FairPoint's problems prove far-reaching
Toolbox
By DANIEL BARLOW Vermont Press Bureau - Published: July 5, 2009
MONTPELIER – When Verizon and FairPoint Communications filed their joint petition to state regulators for the $2.3 billion sale in early 2007, the two companies were optimistic about the future.
Throughout the 15-page document, the companies project that the sale of Verizon's landlines and Internet accounts to the North Carolina company "will have no adverse effect on the services … in Vermont" and that the new FairPoint "will benefit from a strong capital position."
"FairPoint expects that the resulting company will have additional free cash flow and will have substantially greater access to capital markets by virtue of size and market capitalization," the document states.
All of those predictions turned out to be widely inaccurate.
Since arriving in Vermont nearly one year ago, FairPoint has become a punching bag for angry customers as poor service, outages, billing problems and others plagued that company. Now, saddled with debt from its purchase and looking to delay debt payments, the company is teetering close to bankruptcy.
Shaline Kirkpatrick, the owner of Montpelier's Shaline Bridal, has her share of FairPoint problems. She cancelled her FairPoint Internet service back in January, but the company instead cancelled her work phone line – a dangerous thing for a business to go without.
FairPoint actually cut off her phone line in April – the start of her busy prom season. Once that line was reconnected, Kirkpatrick hoped her woes were over.
"I'm still getting billed for the Internet," she said on Friday, months after she first went public with her concerns. "Sometimes I get a bill and it doesn't even say what it is for."
Kirkpatrick said her back-and-forth problems with FairPoint have drained her attention away from her business. When she is waiting on hold with their customer service, she would rather be sewing dresses.
"It's a hassle," she said, adding that she is now worried that her bridal shop's phone number won't be included in the FairPoint telephone book. "It's taking away all this time that I would rather spend on my business."
What went wrong?
Before coming to northern New England, FairPoint operated mostly in the mid-west and the south in states such as Florida, Missouri, North Carolina and Virginia. Founded in 1991, the company had more than 300,000 customers in about 15 states.
The purchase of Verizon's phone lines and Internet services in Vermont, New Hampshire and Maine was a dramatic boost for the company.
The purchase, made for $2.3 billion and approved by regulators in all three states and at the federal level, brought 1.6 million new phone customers to the fold along with 230,000 Internet customers. FairPoint became the eighth largest phone company in the country.
FairPoint experienced some minor hic-ups when it first came to Vermont. But the real problems began when it underwent what is known in the industry as cut-over – the changeover from Verizon's computer systems, which FairPoint was paying rent to use, to the company's new computer systems.
"I very much regret the experiences people have had as customers of FairPoint," said David O'Brien, the commissioner of the Vermont Department of Public Service. "This is something that we neither foresaw or expected, but we are focused on now turning this thing around."
When the company made the transition in late January this year to the new computer system, everyone expected some minor problems. Liberty Consulting Group, a Pennsylvania firm hired by all three states to monitor FairPoint during the cut-over, issued a report on Jan. 29 saying that "FairPoint appears to be largely on-track for the cutover."
But some consumer advocates have called for an investigation into what went wrong. A call to Liberty Consulting was referred to the New Hampshire Public Utilities Commission – the Granite State version of the Green Mountain State's Department of Public Service.
Anne Ross, the general council for the utilities commission, said regulators in that state have focused on assisting FairPoint and ensuring that it keeps up with its obligations. But she said there may be a point when those questions should be answered.
"I think there will be a point soon when we go down that road and evaluate what went wrong with cutover," Ross said.
Verizon, when it signaled its intentions to leave northern New England, essentially put the three states in a bind where they had no choice but to accept FairPoint, said Meredith Hatfield, the utility consumer advocate in New Hampshire.
Hatfield, who opposed the deal on behalf of ratepayers in New Hampshire, said regulators in all three states were disappointed with Verizon's services for years and frustrated because they had little success in forcing it to complete its obligations.
So, when Verizon looked to leave northern New England behind, the company presented the much-smaller FairPoint Communications as the ideal alternative, she said.
"I think they set this up," she said. "Verizon presented FairPoint as the only company willing to come in here and work in these rural states. And because of that dynamic, a lot of people were willing to believe that FairPoint could actually do everything it said it would."
Fixing the problem
It wasn't been all woes for FairPoint since coming to northern New England. Company officials point to a number of achievements throughout the last year, including the fact that it has hired 1,100 people in the three states – exceeding their commitment to hire 675 people.
FairPoint's staff is almost entirely set here in northern New England – 85 percent of its workforce is in these three states, for a total of $205 million in payroll. The company has also exceeded its broadband expansion commitment in Vermont, from 65 percent to 76 percent.
About $15 million has been spent in three states by FairPoint to purchase new trucks and equipment and made $1.5 million in charitable donations in the three states.
"We're making significant progress toward returning to normal operations," company spokesperson Beth Fastiggi wrote in an e-mail last week. "Bills are being processed and sent to customers on schedule and with significantly less errors. The volume of calls into our customer call centers has returned to normal levels, allowing us to answer customer calls in a timely manner."
FairPoint also has an infusion of new blood in the form of new Board Chairman and CEO David Hauser, who started his new job on July 1. Hauser was recently the group executive and chief financial officer for Duke Energy Corp., a North Carolina energy company which had more than $16 billion in revenue in 2006.
In a letter to the editor published in various Vermont newspapers this week, Hauser struck an optimistic tone while also acknowledging that FairPoint has a lot of work to do. He wrote that his 35 years with Duke gives him the organizational and economic tools to do the job.
"I completely understand there is a big job ahead of us," Hauser wrote. "Now more than ever, all of us at FairPoint have to roll up our sleeves and remain focused on completing the largest systems integration in the history of the telecommunications industry."
Hauser will visit Vermont this coming week to tour FairPoint facilities and meet with local executives, according to Mike Spillane, the business manager for IBEW 2326, the union that represents many of the company's employees in Vermont.
The problems within FairPoint have been tough on rank-and-file members of the company, Spillane said, and he hopes the new CEO takes time to meet with union workers to discuss what went wrong and how to fix it.
"I hope it is more than a handshake and a smile," Spillane said. "We had that with the last CEO and it didn't cut it."
daniel.Barlow@timesargus.com.
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