Maine Gives Final Okay to Verizon-FairPoint, Vermont Asked to Approve Revised Deal
Maine regulators Wednesday gave unanimous final approval to Verizon’s $2.7 billion transfer of its landline assets to FairPoint after settling wholesale service issues left open in last week’s Maine agreement on the deal’s financial, broadband and retail service conditions. Verizon and FairPoint asked Vermont’s Public Service Board to rethink a December rejection of their deal and accept a revised settlement. That accord, reached Tuesday with the state’s utility consumer advocacy agency, the Department of Public Service (DPS), incorporates Maine’s financial conditions.
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The Maine PUC took less than two hours to resolve wholesale issues, compared to last week’s marathon 13-hour session on financial, broadband and retail service matters. The Maine commission generally followed the wholesale-service conditions recommended in an autumn hearing examiner’s report, agreeing to apply most wholesale conditions for three years.
But Maine stopped short of declaring FairPoint to be a Bell operating company. The state concluded that such a declaration could expose FairPoint to litigation targeted at Verizon or at Bell companies as a class. The PUC said FairPoint generally agreed to assume Verizon’s Telecom Act wholesale obligations to local competitors, allowing the RBOC status issue to be left unresolved. “Our order will state that there are arguments in favor of establishing FairPoint as an RBOC, but that FairPoint’s [Telecom Act] obligations have been resolved elsewhere in this order,” said PUC Chairman Kurt Adams.
The PUC added a condition mandating creation of a program to monitor adherence to its conditions. The PUC will set up a “staff team” expert at finance, labor relations, cutovers, broadband deployment, management development, wholesale relations, service quality and federal regulation, it said. The commission told the companies to designate “counterpart officials who have authority over each area.” The PUC said the staff and company would meet regularly, reporting monthly on compliance with conditions. “Our purpose here is to catch problems before things get out of hand,” Adams said. He said the monitoring program would run four years, “but I expect many of these areas to conclude before that.” The companies didn’t object.
The PUC said the three states need a common process and timetable for monitoring progress of the back-office cutover and for dealing with the companies if the cutover lags. It directed the companies and its staff to meet with the staffs of the other two states as soon as possible, and to report progress toward a joint monitoring agreement within 14 days of official publication of the decision, expected in about a week.
The PUC inserted a non-compete clause barring FairPoint from competing for broadband customers against entities that get ConnectME grants to bring broadband to underserved and unserved areas. FairPoint would be barred from competing against existing grant recipients for two years after they go online. The condition would not apply to ConnectME recipients awarded grants after sale closing. Adams said FairPoint in the future would have a chance to trump ConnectME applicants with its own broadband deployment proposal, but in regard to existing grant recipients, “we don’t want a 900-pound gorilla landing on these small entrepreneurs just as they're getting off the ground.” The PUC rejected a proposed condition to require that FairPoint establish a separate DSL subsidiary, concluding that the separate business unit would serve no wholesale or retail purpose.
The PUC said Verizon is liable for covering extraordinary costs local competitors may incur in changing from Verizon back-office systems to FairPoint’s, but said if it’s asked to adjudicate a dispute, the competitor will face the burden of proof to show claimed costs are “significant, extraordinary and directly caused by the transfer.”
The Vermont board’s main concern in its Dec. 21 approval denial was how much debt FairPoint would assume to acquire Verizon’s northern New England assets. The DPS said the revised proposal “will promote the public interest and the general good of the state.” FairPoint CEO Gene Johnson said his company is “pleased with this stipulation.” In its rejection order, the board made clear its willingness to consider a revised proposal.
The new proposal calls for Vermont to adopt the financial condition approved in Maine. That condition calls for Verizon to put $236 million toward debt reduction and for FairPoint to contribute another $150 million to cut debt if, as of Dec. 31, 2011, the company isn’t on course to reduce its debt to 3.5 times cash flow by the end of 2012. FairPoint said it would raise the money, if needed, by suspending dividend payments, selling assets, issuing new stock, or other means. The revised Vermont offer incorporates other financial conditions approved in Maine including a 35 percent ($50 million) cut in dividend payouts and a requirement that at least $35 million of annual dividend reduction savings go to reduce debt.
Terms added to the companies’ original Vermont proposal also include: (1) Invest a minimum of $40 million per year in network improvements for the first three years after closing. (2) Make broadband available to all customers in at least 50 percent of its Vermont exchanges by the end of 2010. (3) A service quality guarantee stipulating penalties of up to $12.5 million a year if quality standards aren’t met.