No raises — it gets better

Fewer workers are also part of FairPoint’s plan to remain solvent
November 20, 2007 10:32:41 AM

"Exclusive: No raises for seven years: That’s just one way FairPoint plans to pay for northern New England's Verizon buyout." By Jeff Inglis.

"PUC filings: Selections from the redacted text." By Portland Phoenix Staff.

Click here to read the full-length redacted text from the Office of the Public Advocate (PDF)
FairPoint, as you might expect, has been in a tizzy since my story on the “unrealistic” financial assumptions underlying that telecommunications company’s attempt to swallow Verizon (see “No Raises for Seven Years,” by Jeff Inglis, November 16). Let’s hope the speed and quality of its response is not a sneak peek at how the company will respond to customer problems if it is allowed to take over phone service in Maine, New Hampshire, and Vermont.

After last week’s Phoenix story came out, the company took a day and a half to have a PR person call (and then, not even from FairPoint directly, but from a Portland flack firm). And after I told the PR guy who called that I would love to talk to someone at FairPoint, it took them another day and a half (plus a weekend) to get someone “authorized to speak” on the phone with me.

Walt Leach, FairPoint’s executive vice-president for corporate development, told me it was “misleading” to say that FairPoint wouldn’t give workers raises for seven years. Though he agreed that the company was expecting not to pay any more wages in 2015 than it will pay in 2008 (after the merger, if it goes through), Leach promised to “honor the existing contract” with Verizon’s 2700 or so union workers in Northern New England, and even to “extend it under existing conditions” if the unions would like.

But, Leach continued — and gave by far my favorite “explanation” from FairPoint about what was wrong with my story: FairPoint will hire 675 new workers, as promised to state officials (to tempt them into the deal), getting its total number of workers up to somewhere around 3400 in all three states. The company predicts that four percent of all those workers will leave within a year — including the equivalent of four percent of the 675 new hires! (Though “not necessarily” just-hired staffers, he says.)

Those workers will not be replaced (Leach calls it “attrition”), so, he says, FairPoint will have plenty of money to give raises to the ones left — the ones with more work to do (like handling billing and payments), with more equipment to install and maintain, the ones on whom residents of Maine, New Hampshire, and Vermont will be depending for reliable phone service (including E-911 service during life-threatening emergencies).

Leach says the company expects its employee numbers to drop by a little more than four percent every year — as landline-customer numbers decrease over time — and says the money those departed workers won’t be making will be enough to cover everyone else’s raises into the future.

Digging the hole deeper, Leach notes that the company’s financial model includes $142 million for dividend payments to shareholders, and says that money could be repurposed “if it’s needed” to improve service to telephone customers. But that puts dividends before service. Leach admits the company has not constructed its model to have $142 million in cash available to make service better (the company does not know how much it will cost to bring Verizon’s existing lines up to workable standards), and then — only if there is money left — to pay dividends.

While still trying to disprove my analysis of filings with the Maine Public Utilities Commission, Leach adds something new: I knew, based on PUC filings, that the company didn’t expect to spend any more money on its operations in 2015 than it would in 2008, but Leach revealed that the company also expects to make the same amount of money on its telephone service in 2015 as in 2008.

But even he calls the landline business “declining.” And sure, Leach says, FairPoint believes its service features can convince customers to stay longer and buy more services than Verizon’s customers do with their phone company now. But he has — and makes — no guarantees of that.

Reasonable doubt
All this — companies’ internal projections, market predictions, assumptions about revenue and the like — matters so much not because every company has to (or even does) behave rationally. Just this company — and any other corporation that is granted a government-approved monopoly to deliver vital services (such as water, sewer, electricity — and telecommunications).

“What our members intuitively know about FairPoint has come to light,” says Rand Wilson, who has been leading “stop-the-sale” efforts for the labor unions involved. The company, he says, is “run on a back-of-the-envelope, pie-in-the-sky basis.”

Pete McLaughlin, business manager for IBEW Local 2327, which represents many of the Verizon workers in Maine, says it seems to him that the company is “making business assumptions that are unrealistically optimistic.”

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Excellent article!!! Thank you so much for being open, honest and blunt!! Fairpoint, in it's own confidential admission, has proven they would be a disasterous company for these three states. The company is only offering a service that is already 10+ years old. How are we supposed to get a "brighter future" using technology that was created in the 1989? I am thankful someone leaked that confidential information so the public could see what Fairpoint was actually capable of; misleading commercials, irrational and completely ludicrous financial planning and imminent doom for these three states if this deal is approved. We all want a brigher future, just not one that is created in DisneyLand.

POSTED BY Ms Understood AT 11/25/07 8:57 AM

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