FairPoint On The Brink

For those contemplating the effects of the sale of some of Verizon's rural landline assets to Frontier Communications, one needs only look at what's happening with FairPoint Communications in northern New England to see it might be biting off more than it can chew.

As the October deadline gets closer for FairPoint Communications to make an interest payment on the $1.92 billion it borrowed to buy Verizon's landline assets in northern New England, FairPoint's CEO seems to be taking his company's perilous situation lightly, acting as if there will be no problem even if it ends up in bankruptcy. I doubt FairPoint needs that kind of laissez faire attitude in its chief executive.

For a man whose company may be heading into bankruptcy court any time now, FairPoint Communications CEO David Hauser exudes a surprising amount of confidence in his company and its prospects.

"I think the debt comes to a head one way or another in the next couple of months," Hauser said.

For a company that's seen its stock price plummet from $9.02 on the day of the acquisition to $0.46 per share (today's closing price) and is in danger of being de-listed from the New York Stock Exchange, the attitude is puzzling. But the state regulators of at least one of the three northern New England states has been taking it far more seriously.

The company's financial health was always a concern, New Hampshire regulators said.

"We thought that FairPoint would be overleveraged, that they would have too much debt and that they were being overly optimistic," said Meredith Hatfield of the Office of the Consumer Advocate.

FairPoint paid far too much for a business that's been on a slow decline for years as competition increased and wasn't worth what they paid for it. It's one of the quickest ways to go broke.

FairPoint has also been behind schedule for bringing broadband to underserved and unserved areas in the three states, which means it will start accruing penalties for failing to meet its targets for deployment. What's worse is the broadband technology it is deploying (DSL) can barely be considered broadband as the maximum data rates are far lower than that available through cable and Fiber To The Home. DSL is also distance limited, meaning maximum data rates are available only if the customer is close to the central office or local concentrator. The farther away, the lower the maximum data rate available. With some of the newer services available on the Internet, like streaming video and online gaming, FairPoint's DSL-based broadband won't be adequate to meet the bandwidth requirements for those services.

In short, FairPoint hasn't lived up to its promises, hasn't provided the services expected by its customers, hasn't been able to respond in a timely manner to its customers' needs and requests, and has managed to lose about 10% of its customers since it took over operations from Verizon back in February. On top of that they are on the edge of defaulting, and if reorganization fails and debt payments cannot be rescheduled, they will be forced into bankruptcy.

This is not what the consumers in Maine, New Hampshire, and Vermont signed on to when Verizon sold its landlines to FairPoint.