Learning from FairPoint's disasters

Never Again Dept.
By JEFF INGLIS  |  March 6, 2014

Two bills before the Maine legislature seek to pry lessons from the hard time FairPoint has had taking over the former Verizon landline operations in Maine since 2009. Both step up government oversight, in hopes of preventing future debacles.

The first, LD 1761, could in fact be called the “FairPoint: Never Again” bill. It reads like an admission that the Public Utilities Commission’s process around the FairPoint-Verizon takeover was a disaster.

It would require state regulators to review all mergers and sales of companies earning more than $50 million a year not just to the standard of “doing no harm” to Maine consumers (incidentally, a standard current PUC chairman Tom Welch admits the FairPoint deal did not meet — a pity he wasn’t on the PUC when the deal was being considered) but rather such a deal must offer a “net benefit” to Mainers.

It would also specifically require regulators to consider any proposed deal’s impact not just on consumers and ratepayers, but also on workers at the company involved, as well as the state’s overall economic-development goals.

The move specifically anticipates the possibility that FairPoint might be looking for a buyer. “The hedge funds that own FairPoint are looking for an exit strategy,” says Matt Schlobohm, executive director of the Maine AFL-CIO. Unions are key proponents of this bill because of its enhanced consideration of the labor force in deals involving utility companies, which are often unionized, as FairPoint is.

If FairPoint does plan to sell — and there is a handful of potential buyers, mainly regional landline companies — “we’re not well prepared to get a good outcome” for Maine, Schlobohm says.

He fears a repeat of the FairPoint deal, in which regulators approved a deal that was questionable at best (see “A Bad Idea Triumphs,” by Jeff Inglis, February 29, 2008), with certain conditions imposed, but then over time waived many of those conditions one by one (such as benchmarks for rolling out higher-speed Internet service to more customers in Maine). 

“Why would the state not want to have more leverage” when dealing with big companies that have outsize impacts on Maine, both as utilities providers and major employers, Schlobohm asks.

The second bill is even more directly aimed at FairPoint itself. This one, LD 1479, could be called the “Oh No You Don’t, FairPoint” bill. It secures legislative oversight, review, and approval of any PUC ruling in response to FairPoint’s recent request for $67 million in support from Maine telecom consumers to subsidize its service to rural Mainers with no other options for phone connectivity. That amount would be paid by raising the Maine Universal Service Fund surcharge on all telecommunications bills (including Mainers who do not use FairPoint’s services) by as much as $5 per line per month. (See “FairPoint Wants Bigger Subsidies, From All Mainers,” by Jeff Inglis, January 3.)

And it comes at a time when FairPoint’s stock price is recovering — largely because of the prospect it may resume issuing dividends. Investors are certainly clamoring for that to happen; dividends were curtailed in the original deal by order of state regulators, and ultimately done away with because the company couldn’t afford them.

“There’s a pattern here,” says Schlobohm. “The company seeks resources . . . they figure out where to get them . . . they’re sent very quickly to Wall Street.”

While he admits this may not be the case now, he observes that “there’s not much trust built” between FairPoint and Mainers.

The union does support the idea of having phone service available to every Maine home, but is not sure that FairPoint’s request is the best or most efficient way to achieve that.

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