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By TUX TURKEL
MaineToday Media, Inc. 01/04/2008

The three commissioners voted to approve the sale after an exhaustive, 12-hour session, and only after FairPoint made significant financial concessions designed to reduce its debt after the $2.7 billion sale.

Regulators in Vermont and New Hampshire, and the Federal Communications Commission, also must give their approvals for the sale to become final. And the PUC has some related details to vote on, in deliberations that are likely next week. Verizon and FairPoint hope to close by Jan. 31.

The case before the PUC was considered among the most important telecommunications decisions facing the agency in a generation. The outcome and its conditions has the potential to affect virtually every home and business customer that now has telephone or Internet services from Verizon.

Verizon is Maine's dominate local telephone service provider. It owns more than 600,000 access lines roughly 85 percent of Maine's total. These lines also support Internet access for thousands of home and business customers.

Among the conditions agreed to as part of the approval:

n FairPoint will reduce the rate for basic home and business telephone service by more than $4 a month, for at least five years. The rate now is $19.29 a month.

n FairPoint will make high-speed Internet service available to 83 percent of all lines within two years, and 90 percent over five years.

n Prices for existing Verizon high-speed DSL service will be frozen at $15 with a two-year contract and $18 with a one year contract, for at least two years.

n FairPoint also will have to meet strict service quality standards, or face increasing financial penalties.

Both FairPoint and consumer advocates said they were pleased with the outcome:

"I'm feeling great," said Gene Johnson, FairPoint's chief executive officer and board chairman. "We're close to the end. I'm feeling wonderful."

Dick Davies, the state's public advocate, said the deal would be good for Maine phone customers, and that the negotiations and conditions that accompanied the sale put FairPoint in a stronger financial position to fulfill its promises.

"You're getting a company that really wants to be here," Davies said.

These feelings were not shared by organized labor. Representatives of the International Brotherhood of Electrical Workers and the Communications Workers of America opposed the sale, arguing that FairPoint lacked the financial resources to honor its obligations to workers, among other things. The three commissioners shared some of labor's concerns. But in the end, they were faced with a dilemma that Kurt Adams, the PUC's chairman, summed up this way:

Verizon is a large, financially strong company, but it no longer wants to do business in Maine. The result has been inadequate expansion of Internet access and falling service quality. FairPoint is a much smaller company that will take on high debt to buy Verizon's assets, but it wants to focus its business on northern New England. "One company doesn't want to serve Maine," Adams said. "Another wants to, but may not be able to."

To reduce this risk, Verizon, FairPoint, the public advocate and other parties negotiated a settlement agreement -- which was accepted Thursday by the PUC with moderations -- that addressed some of the concerns.

In the agreement, Verizon effectively knocked $250 million off the $2.7 billion sale prices. That seemed like a good compromise to the Public Advocate. But it fell far short of the $600 million price cut that the PUC's hearing examiner had called for in earlier recommendations to the commission. The goal was to cut FairPoint's debt after the sale. And ultimately, the need for more debt reduction was shared by the commissioners.

"It seems to me there needs to be another $100 million in the deal," Adams said during the commission's deliberations.

Adams based his reasoning on FariPoint's calculation, contained in the stipulation, to improve its financial standing to investment grade by 2114. That was important, because the company will need to refinance its debt then, and suffer high interest rates.

Adams worried FairPoint won't be able to achieve the better credit rating, based on projections that it would lose customers each year to competitors such as Time Warner Cable, which offers a package of cable, phone and Internet service.

The two other commissioners, Vendean Vafiades and Sharon Reishus, shared those concerns.

One way to get another $100 million out of Verizon, the commissioners decided, was to put off for six months the payments that FairPoint will have to make to Verizon for billing and customer service during the transition period following the sale. But after consulting with top management, a lawyer representing Verizon told the commission that wasn't possible.

With the entire agreement at risk, a solution came from Johnson, in the form of a proposal. If the company doesn't meet a favorable debt ratio by 2012, it will suspend dividend payments and sell key assets, measures valued at $150 million.

This compromise was acceptable to the three commissioners, and it cleared the way for Thursday's decision.

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