FairPoint Reaches Agreement with Staff of the New Hampshire Public Utilities Commission
CHARLOTTE, NC (PRNewswire-FirstCall) -- FairPoint Communications, Inc. today (January 24, 2008) announced an agreement has been reached between FairPoint, Verizon and the staff of the Hampshire Public Utilities Commission (PUC) regarding FairPoint's proposed acquisition of Verizon's wireline operations in New Hampshire. The settlement agreement in New Hampshire is consistent with material terms of the amended stipulation agreement with the Maine PUC and the settlement agreement with the Vermont Department of Public Service and contains other terms and conditions specific to New Hampshire. In the agreement, FairPoint, Verizon, and the staff of the PUC recommend the New Hampshire PUC approve the settlement agreement.
FairPoint's acquisition of Verizon's wireline operations in New Hampshire is part of a larger, previously announced transaction in which FairPoint would also acquire Verizon's wireline operations in Maine and Vermont. The license transfers in connection with the transaction have been approved by the Federal Communications Commission and the transaction has been approved by the Maine PUC, subject to receipt of a written order from the Maine PUC. The Public Service Board in Vermont has yet to rule on the settlement agreement entered into by FairPoint, Verizon and the Vermont Department of Public Service.
"We are pleased at the thoughtful approach by the staff of the New Hampshire Public Utilities Commission and believe this agreement appropriately addresses important public interest issues in the state. We look forward to serving the people of New Hampshire," said Gene Johnson, chairman and CEO of FairPoint.
In addition to the key financial conditions in the amended stipulation in Maine and the key conditions in the settlement agreement with the Vermont Department of Public Service, FairPoint committed to additional conditions in New Hampshire which address capital expenditures, network and service quality improvement plans, broadband expansion and assurances of financial viability that will benefit the state.
Vermont reaches tentative deal with FairPoint to buy Verizon
landlines
In early January, the Vermont Department of Public Service reached agreement with FairPoint Communications on its $2.7 billion deal to buy Verizon Communications 1.6 million landlines in Vermont, New Hampshire and Maine.
The new deal, as in New Hampshire, mimics the plan approved in Maine last week, which includes a steep reduction in FairPoint's shareholder dividend (35 percent, resulting in a $50 million per year savings) and what is a de facto reduction in the price of the sale by $235.5 million. The financial moves were considered important in ensuring that FairPoint would be financially able to consumate the deal and live up to other provisions in the agreement, including extension of DSL service and other service and reliability guarantees. FairPoint had reported that to make the deal it would have to borrow $2.5 billion.
The deal also includes penalties up to $12.5 million if goals are not met. The Vermont agreement states that FairPoint must invest at least $40 million each year for the first three years and starting in 2009 spend at least $35 million to reduce debt.
The entire deal still needs final approval by the Vermont Public Service Board, and by the regulatory body in New Hampshire.
The Vermont Public Service Board previously rejected, on December 21, 2007,
the application of FairPoint Communications to buy Verizon's Vermont
landlines. The docket was not closed, however, allowing FairPoint to rework the deal. The PSB said the deal requires the company to carry too
much debt to be financially sound.
FairPoint has also agreed to make broadband Internet access available to all of its customers in at least half its exchanges by 2010.
Even if FairPoint ultimately gains approval, discrepancies in the
final rulings among the three states would have to be dealt with by
each state's regulatory board.
By the middle of December, anyway, it seemed like the
disagreements and conflict over the decision to approve FairPoint
Communications $2.7 billion dollar acquisition were finally coming to
an end, after the Maine Office of the Public Advocate and the state
advocate staff at the Public Utility Commission finally agreed to
conditions of the settlement on December 12. The agreement comes
after months of opposition from Consumer Advocates and labor unions that stalled the
state's PUC decision to accept or reject the sale.
In December, consumer advocates in Maine and New Hampshire
released reports urging their state Public Utilities Commissions to
reject Verizon's sale. FairPoint, a North Carolina phone company
that is one-sixth the size of Verizon. Buying Verizon's northern New England phone lines would make it the eighth
largest communications company in the nation. The settlement, which
would affect virtually every person with a phone in New Hampshire,
Maine and Vermont, needs final approval from all three states utility
regulators before it takes effect.
Vermont has focused mainly on how the settlement will affect
consumer-related issues, such as the extension of DSL service areas
and reliability. Staff from boards in Maine and New Hampshire,
however, initially released reports urging their state's PUC to full-out reject the
proposal. Advocates said they are against the merger because they
fear that FairPoint is not financially capable of making infrastructure
improvements and service commitments without hiking rates, cutting
employees, or going out of business altogether.
"FairPoint and Verizon
have not met their burden of showing that the transaction is in the
public interest," explained Meredith A. Hatfield, a consumer advocate
from New Hampshire. The Maine Public Utilities commission echoed
these sentiments in a report they released in November.
"The
proposed transaction subjects both ratepayers and shareholders to
substantial risks and harms that are not outweighed by any of the
potential benefits of the transaction."
FairPoint has 975 employees in contrast to Verizon's
3,000. FairPoint's 2006 revenues were at $270 million while Verizon's
were $88 billion. The acquisition would force FairPoint into a $30
million dollar a year debt agreement to repay their $2 billion dollar
debt. Critics believe these numbers indicate that the settlement will
give FairPoint a financial burden they can't handle.
Despite their outright refusal of the merger, the reports did list
terms and conditions for the acquisition if it were approved. Reports
released from the Maine Public Utilities Commission ordered that three
main conditions be met for their approval. First, FairPoint must submit
to the PUC a plan to deal with expected loss of workers. As part of the
deal, Verizon was also recommended to cut its $2.7 billion dollar price
tag by $600 million. If they do not follow this suggestion, the company
must set aside significant funds for infrastructure upgrades within
FairPoint. As of the December 12 agreement, The company was also
required to make minimum capital investments of $47 million in Maine
over the next three years, and will reduce dividend levels by 35
percent. PUC staff in New Hampshire were not as flexible. They listed
eleven conditions in their report that need to be met by both
companies for the acquisition to be approved. One of their conditions
also addressed the issue of Verizon's price tag, and the debt it will
cause FairPoint. The report specifically suggested that Verizon cut
FairPoint's acquisition cost by $200 million with no cost to the
company. To further address its $30 million dollar debt issue, FairPoint
was also urged to cut its dividends by 20 percent. The commission also
wants to have say in fixing the companies transition service
agreement, or TSA. The briefing says that the price of the TSA exceeds
the costs of services, which gives Verizon and unnecessarily large
profit. The report suggested that FairPoint have a third party monitor
to judge the company's cutover readiness criteria-or the time when
FairPoint could fully separate from all Verizon systems.