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Unions wary of pending Verizon sale: 1st PSC hearing set for mid-November
Nov 03, 2009 (The Dominion Post - McClatchy-Tribune Information Services via COMTEX) --
A sale that would have Frontier Communications taking over Verizon landline phone customers next spring is in the works.
And while Verizon and Frontier say it will benefit customers and the companies, others aren't so sure.
The Communications Workers of America union points to three companies that struck deals with Verizon and went bankrupt, and says this one, too, is a disaster in the making. They want the state Public Service Commission to turn thumbs down on the sale.
Verizon has more than 600,000 landlines in West Virginia, said spokesman Harry J. Mitchell. It employs more than 2,100 people in its three divisions: telecom, business and wireless.
Documents from both companies show Connecticut-based Frontier will buy Verizon's residential and small-business landline operations -- including Internet service -- in West Virginia and 13 other states.
Frontier will pay $8.6 billion: $5.3 billion in Frontier common stock and $3.3 billion in cash, securities and assumption of some Verizon debt.
Frontier is working on financing for the deal, and both companies are awaiting FCC approval and OK's from several state PSCs, including West Virginia's. The West Virginia PSC has a progress hearing set for Nov. 12 and evidentiary hearings set for Jan. 12-14, PSC spokeswoman Sarah Robertson said.
Frontier spokesman Steven Crosby said they aim to close the deal April 30.
Frontier operates in 24 states, including 11 of the 14 in the Verizon deal, Crosby said, and has 5,600 employees. The purchase will add 10,000 to 11,000 new employees and make it the fifth-largest telecom company in the nation.
Verizon reports the transaction will affect about 4.8 million local access lines, 2.2 million long distance customers, 1 million DSL and FiOS Internet customers and 69,000 FIOS TV customers.
The transaction will be tax-free, based on a 1997 law that allows a parent company to spin off an unrelated company that can be merged into the acquiring corporation.
CWA voices concerns
Ron Collins, CWA vice president for District 2 -- West Virginia, Virginia, Maryland and Washington, D.C. -- said the proposed transaction "places consumers, workers and communities at risk."
Dr. Ken Perez, CWA research economist, called the proposed deal a "certain disaster." CWA cites several reasons for opposing the deal.
Three telecom companies that took over portions of Verizon service went bankrupt. The most recent was announced Oct. 26: North Carolinabased FairPoint Communications, the seventh-largest phone company in the country, with service in 18 states.
Fairpoint closed a deal to take over Verizon landlines in Maine, Vermont and New Hampshire in May, in a $2.7 billion deal. The justa n n o u n c e d restructuring will reduce its debt by $1.7 billion. The other companies are Hawaiian Telecom and Idearc, a yellow pages spinoff.
Perez said F a i r P o i n t couldn't pay the debt or handle integrating Verizon systems into its own. Customer complaints rose because of eroded service quality and billing problems.
"FairPoint obviously failed miserably," he said. "Hawaiian Telecom failed miserably." He said Frontier's focus is growth by acquisition in order to pay high dividends and not customer service. So, by extension, he expects Frontier to fail.
Along with adding debt, CWA said, Frontier plans to cut operating expenses by $500 million a year, placing workers and customers at risk.
Verizon offers super-high speed FiOS (fiber optic) Internet service only in densely populated portions of its service area. It offers slower DSL broadband elsewhere. CWA said Frontier has no plans to upgrade, doing a disservice to customers in need of high-speed access.
CWA contends that Frontier, like FairPoint, won't be able to integrate Verizon's systems into its own, which will harm customers.
Elaine Harris, CWA international representative in West Virginia, said more than 1,600 of Verizon's West Virginia employees are in the union. She said certain Verizon workers who are based in West Virginia but do FiOS sales and other tasks in other states will be moved to another state, harming West Virginia's economy.
CWA said Verizon deliberately chooses small, weak companies to take advantage of the tax break.
Harris said CWA wants Verizon to maintain its service in and commitment to West Virginia and the other states. "There's no question that Verizon is much less susceptible to financial and operational problems than Frontier," she said.
Verizon, Frontier respond
Verizon has said it wants to divest many of its landline operations in order to focus on wireless, FiOS, large businesses and global IP.
Verizon spokesman Harry J. Mitchell called CWAs arguments "fearmongering to the extreme." He said Verizon has successfully completed more than 50 access line transfers without a hitch, while CWA is focusing on just three failures.
One of those 50 sales was to Frontier in West Virginia in the early 1990s, he said. Frontier acquired 140,000 West Virginia customers in that deal.
Referring to any possible technical problems, Mitchell noted that Hawaiian Telecom and FairPoint both chose to build systems from scratch, while 75-year-old Frontier has grown by acquiring systems in place and has the expertise to handle the switchover. And Frontier is focused on serving rural and small city markets, he said.
Mitchell said Verizon isn't cherry picking small victims for tax advantages. Frontier is a Fortune 1,000 company and approached Verizon. Regarding the tax law, he noted that Alltel, Viacom, Weyerhaeuser, Disney and Procter & Gamble have all legitimately used it.
Responding to layoff fears, Mitchell said Frontier plans to honor all existing labor contracts through August 2011 and has committed to no layoffs of installers or technicians for at least 18 months after the close of the transaction. "What other employer has stepped up to these types of commitments in this economy?"
The deal, Mitchell said, "is a good fit for both of us and a good fit for our customers as well."
Mitchell and Crosby pointed to a financial analysis by Florida-based Raymond James research firm that shows the transaction will be solid. The James analysis says:
The deal reduces bankruptcy risk, improves payoff ability and makes both companies more stable. Frontier is a bigger company than FairPoint with more experience in this kind of transaction.
Frontier has plenty of time to switch over operations.
Frontier doesn't have to do the deal to try to stay in business while FairPoint "appeared to have few options" at the time.
Frontier is getting more valuable properties than FairPoint did.
Crosby said that while Frontier is taking on debt, it's also acquiring huge, income-generating assets that will also increase its revenues. In fact, its revenue-to-debt ratio will improve. And Frontier will become a Fortune 500 company.
"CWA is wrong" to compare Frontier to FairPoint, he said. "The only similarity is the letter 'F' in the names. ... We're not a new kid on the block."
FairPoint started in 1991.
Crosby noted that Frontier has broadband service available to 92 percent of its customers, compared to only 60 percent for Verizon. And Frontier wants to bring the Verizon areas up to the same level when it takes them over.
DSL speeds are adequate, he said, and those who now live in underserved areas will welcome DSL.
Frontier will be lowering dividends by 25 percent to invest in infrastructure and broadband expansion, he said. "We're trying to do what's right for 14 states," he said. "We have a good track record with customer service," and with the labor commitments Frontier has made, "for the union, this is a good opportunity to join us in this transaction."
FairPoint speaks up
Rose Cummings, FairPoint spokeswoman, also said the two deals are very different.
She said several factors led to FairPoint's bankruptcy.
When it made its deal with Verizon, it had no idea financial meltdown was coming.
With the financial hard times, many customers abandoned their land lines for wireless, reducing FairPoint's income.
And FairPoint experienced unexpected delays in system switchover, but had to keep paying Verizon.
The factors are unique to Fair-Point she said, and shouldn't be applied to Frontier.
The restructuring process should be invisible to customers," she said. "When we emerge from Chapter 11, it will make us a stronger an much more competitive company" still dedicated to improving and expanding service in its new New England markets.
What's ahead
Crosby said PSCs in South Carolina, California and Nevada approved the deal this past week. There are six to go; West Virginia and Illinois will hold hearings in January.
Gov. Joe Manchin's spokesman, Matt Turner, said, "Considering its impact in West Virginia telecommunications, the governor is closely following the possible Frontier/Verizon transaction.
"However, he is confident the Public Service Commission will complete its due diligence in evaluating this transaction and determining whether it is in the best interests of West Virginians.
"Broadband deployment and development obviously is a concern, so he is monitoring their plans to ensure that West Virginians have access to this important resource -- the governor believes it is as important of a part of our infrastructure as roads and water."
Regarding the coming PSC hearings, Robertson said, "The Commission cannot make any comment regarding the merits of the case as they are the adjudicatory body that will be deciding the outcome."
No public comment hearings have been set at this point.
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