller players in the broadband market often lack the financial resources to provide high quality, fast, and flexible broadband service to residents and businesses.
• The hope for competition from Verizon’s advanced fiber to the home FiOS network is dashed when the company abandons the smaller communities it once served to concentrate on more urban service areas.  Those communities will be stuck with second-rate copper or wireless “broadband” options for years to come.  In many of these communities, there is no cable service available.
  
• Some of the astroturfing political groups on the right decry public taxpayer funding of broadband, and accuse municipal networks of being subsidized by taxpayer dollars.  But as you’ll learn, private companies are receiving favorable tax breaks, and FairPoint in particular is being permitted to access $50 million dollars in funding that was originally intended by New Hampshire to be used for improvements in service.  Now that money will go to repay debts incurred by FairPoint at the same time the company paid enormous bonuses to company executives.  Strangely, these astroturf groups are silent about diverted funds finding their way into the private sector.

The sordid story of FairPoint in New England is a timely one, coming just a few weeks after Frontier Communications announced it would be taking on Verizon customers in several states, in numbers that dwarf the existing customer base of Frontier.  Shouldn’t public utility regulators carefully consider the implications for these customers before it gets approval?  What guarantees for broadband will be included, and at what speeds?  Will Frontier’s “acceptable use policy” provision of 5GB of usage per month, currently unenforced, come back to haunt customers later?

We’ll be covering the story in chronological order with lots of video over the coming days.  Pay special attention to the promises made, the realities that would come later, and the current nightmares that have cut off communities from 911 service, forced some businesses to relocate out of state just to obtain telephone service, six week delays for installations, Internet accounts that lost e-mail, and the tale of one woman who literally lives next to the telephone company, but cannot get a service call completed because FairPoint claims they cannot find her address!

When it’s all over, isn’t it well past the time Americans should be asking more from the telecommunications providers that deliver service?  For millions of Americans, when the phone company is your only choice, is this the best we can do?

2002-2007: When Verizon Decided It Was in a Dying Industry – The Slow Decline of Landlines

A strange thing began to happen as America entered the 21st century.  Young people started obsessing over their mobile phones.  Not having one by high school meant you were virtually a social outcast.  In some circles, the provider you chose could make the difference between being upper crust or poverty stricken.  And “prepaid” meant you had bad credit.  Among the young, the social status of having Verizon Wireless or AT&T was worth showing off.  It was an entirely different story for those bringing a phone to school with a Cricket logo.

For many adults, the quest for cell phone status was perplexing.  What was wrong with the regular phone line?

It turned out plenty.

In the early 2000s, a new phenomena was noticed by telephone companies across the country.  As young people moved out and into dorms or their own places, they were not establishing traditional phone service.  They relied on their cell phone instead.  At first it was dismissed as a quirk.  Perhaps those customers were getting voice over IP or “digital phone” service from the cable company or Vonage.  It some instances they were, but among younger Americans, the adoption of the cell phone as the one and only “phone line” was starting to get downright trendy.

This rang alarm bells at traditional telephone companies.  So did the number of disconnects from customers tired of paying top dollar for phone features, long distance, and taxes and fees.  If you already had a cell phone, and your plan was providing unlimited nights and weekend calling, and an increasingly generous “bucket” of minutes to use every month, why pay another $50 a month for a standard phone line?

Verizon, among others, quietly decided people probably wouldn’t, and began contemplating an increasingly wireless future.  The conclusion?  Adapt or die.  By this time, the cable operators in most larger communities embarked on a strategy of being a one-stop-shop approach to all of your telecommunications needs.  The “triple play” was born — cable television service, a “digital” phone line, and broadband were bundled together, often discounted, and sold to customers.  Most telephone companies had one thing to sell – telephone service.  Many hurried to introduce DSL service for broadband, so at least customers could bundle phone and Internet service together, but for most of America, those decades-old copper phone wires simply couldn’t sustain the third component of the bundle – video.  So most phone companies partnered with satellite providers as resellers.

Verizon began to realize that a lot of customers were simply unimpressed with the slower speed DSL service they offered, unable to compete with the rapidly growing cable broadband speed gap, and satellite dish service provided by a third party is hardly the best alternative for video service.  They eventually decided their best approach to adapt to the changing marketplace was the massive deployment of fiber optic cable.  They one-upped the cable companies by wiring fiber all the way to the home, something cable companies rarely did.  Verizon FiOS was born.

Fiber isn’t cheap to deploy.  Many millions of dollars in upgrades were required in every city Verizon committed to wire with fiber.  Larger cities and urban centers with suburbs ringing them made great sense to wire as they could reach many more potential customers than those available in smaller communities and rural areas.  Verizon’s number crunching told company officials certain areas of the country made sense to deploy FiOS (the northeast, mid-Atlantic states, and large urban areas in the south and west), and some areas where it just wouldn’t make sense.

The communities that just didn’t make economic sense to rewire would soon go up for sale, starting in 2002 when Verizon jettisoned 1.27 million lines in Alabama, Missouri, and Kentucky.  In 2005, Verizon dumped 700,000 lines in Hawaii, a costly state for any wired infrastructure upgrade.

January 2007: Verizon Begins to Abandon Rural New England

On January 16, 2007 Verizon announced it was, for the first time on this scale, abandoning customers within its historic service area.  From the Bell System telephone companies in New England to NYNEX to Bell Atlantic to Verizon, Maine, New Hampshire and Vermont had always been “a part of the family.”  But Verizon’s new economics made it clear that these communities were well off the broadband superhighway they sought to construct in more urban communities in Massachusetts, New York, and Connecticut.  They had to go.

FairPoint Communications service areas

Verizon found a buyer in FairPoint Communications, a comparatively tiny independent telephone company based in Charlotte, North Carolina.  Prior to the announcement, FairPoint had about 230,000 customers altogether, mostly clustered in rural Florida, New York, and Washington state.  Verizon proposed that FairPoint, with fewer than a quarter million customers, was now ready and able to assume control over the telephone lines in three significant New England states.  The company would more than triple its size upon completion of the deal, becoming the eighth largest independent phone company with 1.9 million customers.

Why would Verizon want to hand over three states to a phone company this small?  The fact that its status as a rural independent telephone company offering the opportunity of a tax-free transaction for Verizon might have had something to do with it.  And they were buying.

According to Randy Barber, a telecom and union consultant, Verizon exploited an IRS loophole knows as a “Reverse Morris Trust.”  According to Barber, a parent corporation can split a part of itself off into a subsidiary (which Verizon ironically called ‘Spinco’) which it spins off into a new, unrelated company.  The transaction is entirely tax free if the shareholders of the original company end up controlling more than 50% of the voting rights and value of the new, merged company.  Because FairPoint fit the bill, Verizon yielded up to $600 million in tax savings.  Savings it might not have realized had it chosen a different company to sell off its assets in northern New England.

Verizon and FairPoint characterized the deal as a boon for the three states because, they claimed, FairPoint has always focused on rural communities, and had expertise in serving towns and smaller communities that were simply off Verizon’s radar screen.  In return for the deal, FairPoint promised to expand broadband into additional rural communities, would retain current employees, and improve service while freezing existing rates.

The controversy began almost immediately, with consumer advocates suspicious about the actual consumer benefits, and the International Brotherhood of Electrical Workers, which represented many affected Verizon employees, launching radio and television ads opposing the deal.  The warning bells being rung in the ads would be heard again after the deal was approved.

Audio Clip: International Brotherhood of Electrical Workers Radio Spots (3 minutes)
You must remain on this page to hear the clip, or you can download the clip and listen later.

Many union employees were concerned that FairPoint would lack the resources going forward to maintain their jobs and the telephone network at the same time.  Several state utility commissions shared their concerns, and all three states scrutinized the proposed merger carefully.