AUGUSTA, Maine — Many were skeptical when FairPoint Communications took over telephone service from Verizon in Northern New England back in 2008.
How could this small, regional utility take over an infrastructure as vast as Verizon’s in Maine, New Hampshire and Vermont? The deal saw FairPoint grow its footprint roughly sixfold, and state utility regulators were unsure the company — which didn’t even have the upfront cash to finance the deal — could handle such rapid growth.
Their worst fears were realized, according to Wayne Jortner, senior counsel at the Office of the Maine Public Advocate. Because Verizon took its 600 computer systems with it when it left the three-state area, FairPoint had to start from scratch, leading to big headaches for consumers.
Bills were inaccurate. New service connections or repairs were not made. Customers dealt with long wait times for customer service calls, if they got through to anyone at all.
“Basically, everything was functioning poorly, and service quality took a nosedive. They ended up having to pay substantial penalties for the quality of service,” Jortner said Tuesday. When things were at their worst, FairPoint was required to issue $11 million in ratepayer credits as a penalty for its poor service level.
Shareholders stopped seeing dividends, and the company struggled to pay its creditors. In May 2009, just a year and a half after the Verizon deal was finalized, the company entered Chapter 11 bankruptcy.
Since the company emerged from bankruptcy in January 2011, things have improved. Service quality today is roughly “back to normal,” Jortner said.
Things are looking up: The company has invested hundreds of millions of dollars in infrastructure, expanded fib er connections to cellphone towers and connected 300 new communities to broadband services. Revenue has stabilized (although shareholders still aren’t seeing dividends), and FairPoint has managed to slow the loss of business as customers switch from landlines and DSL to cellphones and bundled cable services.
But now, some signs indicate FairPoint is positioning itself to be sold, a move that would once again put the backbone of Maine’s telecom infrastructure into new hands.
Christopher King, an analyst with St. Louis-based Stifel Financial Corp. in December called FairPoint “a compelling merger and acquisition opportunity.” Four of the company’s top five shareholders are hedge funds — firms more often interested in selling a company than investing in and growing it.
Union officials representing FairPoint workers also say the company is entering an upcoming round of collective bargaining with an eye toward reducing labor costs, a goal they say is designed to make the company more appealing to a prospective buyer.
The unions and public advocate fear that if FairPoint sells again, it could mean a repeat of the last six years.
Enter Rep. Barry Hobbins, D-Saco, chairman of the Legislature’s Energy Committee. Hobbins is shepherding a bill through the Legislature that would set a higher bar for telecommunications mergers, acquisitions and sales in Maine in an effort to ensure the state and its ratepayers see a net benefit from any such deal, and that changes in employment levels and management don’t affect service. Current regulations stipulate only that any such merger or acquisition do “no harm” to ratepayers.
The bill was given initial approval in the House, 82-60, on Monday.
“We must not have another harmful merger like the one between Verizon and FairPoint several years ago,” Hobbins said in a prepared statement after the House vote. “With this measure, safety, reliability and service quality will be front and center in such reorganizations.”
No House Republicans voted in favor of Hobbins’ bill, setting the measure up to be one of many partisan fights this session. But the bill does have the support of the state’s public advocate, Timothy Schneider, an appointee of Gov. Paul LePage responsible for representing ratepayers’ interests at the Public Utilities Commission.
“We have clear evidence of the harm to ratepayers associated with the last transaction, and we believe that FairPoint will be involved in another transaction,” Schneider said Tuesday. “This bill provides a tool for the [PUC] to protect ratepayers if that transition takes place.”
While FairPoint isn’t mentioned by name in Hobbins’ bill, the language is crafted so that it is the only utility currently operating in Maine that would fall under the higher standard — a fact not lost on the company.
“I think it’s reasonable to ask, ‘Why is telecom any more important than gas or electric or any other utility?’” said Jeff Nevins, FairPoint’s public relations manager in Maine. “We certainly do question that ourselves. it doesn’t seem to make sense to us, but I think it’s apparent that’s where they’re going with [the bill].”
Nevins demurred on whether FairPoint was positioning itself to sell its Northern New England operations, but noted that the board of directors has a financial responsibility to evaluate any credible purchase option made for the company.
He also said that Hobbins bill is unnecessary, because the PUC already has the ability to attach ratepayer benefit stipulations to any utility merger or acquisition. They did so with FairPoint, he said, which was ordered to increase broadband availability in rural Maine — a goal the company has met.
“They have the ability to impose conditions to protect the interest of ratepayers, that ensure ratepayers are not adversely affected,” Nevins said. “This is just not needed. It’s just another anti-business piece of legislation that sends a message to people from outside the state that Maine is not a business-friendly state. I don’t think that’s where we want to go.”
Unions have been at odds with FairPoint since the company took over from Verizon. At that time, FairPoint said the deal would result in thousands of jobs being added throughout the tri-state area. All told, FairPoint has cut its workforce in Maine, New Hampshire and Vermont by at least 490 — with at least 130 cut positions in Maine. The International Brotherhood of Electrical Workers also successfully sued FairPoint in 2013 for outsourcing union jobs.
Pete McLaughlin, business manager for IBEW Local 2327, which represents some of FairPoint’s employees, said the proposed increased standard is not about being pro- or anti-business, but about protecting Maine’s access to the rest of the world, and about ensuring Mainers get the best deal possible out of any major telecom reorganization.
“We want to make sure that whoever is next has the ability to do what they need to do,” he said Monday. “The major incumbent carrier, like FairPoint is now, is the connection to the world for the state. … We’re so rural, we really are dependent on that.”
Follow Mario Moretto on Twitter at @riocarmine.