Tuesday, June 30, 2009

FairPoint Communications - I Told You So!

I promised myself I wasn't going to say this again, but I lied.


The questionable sale of Verizon wireline assets in northern New England (Maine, New Hampshire, and Vermont) to FairPoint Communications was something I was against from the beginning. The price tag was too high and FairPoint was buying into an operation that was many times its size, but an operation that was already suffering a decline in customers as they fled to wireless (cell phone) or digital phone services provided by the cable companies because they were far cheaper, more convenient, or both. That decline accelerated after FairPoint took over operations and quality of service declined.

Now unless FairPoint can renegotiate its loan terms it won't be able to make the interest payments due this October. This could force them into bankruptcy.

Fairpoint Communications could file for bankruptcy before the end of the year, if its debt holders don't agree to allow the company to postpone interest payments, according to a recent filing with the Securities and Exchange Commission.

The North Carolina telecommunications company, which took over Verizon's landline phone network in New Hampshire, Vermont and Maine, has faced continual service, technical and financial problems. According to the filing, the company does not expect it will be able to pay the interest due in October on $530 million in loans. The SEC filing, submitted Wednesday, asks the company's lenders to exchange their notes for new loans that would give FairPoint more time to repay.

Prior to the sale in April 2008, the utility regulators of all three states questioned the original $2.7 billion sale price agreed to by Verizon and FairPoint, saying it was too much for the assets being sold. The sale price was renegotiated to just above $2.1 billion, a value that many believed (including me) was still too high. Financing also hit a snag when interest rates for the loans climbed from 8% to over 13% just days before the sale, making the costs higher.

This sale has been a bad deal for the consumers right from the beginning. FairPoint promised deployment of broadband technology to areas not covered by any kind of broadband services. Unfortunately they chose to use DSL, a technology that is already considered to be obsolete because it cannot provide the bandwidth necessary for many present and future broadband services. Other technologies have already passed them by, particularly wireless.

My mother-in-law recently subscribed to Verizon's Wireless Broadband service, which became available in her rural town (population ~700) late last year. FairPoint hasn't deployed DSL there yet and isn't likely to any time soon. They're having trouble enough trying to maintain telephone service in the area, let alone deploy DSL. She has connection speeds that are faster than FairPoint's DSL service in a lot of towns presently being served by them.

FairPoint's financial problems do not bode well for the consumer, particularly if they end up filing under Chapter 11. I expect they'll end up selling of some of the assets they bought from Verizon. Perhaps Verizon will buy them back, specifically the FiOS FTTH services in southern New Hampshire and southern Maine, making Verizon a direct landline competitor of FairPoint. (Verizon is already a phone service competitor through Verizon Wireless).

Friday, June 26, 2009

Back To The Drawing Board

Even though the New Hampshire House and Senate narrowly passed the bloated $11.6 billion biennial state budget, the lawmakers may have to go back to square one because of a lawsuit that charges the state illegally appropritaed $110 million from an insurance fund used to provide malpractice insurance to physicians and medical facilities in the state of New Hampshire.

The law that created the fund states that surplus funds must be equitably distributed to the contributors. However lawmakers saw the surplus as a means to help fill a revenue gap for the upcoming fiscal year.

A group of current or past policy holders in the New Hampshire Medical Malpractice Joint Underwriting Association have filed a lawsuit claiming the state's attempts to siphon $110 million from the policyholders' funds to plug a budget shortfall is unconstitutional.

The plaintiffs are hospitals and physicians who have purchased malpractice insurance from the state-run fund. Over two decades, the fund, called the JUA, has built up a multimillion-dollar surplus. Policyholders have filed a request to freeze $110 million they say the state is trying to steal. The state maintains the law allows it to use the surplus anyway it wants. Attorney Kevin Peabody of Nixon Peabody of Manchester, who is among those representing the plaintiffs, disagrees.

A judge has already ruled that the Attorney General's office cannot represent the state in the lawsuit because the insurance fund is not a state agency.

Should the plaintiffs win the buit, lawmakers will have to go back to the beginning to fill the $110 million hole left by the return of the surplus money to the fund.

Of course this wouldn't have even been an issue if the legislature had done its job and presented a lean and balanced budget,

Wednesday, June 24, 2009

Can Anyone Explain This?

How is it a $1.4 billion increase in state spending is seen as 'cuts' by the New Hampshire House, Senate, and governor?

Between a 17.5% increase in the last budget and a13.7% increase in this budget, state spending has skyrocketed 31.2% in four years.

Our family budget hasn't increased that much. If anything, it's been pretty flat or even shrunk a bit.

So how the heck can our legislators say they've 'cut' spending while maintaining a straight face? A $1.4 billion increase is not a cut, no matter how hard they try to sell it as such.

If the budget passes as written, over 45,000 small businesses in the state will be paying an income tax (though the legislature doesn't call it that). One of those small businesses will be the one owned by my wife and I.

So how is all of this supposed to increase state revenues if the tax increases end up turning marginally profitable businesses into unprofitable ones (and forcing some to close)? They haven't explained that, either.