Barely 18 months after taking control of telephone and broadband service from Verizon Communications, FairPoint Communications collapsed under the weight of enormous debt and an economic downturn, announcing they would declare Chapter 11 bankruptcy this morning.

As Stop the Cap! reported Friday afternoon, sources told us the company had quietly notified key employees of the impending filing, which was expected as early as this weekend.  On Monday morning, the announcement of the filing was made to the media and to an unsurprised customer base of several million dissatisfied customers in Maine, New Hampshire, and Vermont who lived through a never-ending nightmare of bad service and broken promises from a company many believe “bit off more than they can chew.”

Today’s announcement may bring additional scrutiny to the next telecommunications deal Verizon has planned for customers in 13 states.  Frontier Communications, much like FairPoint, wants to take on the operations of a departing Verizon, who wants to disengage from smaller communities to focus on providing fiber optic telecommunications service in larger cities.  Today’s bankruptcy announcement marks three out of three failures for companies assuming control of Verizon’s discarded operations.  Hawaii Telcom declared bankruptcy last December, three years after being sold to The Carlyle Group, a politically well-connected private equity investment firm.  Idearc Media, a Verizon spinoff of the phone company’s print and online yellow pages business declared bankruptcy on March 31st, and FairPoint Communications, which took over Verizon’s northern New England phone operations made its bankruptcy known this morning.

FairPoint executives admit the downturn in the economy and much larger than anticipated conversion problems contributed to the declaration.  FairPoint has accumulated more than $2.7 billion in debt, mostly from the Verizon transaction, and faced difficulty making payments on that debt as credit markets froze and customers fled the terrible service problems that developed when the company tried to integrate 600 Verizon computer systems and software to 60 FairPoint systems on January 30th.

“Those two things contributed to FairPoint having too much debt, at the end of the day,” said David Hauser, chairman and CEO of FairPoint.

Creditors now effectively control FairPoint Communications, and they’ve agreed to forgive $1.7 billion dollars in debt and reduce the company’s interest payments to keep service operational.  Company officials are also looking for savings from cost-cutting measures.  Union officials are extremely concerned that could mean significant job losses for a company already stressed to provide service.  Although company officials characterized today’s announcement as a “non event” for FairPoint customers, many are not so sure.

“There have been a lot of promises made by FairPoint,” one customer told a Maine television station.  “Services that were promised are not being delivered,” said another.

Skepticism was rampant that today’s bankruptcy announcement would be the start of a new beginning for a restructured FairPoint.

“On the news they said that the services would go on as usual, which means crappy,” said one Maine customer in Portland.

Perhaps to underline that sentiment, FairPoint spokeswoman Jill Wurm reported FairPoint broadband’s e-mail service is out of order this evening.  Wurm said anyone with a fairpoint.net e-mail address has been without service since 6pm.  The company was unable to project an estimated time when service will be restored. It was also not known how many customers were affected.

Union leaders said they take no pleasure in the fact their predictions were all-too-accurate about the ultimate outcome of the FairPoint-Verizon deal.

“What good does it do us? We can say it, but we’re left here to deal with it,” Pete McLaughlin of the International Brotherhood of Electrical Workers, which represents FairPoint employees, told the Associated Press.

State regulators across all three New England states plan to keep a watchful eye on reorganization proceedings.  Special consultants and attorneys have been hired to give the states input and guidance as the restructuring commences.  For some consumers, that doesn’t provide much comfort because many of these same regulatory agencies approved the deal in the first place.

Stop the Cap! has extensive coverage of today’s developments from across all three states’ local newscasts.  We’ve also been notified representatives of utility boards now considering a similar spinoff with Frontier have also arrived here to gain our perspective on the sales deal now before them.  For that reason, we will continue covering FairPoint’s final months before today’s announcement to complete the record on FairPoint and its impact on customers, state regulators, and public safety officials.

Our coverage begins with today’s announcement, starting in Maine, where it was a lead story across the state.

[flv]http://www.phillipdampier.com/video/WGME Portland FairPoint Mess 10-26-09.flv[/flv]

WGME-TV in Portland leads their 6pm newscast this evening with the news of FairPoint’s bankruptcy and what it means for customers, some of whom remain skeptical. (5 minutes)

More video to view below ….

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Sources tell Stop the Cap! FairPoint Communications will likely declare bankruptcy as early as this weekend, having failed to survive the crushing debt load it took on over its purchase of Verizon service in three New England states – New Hampshire, Vermont, and Maine.

The catastrophic failure of FairPoint to provide customers with quality service while saddled with enormous debt was never a surprise to those that warned about the perils of approving the transaction at the outset.

The employees of FairPoint are now working on a recovery plan to maintain service and bring back stability to FairPoint customers.  Unlike the senior corporate management of FairPoint, who live in North Carolina far away from the New England nightmares, local employees are committed to bringing their families, friends, and neighbors the service they feel should have been provided by the outset.

What will prevent such a recovery plan from working?  The lenders who hold the paper on FairPoint’s colossal debt and some in FairPoint management who want employee concessions for bad management mistakes.  Wall Street could also move in and demand massive cuts in employees and the infrastructure they need to bring quality service back to northern New England as part of a bankruptcy reorganization.

Once victimized by Verizon, then by FairPoint, and next by Wall Street bankers, the residents of northern New England just can’t win.

The International Brotherhood of Electrical Workers, who were exactly right when they predicted the outcome of the Verizon-FairPoint deal, now could face paying the biggest price for bad management — a loss of their jobs or a cutback in their wages.

Pete McLaughlin Chairman of IBEW SCT-9.  “Demanding cuts in labor costs from employees who aren’t in any way to blame for the company’s woes is the wrong way to go.  The overwhelming burden of billions of dollars in crushing debt cannot be solved by ‘nickel and dime-ing’ our union contracts.  And such attacks will be counter-productive to any attempt to improve operations and the quality of service for our customers.”

Some FairPoint customers want to know, “will those who profited handsomely from the original transaction pay a price?”