But the four months of delays in the cutover will cost FairPoint $66 MILLION IT WASN’T PLANNING TO SPEND. And every month of delay beyond November will cost another $16.5 million. That money is paid to Verizon by FairPoint as, effectively, a lease of Verizon’s staff, software, and other behind-the-scenes systems.
And FairPoint has just issued its first post-purchase dividend, unloading $23 million in cash to its shareholders, which is money it can no longer spend fixing problems, or making service better. The company says it will have enough money to do what needs doing.
But to a pessimist’s mind, FairPoint is cleverly positioning itself to cry “poor” to state regulators if it runs into unforeseen expenses at some point in the future. Without those millions — and any other millions it may hand out to shareholders down the road — the company will actually be poor, and will be telling the truth if it asks for emergency rate increases or extensions on other commitments. (Maine, for example, has “required” FairPoint to expand the proportion of phone lines that can handle high-speed Internet service from 70 percent to 90 percent over the next five years, but then said that if the company hasn’t done so in time, it can have an extra year with no penalty.)
Jortner says concerns about FairPoint’s financial model failing are “absolutely valid,” though he takes pains to say “we’re not predicting that at this point,” and to note that the regulatory approval was structured so that if FairPoint is running low on cash, “it’s the dividend that gives,” not cash to run the phone system.
Even to an optimist, FairPoint is putting itself in a position with relatively little wiggle room. The company just spent $15 million on new trucks, none of which run on biodiesel or ethanol, Wurm says, though the company told regulators its financial model didn’t include any allowance for gas prices to increase. On top of that, with transition delays, fewer workers (none of them fully trained on FairPoint’s systems), and major software elements not even ready for testing, the company’s time is running out.
More alternatives
And the pressure is really on. Nationally, millions of landline customers are canceling their service — on average, 350 customers in northern New England do so every day. (Verizon numbers indicate as many as eight percent of customers disconnect in any given year.) They’re moving to using just cell phones, or pairing cell phones with Internet-based telephone service, such as TimeWarner Cable’s Digital Phone service, which allows TimeWarner to deliver a customer what is called a “triple play” — cable television, high-speed Internet, and telephone service — over one wire and paid for on one bill.
FairPoint’s business plan depends on the company retaining more of those customers than Verizon did, and having fewer of them seek communications services — including high-speed Internet access — from other companies. That will take some doing.
A key element of customer retention will be FairPoint’s own “triple play” service. Company spokeswoman Wurm observes that because of the cutover delay, FairPoint has partnered with DirecTV to create something like a “triple play,” with DirecTV providing satellite television and FairPoint delivering telephone and Internet service. But FairPoint is using regular telephone wires, which in many cases are decades old and may need replacement to carry data as well as voice traffic. And even when equipped with top-notch technology (which costs millions), the copper telephone wires FairPoint is depending on transmit data more slowly than fiber-optic connections, which are the real future (see “Internet Disconnect,” by Jeff Inglis, August 24, 2007).
