Signs pointing to FairPoint bankruptcy
By ASHLEY SMITH, Staff Writer, Nashua Telegraph
Published: Sunday, October 11, 2009   More than two years after critics first voiced concerns that tiny FairPoint lacked the resources to take over Verizon’s Northern New England land-line business, some of their predictions are proving true.   Unable to make its massive debt payments, FairPoint will have to file for bankruptcy by month’s end unless it can strike a deal with creditors.   The company is losing land-line customers – and thus, revenue – faster than anticipated. And the celebrated launch of a TV service to compete with cable – a move FairPoint said would bring in the extra income to compensate for the decline in land-line customers – has been put on hold.   “There’s no satisfaction in saying I told you so,” said Rand Wilson, communications coordinator for the two unions that represent most FairPoint workers, which organized a major public campaign in an effort to stop the sale.   “We have to try to provide the best possible service under the circumstances and work with regulators and states to find a way to create a viable company.”   In addition to the financial woes, rumors are surfacing that there’s a potential buyer for FairPoint. The New York Post reported last week that another small telecom company, Windstream, is interested in FairPoint’s access lines in New Hampshire, Maine and Vermont, and is buying up the company’s debt.   However, when asked if the company is for sale, FairPoint spokeswoman Jill Wurm said no.   “It’s just a rumor at this point,” she said.   It has been a rocky nine months since FairPoint officially broke ties with Verizon after the $2.4 billion sale, which catapulted the Charlotte, N.C.-based company from a tiny carrier specializing in rural telephone and broadband service to the seventh-largest telecom company in the United States.   Not long after the “cutover” began in early February, the company was inundated with customer complaints about e-mail glitches, spotty service, billing errors and long delays to fill service orders or fix problems. The company couldn’t handle the volume of calls coming in, so some customers waited for hours on hold or were never able to get through for help.   The trouble prompted public utilities commissions in all three states to keep a watchful eye on FairPoint, requiring the company to answer questions about its problems at public hearings and issue status reports on its progress. In August, regulators in all three states made the unusual move of calling a joint hearing to discuss the problems.   Throughout the last nine months, blame for all of the troubles hasn’t rested solely on FairPoint, but also the company that designed its computer network and the consulting firm hired by the three states to monitor its progress. Some customers have criticized state regulators for approving the deal in the first place.   In a recent letter to the editor published in the Rutland (Vt.) Herald, one woman compared the deal to the kind of poor financial decisions that brought the national economy into recession.   “I feel that David O’Brien and the Public Service Board are very much like a large bank who approves a big, unaffordable loan and then takes the house away from a family,” wrote Tina Scanlon, of Westford, Vt. “They knew FairPoint was a small company who already had billing problems, wasn’t equipped to handle all of New England and didn’t have the financial means when this large acquisition was approved.”   The worst of FairPoint’s customer service and billing problems have subsided, but now the spotlight has shifted to the company’s financial health.   FairPoint’s stock price has plummeted so far that Nasdaq has threatened delisting. The company lost nearly $27 million in the second quarter of this year, the last quarter for which results have been released.   Earlier this month, FairPoint announced it had defaulted on its bank loans and is trying to negotiate with creditors to restructure some $2 billion in debts. Creditors have agreed to postpone late-payment penalties until the end of the month, but FairPoint has said if there’s no restructuring plan by that time, it will have to file for bankruptcy.   “The thing that has not changed is that we need to restructure our debt,” Wurm said. “We are certainly trying to do it outside of court.”   Analysts are beginning to say bankruptcy is a real possibility.   P.J. Louis, a telecom industry expert and author of 11 books on the various topics within the industry, recently wrote that he thinks it’s a realistic option for the company.   “The more and more I think about it, the more I am convinced that FairPoint needs to file,” Louis wrote in an analysis on the Gerson Lehman Group Web site. “Every horror story you hear just scares the heck out of me. Frankly, I am questioning management’s ability to see the company through this rough time.”   In addition to a $27 million loss in the second quarter, FairPoint lost 3 percent of its land-line customers between March 31 and June 30. Although some decline in land-line customers is expected as households continue to “cut the cord” and move to cell phones, the company also lost 1.6 percent of its Internet customers.   Overall for the quarter, revenue declined 12 percent compared with the previous year.   Wilson, the union spokesman, said all of the problems since the cutover mirror concerns the union had when it waged a big public campaign to stop the sale.   “I think if you look at the expert witnesses that we provided to the PUC and all of the union testimony . . . we pretty much nailed it a year ago as to what could be the outcome,” he said.   However, it isn’t just FairPoint that Wilson holds accountable. He also blames Verizon, a company that was eager to shed its land-line business in rural areas and structured the deal as a Reverse Morris Trust, a section of the tax code that was intended to allow a company to restructure without paying takes.   While that tax exemption saved Verizon a lot of money, it did nothing to ease the enormous amount of debt small FairPoint was inheriting.   “Verizon knew full well what it was doing, and Verizon needs to be held accountable for forcing this deal on the public,” he said.   © Telegraph Publishing Company, All Rights Reserved   Rand Wilson, Communications Coordinator