FairPoint's struggles continue

Corporate Albatross Dept.
By JEFF INGLIS  |  September 1, 2010


It has been a very long time since our last FairPoint update, but you can rest assured that the North Carolina-based landline provider's downward slide has continued, as the company attempts to restructure its way out of crushing debt through bankruptcy-court protection. Here are a few gems from the past few months.

First up, and most recently, on August 5, MAINE TAXPAYERS GAVE FAIRPOINT A $1.1 MILLION GIFT, when Maine Revenue Services agreed to accept just shy of $400,000 as payment "in full" of a $1.5 million tax bill the company owed the state.

But new math appears to be the way, as the COMPANY'S ACTUAL VALUE IS IN SERIOUS DOUBT. In its October 2009 bankruptcy filing, the company claimed its assets, as of June 2009, were $3.236 billion, with debts of $3.234 billion. An independent valuation of the company, however, set its total worth at between $1.8 billion and $2.1 billion. In another filing, FairPoint says its northern New England assets are worth $1.2 billion — far less than the $2.3 billion the company paid (including $1.7 billion in actual cash), to Verizon to take over landline service in Maine, New Hampshire, and Vermont, a takeover that was delayed several times before finally becoming effective at the end of 2008.

Also, ITS BUSINESS MODEL IS FAILING. The bankruptcy filing is clear: "FairPoint has been unable to attain the performance levels it projected at the time of the acquisition" of Verizon's northern New England business. In 2008, 8.5 percent of customers who had been with FairPoint before the merger cut their landlines. That's pretty bad, but customers who joined FairPoint in the Verizon switch left even more quickly: 12.3 percent of them bailed in 2008 alone, according to court documents. That's a big increase from the 7.3 percent subscriber loss Verizon experienced in 2007, which FairPoint's plan had projected it would beat (meaning lower losses, not higher).

The COMPANY HAS TROUBLE FORESEEING THE FUTURE in other ways, too. Beyond FairPoint's bizarre pre-merger projections, Vermont's Public Service Board (its equivalent of Maine's Public Utilities Commission) ruled in late June that "FairPoint has provided virtually no explanation" for its service-quality promises, saying that "based upon the record before us, we cannot find that FairPoint has demonstrated the financial capability to meet its obligations under Vermont law and its (state license) as a telecommunications carrier."

For that matter, FAIRPOINT HAS PROBLEMS VIEWING THE PAST ACCURATELY. In February, the company announced that it had overstated 2009 revenue by 3 percent, or $26 million.

The COMPANY HAS LEVERAGED ITS BANKRUPTCY TO TAKE ADVANTAGE OF STATE REGULATORS in Maine and New Hampshire, getting permission to delay paying millions in poor-service-quality penalties, and even the potential for them to be waived altogether, if service improves. FairPoint also was given extra time in those two states to roll out its outdated version of broadband Internet access to rural customers. Vermont regulators have so far held firm, but FairPoint is asking them to reconsider, and if that fails the company is expected to ask a federal judge to overrule the state officials.

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