FairPoint lobbies for land lines
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By BRUCE EDWARDS Staff Writer - Published: April 8, 2007
No rate hike, improved service, new jobs and a commitment to honor union contracts.
Those are the promises being made by FairPoint Communications officials as they make the rounds of Vermont, New Hampshire and Maine to win approval of their $2.7 billion purchase of Verizon's land line business in northern New England.
Verizon announced in January that it was selling its 1.8 million phone lines in the three states to FairPoint Communications of Charlotte, N.C.
Concerns have been raised that FairPoint, a company with 309,000 phone lines in 18 states, is too small to take on Verizon's land line business and that the added debt would hamper the company's ability to serve customers and expand high-speed Internet service.
Unions representing Verizon workers have already mounted a campaign against the sale arguing that jobs would be lost and that customer service would suffer under a FairPoint ownership.
But at a meeting last week in Rutland, a Fairpoint official tried to allay any concerns the business community might have about the pending acquisition that must be approved by regulators in all three states.
While Verzion's is moving to get out of the landline business in rural areas to focus on its more lucrative urban markets and wireless business, FairPoint's expertise and niche is serving rural areas like Vermont, Walter Leach, FairPoint's executive vice president, told about two dozen business people over lunch at the Holiday Inn.
"These are the exact kind of markets that we're looking for," he said.
Leach said the company was committed to significantly expanding high-speed Internet, or what is commonly known as DSL service, in the three states. In Vermont, Leach said the company would honor Verizon's commitment to make the service available to 80 percent of its customers by 2010.
To make his point, Leach said that throughout Maine, New Hampshire and Vermont, 93 percent of FairPoint's existing customers have access to high-speed Internet service compared to 62 percent of Verizon customers.
"What we have told the regulatory commissions in all three states … we've said within the first 12 months after the merger closes, we will spend a committed amount of money to get much better than the 62 percent level that Verizon's at today," Leach said.
FairPoint, which is already highly leveraged, will take on additional debt to finance the Verizon purchase. But Leach said the debt is manageable. Of the $2.7 billion, he said $1 billion would be raised through the issuance of additional stock while the remainder would be borrowed.
On the plus side of the ledger, Leach said, the sale's assets will give FairPoint "a very reasonable kind of debt-to-equity structure" with more cash flow.
He went so far as to say that if the deal is approved, Moody's indicated FairPoint would likely receive a credit upgrade.
For Verizon customers, he said, "We're not going to jack-up prices."
If the deal goes through, he said FairPoint intends to invest $200 million in the three states and add 600 jobs to staff three service centers in northern New England.
"We are moving into the three states all of the back office infrastructure that Verizon provides from locations outside of the three states today," Leach said.
While the company is still two months away from selecting where those service centers would be located, Leach said some jobs would be created in Burlington, where Verizon has an existing customer service center.
Turning to concerns voiced by the unions representing 2,500 of the 3,000 Verizon workers in the three states. Leach said no jobs or benefits will be eliminated or cut and the company will honor the union contracts in place. He added the company would like to sit down with the unions to discuss contract extensions before the current contracts expire in 2008.
During a question-and-answer session, Leach said the company would offer cell phone service within a year following completion of the purchase. He said Verizon Wireless has made such a proposal but FairPoint would look at other providers as well for the best deal. He also said FairPoint would add video services as part of its high-speed Internet service.
Terms of the sale call for Verizon stockholders to receive one share of FairPoint stock for every 55 shares of Verizon stock. It will give Verizon stockholders control of the company with six seats on the nine-member FairPoint board of directors.
Asked by Rutland stockbroker Mark Candon whether FairPoint was in effect giving up control of the company, Leach said that wouldn't happen. He said terms of the deal require that Verizon name independent directors to the board, meaning no company officials can hold a seat.
"Clearly we will not become a Verizon subordinate, if you will, even though they will have some influence electing initial board members," he said. "Those are going to be prominent northern New England citizens or business people who will serve on the board, not someone who will have an agenda relative to Verizon."
If regulators give their approval, FairPoint expects to close on the purchase in January.
Contact Bruce Edwards at bruce.edwards@rutlandherald.com.
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