Phillip "I Also Told You So" Dampier

This past spring Stop the Cap! started relentlessly documenting the tragic phone and broadband service that came as a result of a lousy phone deal for New Englanders.  Verizon, busily wiring its larger service areas for FiOS fiber to the home service, wanted out of Maine, New Hampshire, and Vermont.  In a uniquely wonderful deal (for them), they not only managed a clean break from too much regulatory red tape, but also sold off the entire operation down to the last cable, phone jack, and building absolutely tax-free to FairPoint Communications, a tiny independent phone company headquartered in North Carolina.

Since the sale, it has been one catastrophe after another:  broken phone and broadband service up to weeks at a time, incorrect billing amounting to hundreds of dollars and collection calls pestering customers for money they don’t owe, investigation after investigation, broken promise after broken promise.  Since we broke from the story back in June to cover some of the nonsense and ripoffs going on in Canada, things have not gotten that much better.  In fact, the company’s stock has since lost 95% of its value, is defending against accusations it manipulated a “test run” of a conversion program to guarantee success (right under the noses of independent observers), a major management shakeup, and now the very real chance the entire mess is headed to Bankruptcy Court.

One member of the International Brotherhood of Electrical Workers, who loudly and, it turns out, very accurately predicted the results of this ill-conceived venture, said FairPoint is now swirling in the bowl, flushing itself, and three states’ telecommunications needs, right down the toilet.

So at the same time Frontier Communications is trying to pick up what Verizon is throwing away this year, it’s very illustrative to continue this story, to educate our readers about what happens when consumers’ needs are totally ignored.  Just as much to blame are the state regulators who are now ironically among the loudest complainers.  As we’ve shown documenting this entire story, they’ve changed their tune dramatically.  Back in 2007, they couldn’t say enough wonderful things about how confident they were in FairPoint, and were certain everything would work out just fine.

It did for them because they are still there, conducting the investigation about how this whole mess got started.

The Nashua Telegraph has followed this sorry story since day one:

Unable to make its massive debt payments, FairPoint will have to file for bankruptcy by month’s end unless it can strike a deal with creditors.

The company is losing land-line customers – and thus, revenue – faster than anticipated. And the celebrated launch of a TV service to compete with cable – a move FairPoint said would bring in the extra income to compensate for the decline in land-line customers – has been put on hold.

“There’s no satisfaction in saying I told you so,” said Rand Wilson, communications coordinator for the two unions that represent most FairPoint workers, which organized a major public campaign in an effort to stop the sale.

“We have to try to provide the best possible service under the circumstances and work with regulators and states to find a way to create a viable company.”

So far, that means trying to fix FairPoint from within, or hope the rumors of a buyout by Windstream, another owner of formerly independent phone companies, turns out to be real. But like FairPoint and Frontier, Windstream itself has a business model running phone service in the areas the big boys don’t want. How much of an improvement that company would provide remains an open question.  Regardless, unless FairPoint works the kind of magic it has never performed for its New England customers, it’s probably only a matter of weeks before bankruptcy:

P.J. Louis, a telecom industry expert and author of 11 books on the various topics within the industry, recently wrote that he thinks it’s a realistic option for the company.

“The more and more I think about it, the more I am convinced that FairPoint needs to file,” Louis wrote in an analysis on the Gerson Lehman Group Web site. “Every horror story you hear just scares the heck out of me. Frankly, I am questioning management’s ability to see the company through this rough time.”

The price of providing lousy telephone and broadband Internet service in three New England states?  $2.8 million dollars in fines, and counting.

FairPoint Communications has been piling up fines and penalties for almost a year now, providing third world phone service with the competitive spirit of Hugo Chavez.  Maine, New Hampshire, and Vermont officials started fining the company after it blasted FairPoint’s “failure to meet certain standards for quality and timeliness of interconnections.”  FairPoint is required by law to open its networks to local competitors, and the results of those trying to purchase access at wholesale rates have been about as acceptable as those residential customers have dealt with since Verizon threw them under the bus and left town more than a year ago.

The company’s response?  It wants Maine’s Public Utilities Commission, for one, to waive the $845,000 it owes to local phone carriers.  In a filing with the PUC, it asks that waiving or modifying the payments will let it return its focus to fixing faulty networks to normal operating levels.

In other words, it was penalized for not doing its job and promises, if the penalties go away, it will do its job.  What happens if the penalties don’t go away?

FairPoint’s plans for broadband expansion in its service area were called into question when the company announced it has the potential to go bankrupt if bondholders don’t agree to waive certain payment requirements.

"The biggest problem is to figure out what to do with all of the money."

Charter Communications President and CEO Neil Smit steered his company straight into bankruptcy, and still got paid double his salary he earned the year before.

Charter, which filed for Chapter 11 bankruptcy protection March 27th in order to rid itself of a pesky $8 BILLION dollars in debt apparently is no reason Smit should not get a doubling of his salary, becoming the highest paid executive in St. Louis and walking home with briefcases stuffed with $7.4 million in salary, bonus, non-equity/”cash” incentives and other goodies and perks.

But this Money Party is just getting started for Smit and his pals at Charter.  In a convenient move just two weeks before the company ran crying for protection from big bad creditors, Charter established some new executive incentives designed to reward the same guy in charge of the company when it went bankrupt with up to a $6 million dollar bonus if he helps the company find its way off the courthouse steps and back into regular business.  But he also apparently deserves a bonus on top of his bonus — the company will also pay him an additional $2.5 million in annual performance bonuses if he manages to actually… do his job.

Those that will help him in that endeavor are also set to be richly rewarded.  The company hired Gregory Doody in May as “chief restructuring officer” for a bargain: just $60,000 A MONTH, or $720,000 a year.

Smit got paid a pretty penny for joining Charter in 2008 in the first place, before the crash and burn, as the St. Louis Business Journal reports:

On top of his $1.34 million salary, Smit’s updated employment contract in 2008 provided him with a $2 million signing bonus and about $1.2 million in retention bonus pay. He earned about $2.8 million through Charter’s performance-based bonus plan. Although equity awards were not included in calculating the Business Journal’s highest-paid list, they brought the book value of Smit’s total compensation package to nearly $15.4 million.

We at Stop the Cap! believe in public service and doing the right thing, so we’re offering our free advice to help Charter restructure itself out of bankruptcy: fire the guy who shepherded the company there in the first place.

Without an agreement by Fairpoint’s bondholders to delay repayment of at least 95% of FairPoint’s debt, the troubled phone company could find itself in bankruptcy by the end of the year.

That is the company’s own assessment in its most recent filings with the Securities and Exchange Commission.  FairPoint’s crushing debt was taken on in order to purchase the assets of Verizon Communications in three New England states — Maine, New Hampshire, and Vermont.  Verizon has been dumping customers in less proftable areas to concentrate on more populated areas.

Since the sale, it has been one nightmare after another for consumers in those three states, dealing with a phone company called “abysmal,” and a “third-world telephone company” by its customers, and “completely unacceptable” by several state regulators.  From Vermont, where inept employees bungled even the simplest tasks of maintaining basic telephone and Internet service, to New Hampshire where incompetence forced a few businesses to seriously contemplate moving to Massachusetts just to get a telephone line installed, to Maine, where life-threatening 911 failures caused havoc, FairPoint has not proven worthy of running telephone service for any customer in New England.

“There’s no satisfaction in saying I told you so,” said Rand Wilson, a spokesman for the International Brotherhood of Electrical Workers Local 2222 in Boston. “FairPoint said their experience would be different.”

The IBEW was one of the first critics of the sale, and focused their attention directly on point – the debt the company would take on to make the deal.  They ran advertising in all of the impacted states and also pressured lawmakers to review the deal more carefully.

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.

The IBEW has experience with bad telephone companies.  In Hawaii, their members blasted a deal where a private equity firm borrowed heavily to purchase Hawaii’s largest phone company from Verizon in 2005.  It was also a disaster for consumers, with lousy customer service, declining revenue, and eventual bankruptcy.  IBEW warned state officials pondering a Verizon-FairPoint deal about their experiences.  State officials didn’t listen.

Now those same officials are hiring consultants to prepare their states for the real possibility of FairPoint going bust by the end of the year.  Should that happen, phone service will almost certainly continue for millions of New England FairPoint customers.  But as far as a restructured FairPoint keeping all of the promises it made to get approval of the deal, residents may find those deals are disconnected or no longer in service.