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Here comes the FairPoint bailout
By JEFF INGLIS  |  September 2, 2009

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FairPoint is asking for nearly $38 million in federal economic-stimulus money

We thought the bailouts were over. They're not. FairPoint Communications, the nightmare that has become northern New England's landline provider, is seeking tax dollars that could help it fulfill the promises made to regulators in Maine, New Hampshire, and Vermont when the company spent $2.3 billion to buy Verizon's systems here.

FairPoint is in serious trouble. Next week, officials from all three states will hold a rare joint hearing with the company, which has been scheduled for several weeks but is likely to include discussion of an anonymous e-mail sent August 14 to regulators in all three states alleging that FairPoint faked test results regulators relied on to determine that the company was ready to take over from Verizon. (Monday, FairPoint issued a strong denial based on its own internal investigation.)

Vermont is considering revoking the company's license to conduct business. In July the company threatened bankruptcy. Its business model still depends on customers leaving more slowly than they left Verizon — when in fact the company's terrible service has caused a customer-departure rate higher than Verizon's, and incurred $3 million in poor-performance fines from state officials.

But you don't enter the picture until we look at FairPoint's promises, which are enforceable because they are also orders from the three states' utilities regulators. As part of its proof that the Verizon takeover was in the public interest, the company must pay a minimum of $131 million by March 31, 2010, to expand broadband Internet coverage in Maine, New Hampshire, and Vermont (even if other companies offer better, faster, or cheaper broadband in the same area). And it must pay a further $114 million before March 31, 2013 to do even more.

FairPoint is asking for nearly $38 million in federal economic-stimulus money (out of $7.2 billion approved to broadband expansion) to provide coverage to areas of all three states that the company "otherwise would have been unable to serve within an identifiable timeframe," according to a company press release. Under federal rules, the company will have to contribute $7.5 million of its own in matching funds to those projects.

But because of a loophole between the states' requirements and the federal rules for doling out its money, tax money could be used to meet the company's existing obligations. The states only require that FairPoint spend certain amounts within the timeframe — regardless of how the company gets the money. The feds require that the company prove "that the project would not have been implemented during the grant period without federal grant assistance."

But what the feds call "the grant period" ends three years after the government approves the application, expected to be late this year. FairPoint's commitments to the states don't end for another year beyond that.

FairPoint probably can't get federal money to cover what the states already require be spent before March 31, 2010. But the states' rules allow it to claim it was going to spend all the rest of the money just before the 2013 deadline. And then the company could say it was bringing forward, into the federal "grant period," work originally slated for 2013 — in which case the rules appear to allow federal money to fulfill state demands.

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