Tuesday, August 18, 2009

FairPoint Communications To Face The Music

FairPoint Communications is sinking deeper into the abyss, with complaints skyrocketing even as it is losing market share.

All three northern New England states have been having problems with FairPoint after control of Verizon's landline assets were transferred in full to FairPoint early this year. So far FairPoint has lost 130,000 customers since it purchased Verizon's northern New England assets last year. Regulators in Maine, New Hampshire, and Vermont have already held hearings about FairPoint's problems and next month they will hold a joint session to get answers from FairPoint executives about its ongoing and seemingly unfix-able problems.

When insurance companies like AIG and institutions like Bank of America got in financial trouble Congress deemed them too big to fail.

Perhaps on a smaller scale, regulators in Vermont, Maine and New Hampshire may be confronted with a similar dilemma. What happens if FairPoint is shut down or fatally fails to deliver promised services?

And that's exactly the problem. What happens if FairPoint loses its right to provide phone and data services in Vermont? What happens in all three states in FairPoint goes under and there isn't another provider waiting in the wings to take over? A state-financed bailout certainly isn't in the cards as all three states are financially strapped.

When I first heard about the potential sale of Verizon's sale of their northern New England assets, I thought it might be a good move because Verizon had already informed all three states they would not be further deploying their FiOS Fiber To The Home (FTTH) technology. FiOS had made some inroads in the more densely populated southern tiers of New Hampshire and Maine, but Verizon abruptly stopped construction of their network and put their wireline (landline) assets up for sale. I'd hoped a new company would pick up where Verizon had left off.

But once details of the sale became available I became skeptical, seeing a much smaller and undercapitalized company – FairPoint – taking on the assets of a much larger company. FairPoint also announced they would not be deploying FTTH broadband but would instead deploy DSL, or Digital Subscriber Line, an older and less effective broadband technology. This told me they didn't have and weren't likely to get the capital necessary to deploy FTTH. This meant that northern New England could easily become a broadband hinterland, being left behind the rest of the nation (with all due respect to the cable companies, even they can't match the capabilities FTTH provides unless they also deploy some form of FTTH).

As time when on it became quite apparent FairPoint was going to pay far too much for Verizon's assets - $2.7 billion – and the three states agreed, forcing a renegotiation of the selling price to $2.3 billion. It was my belief then, as it is now, that FairPoint still paid far too much for what they got.

Now they're having problems paying their bills. It's quite possible they will default on a loan interest payment due this coming October.

This not how a telecommunications company should operate.

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