Tuesday, November 24, 2009

On the Ropes Dept.: Catching up with FairPoint’s decline

Published in the Portland Phoenix

We've been telling you for ages how bad the FairPoint deal was for residents of Maine, New Hampshire, and Vermont. To avoid beating a nearly-dead horse, we've held off on reporting some things for a while, but it's time for a quick catch-up on several fronts.

Most importantly, after months of narrow escapes, FAIRPOINT FILED FOR BANKRUPTCY PROTECTION in late October, seeking a federal judge's permission to turn over most of its debt to its lenders and try to restructure itself out of the deep debt and operations troubles the North Carolina-based company is mired in.

That was after seeking $30 MILLION IN CONCESSIONS FROM UNION WORKERS in northern New England. (You may remember that way back when FairPoint was trying to close this deal, it promised to stick to Verizon's old contract, and state regulators believed them, despite union representatives' fears to the contrary.)

Shortly after the bankruptcy filing, several of FairPoint's biggest lenders asked the judge to appoint an investigator to determine, as the lenders argued in court filings, IF THE COMPANY'S DIRECTORS AND TOP EXECUTIVES WERE TRYING TO PROFIT PERSONALLY FROM THE BANKRUPTCY. The lenders also alleged that company officials were not completely honest about the company's financial prospects, and paid out millions in dividends to shareholders, and to a key vendor, depriving the company of cash that might have helped avoid bankruptcy.

Great Works Internet, the Biddeford-based Internet company that featured prominently in the opposition to the FairPoint-Verizon deal, has revealed that a dispute with FairPoint that began in the Verizon days threatens its business. Apparently, the companies never agreed on what price GWI should pay to Verizon for using certain types of Verizon-owned circuits for Internet traffic; now, unless GWI caves and forks over millions in alleged back payments, FAIRPOINT IS THREATENING TO CUT OFF GWI from portions of FairPoint's network. This is already in court, where, naturally, GWI is asking that FairPoint be barred from cutting off service until the matter is resolved.

FairPoint's requests for $38 MILLION IN FEDERAL STIMULUS MONEY to expand broadband connectivity in northern New England have RECEIVED STATE OFFICIALS' BLESSING in all three states (see "Here Comes the FairPoint Bailout," by Jeff Inglis, September 4).

Despite that prospect of additional cash (and because the bankruptcy filing has called the wisdom of such grants into question), FAIRPOINT HAS ADMITTED IT WILL NOT BE ABLE TO FULFILL THE BROADBAND-EXPANSION PROMISES it made, which were crucial to convincing state regulators to approve the deal, and has ASKED THE FEDERAL BANKRUPTCY JUDGE TO RULE THAT THOSE COMMITMENTS WERE NOT REALLY PROMISES AT ALL (though they carry the power of state law), but soft agreements that can be renegotiated. That almost certainly means delays in rolling out broadband — if FairPoint were going to meet its deadlines, it wouldn't be seeking the additional negative attention associated with breaking its word.

In mid-October, FairPoint announced it was HIRING 45 NEW CUSTOMER-SERVICE EMPLOYEES to be based in a Portland call center, in hopes of improving the company's disastrous service record, which has been criticized by customers, regulators, and lawmakers in all three northern New England states. The company claims it has created 400 new jobs in Maine, but has not drawn much attention to the fact that its business plan anticipated four percent of all workers, including new hires, leaving each year and not being replaced (see "No Raises — It Gets Better," by Jeff Inglis, November 20, 2007).

We can be sure things will get worse before they get better, largely because of the jurisdictional disputes that are almost certain to arise between a federal judge in New York City and regulators, lawmakers, and courts in Vermont, New Hampshire, and Maine. If we had to make a prediction, it would be that this will end up before the United States Supreme Court before rural northern New England gets FairPoint's brand of broadband connectivity — which the rest of the country is already phasing out.