This newspaper ad is running across West Virginia opposing the sale of the state's phone business to Frontier Communications

Opposition to the sale of Verizon’s landline business to Frontier Communications in 13 states continues to increase, particularly in Ohio and West Virginia, where several employee unions have argued the deal represents a win for Wall Street and company executives, but a raw deal for millions of consumers.

The Communications Workers of America and the International Brotherhood of Electrical Workers, who also warned state regulators in New England about the consequences of approving the sale of Verizon’s operations in Maine, New Hampshire, and Vermont to FairPoint Communications, continue to warn consumers and state officials that a similar deal between Verizon and Frontier Communications could spell major problems for telephone customers.  They call on state officials to reject the deal and force Verizon to invest some of their substantial profits earned in these communities into providing better service instead of dumping customers overboard.

The CWA says the sale would put $3.3 billion dollars into Verizon’s coffers — tax free — and leave Frontier buried in debt, which could impact both new and existing Frontier Communications customers, including hundreds of thousands of those in Rochester, New York, Frontier’s biggest service area.

“Verizon Communications has been divesting assets to smaller, less stable corporations in order to reap large, tax-free, profits,” CWA International Representative Elaine Harris said. “Verizon proposes to repeat that formula, and its disastrous effects, with the sale of all of its wireline operations here in West Virginia to Frontier.”

The CWA considers the transaction based primarily on corporate greed, not the best interests of phone customers.

“The only winner in all of these deals has been Verizon Communications and especially Verizon’s corporate executives,” Harris said. Verizon CEO Ivan Seidenberg is the highest paid executive in the telecom industry, with $24.31 million dollars in annual compensation from Verizon.

“His salary could have funded the entire network of senior services in West Virginia last year and he still would have had $8 million in his pocket,” Harris said.

The deal will leave Frontier Corporation with a total of $8 billion dollars in debt. “The West Virginia consumers will experience the effects of converting more than 617,000 aging access lines to a smaller, debt-ridden company,” Harris said. “The public will be forced to pick up the pieces if Frontier follows Verizon’s other buyers and files for bankruptcy.”

“We’ve closely watched the failures of the companies that purchased Verizon’s assets and we don’t need a crystal ball to figure out what will happen if Verizon tries the same scheme in West Virginia. There’s absolutely no reason to gamble West Virginia’s telecommunication’s future just to increase Verizon’s bottom line,” Harris added.

The CWA is running radio ads across the state of West Virginia opposing the deal.

Audio Clip: Communications Workers of America Radio Ad (1 minute)
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Verizon spokesman Harry Mitchell said Verizon wants to sell its access lines so the company can focus on its wireless and broadband business. Mitchell told The Charleston Gazette the union has opposed the deal from day one.

“They’re spending their members’ dues on advertising in an effort to cloud the issue,” he said.

Frontier Communications has protested accusations that their purchase of Verizon assets will result in the same kinds of colossal failures impacting other Verizon sell-offs.  Company officials claim Frontier already has a successful customer support operation in DeLand, Florida, and billing and operating systems in place.

In West Virginia, those existing operations serve 144,000 Frontier customers.  If the deal is approved, Frontier will take on the responsibility of serving 1.3 million landlines across the southeastern U.S. alone.

The International Brotherhood of Electrical Workers, integrally involved in fighting the FairPoint transaction in New England, says the Frontier deal is reminiscent of what happened with FairPoint:

Regulators in the 14 states where Verizon now proposes to sell its landlines to Frontier face an almost identical situation as New England regulators did last year. Frontier Communications is proposing to buy Verizon’s entire wire line operation in West Virginia – as well as Verizon’s scattered landlines across 13 other states – in a similarly structured deal.

In both cases, Verizon chose a much smaller company in order to take advantage of an obscure tax loophole. With the Frontier sale, Verizon will avoid paying any taxes on the $3.3 billion it will receive from Frontier. Frontier will have to cope with three times more employees, three times more access lines and a 75 percent increase in its debt from $4.5 to $8 billion.

Verizon has a very poor track record in these sales. Verizon sold its Hawaii operations to Hawaiian Telcom in 2005 and it filed for bankruptcy. Customers, service and employees have suffered as a result.

Frontier – just like FairPoint – is a making promises that it may not be able to meet. Like FairPoint, state regulators are being asked to approve a deal where a small company will attempt to simultaneously run a much larger operation, pay off billions of dollars more in debt, integrate Verizon’s computer systems and spend more money to expand broadband.

In the end Verizon will profit but consumers, workers and communities are put at real risk.

Expanding broadband access is an especially critical factor for all rural areas. But Frontier has failed to make any specific commitments, set any timeline or offer a plan for its broadband buildout.

Union leaders believe that states shouldn’t risk their telecommunications’ future just so Verizon can fatten its bottom line. Regulators shouldn’t approve this sale because the risks are too great. Instead, our legislators, regulators and the Governor should require Verizon to meet its service responsibilities. Verizon shouldn’t be allowed to walk away with $3.3 billion tax free, and leave the fate of its customers in the hands of a company with a lot less resources. If Frontier should falter, customers and the public would be required to pick up the pieces – not Verizon!

The track record for Verizon spinoffs has hardly been one of success.

FairPoint Communications, the company to which Verizon sold its Maine, New Hampshire and Vermont operations in 2008, is foundering as it tries to integrate operations and is choking on the debt it incurred to finance the transaction Since the deal was announced, FairPoint’s stock price has declined by about 95%, and the company has been forced to suspend dividend payments.

Hawaiian Telecom, the company to which Verizon sold its Hawaii operations in 2005, filed for bankruptcy. Verizon sold its 715,000 access lines in Hawaii. Since then, Hawaiian Telcom has experienced significant transition issues that resulted in major financial and customer service problems. In three years, the company lost 21% of its customers. In December 2008, Hawaiian Telcom filed for bankruptcy.

The yellow pages company that Verizon spun off also filed for bankruptcy. In November 2006, Verizon spun off its yellow pages directory business to Verizon shareholders, loading the new company, Idearc, with about $9.5 billion in debt and extracting a cool $9 billion in cash and debt reduction. Last year, interest payments alone on Idearc’s debt accounted for almost one-quarter of its total revenues! Representing something of a Verizon failing company “hat trick,” Idearc filed for bankruptcy in March 2009.

[flv]http://www.phillipdampier.com/video/WSAZ Huntington Frontier CWA Fight 10-14-09.flv[/flv]

WSAZ-TV Huntington, West Virginia reported on the growing opposition to the Frontier sale by employee groups on October 14th. (3 minutes)

In Washington State, IBEW Local 89, outside Seattle, says the sale could cripple one of America’s most tech-savvy regions.

“We’ve always been a leader in communications in this part of the country,” said Ray Egelhoff, business manager of IBEW Local 89. “If this happens, we’re afraid businesses won’t move in, and some may even move out.”

Egelhoff, along with more than 1,500 Verizon workers who may become Frontier employees, deluged officials with letters and e-mails expressing their concerns. More than 500 have gone out so far to senators, house members, governors and business leaders. The workers worry Frontier —at about the a third the size of Verizon—won’t be able to absorb the huge Verizon assets, won’t be able to keep customers happy and, eventually, will have to shed staff.

Robert Erickson, International Representative in the IBEW’s Telecommunications Department said, “The deal poses risks to consumers and employees. Frontier is making all kinds of promises about synergy and how they’ll expand broadband. FairPoint Communications made the same grand claims and now they can’t meet their commitments and fulfill the promises they made. It’s clear that Frontier will be in a similar situation and not have the resources to fulfill the commitments they are making.”

Consumer groups are also raising objections to the sale.

The National Association of State Utility Consumer Advocates urged the Federal Communications Commission, which is reviewing the proposed transaction, to reject the deal.

“The merger proposed by Frontier and Verizon is not in the public interest,” said David Springe, president of the consumer advocate group. “The failure of the companies to offer adequate consumer benefits or protections puts customers at risk of being served by a company without enough financial strength to make necessary improvements to local telephone facilities and widen the deployment of broadband access.”

Free Press, a nonpartisan group that works to reform the media, also raised concerns about the sale in a filing with the FCC. Free Press cited Verizon’s sale of lines in New Hampshire, Maine, and Vermont to FairPoint, which subsequently acquired substantial debt, was unable to accommodate the increased service area, and is now on the edge of bankruptcy.

“This trend has the potential to leave rural areas with ill-equipped companies offering inadequate service at high prices,” says the Free Press report. “This is in direct contrast to the stated intent of Congress and the Obama Administration to foster universal broadband to all Americans.”

[flv]http://www.phillipdampier.com/video/WCHS Charleston Verizon Sale Fight 10-14-09.flv[/flv]

WCHS-TV in Charleston, WV talked with the CWA and company officials about the sale of Verizon operations to Frontier Communications. (1 minute)

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.

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)
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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.