Thursday, May 17, 2007

Deal or No Deal

Rural northern New England is a dead end on the information super highway. The development of fiber optic systems has been begun in southern NH – while northern NH waits. If we’re lucky, we have DSL. In the northern reaches of our state, many are condemned to dial up internet access – where it might take an hour to download a big file or picture that some unthinking jerk sent you.

Access to the internet is an essential part of doing business for companies, for elected officials (some of them, anyhow), for students, newspapers, doctors, hospitals, libraries, artists, writers, news and political junkies, and for the rest of us. This isn’t a passing fad –the internet is increasingly the tool of choice for a great deal of our communication. Some area towns have bulletin boards or list serves that inform the townspeople of upcoming meetings or events. The web can be a time sucking morass – where one can spend hours looking at weird websites for people with all manner of interests – from Russian tortoises to collecting Barbie Dolls – but it’s also become the way many of us get our news and information. With the internet we can communicate with people from all over the world. For many of us, it is an essential component of doing business.

When the topic of jobs and the economy in the northern part of the state comes up, mention of the need for the infrastructure for high speed internet access will soon follow. All of us agree that northern NH should be allowed to join the 21st century. The problem seems to be determining exactly how that will happen. Verizon has promised us for years that they were going to make it happen. They haven’t. Not only have they failed to make good on their promises of development in the north country, they’re hoping to unload the unprofitable north all together, by selling their landline business in Vermont, New Hampshire, and Maine to a small telecommunications provider from North Carolina, called FairPoint. It’s billed as a merger of Verizon and FairPoint, though essentially it allows Verizon to focus on developing FIOS systems to cities and affluent suburbs, while farming the low rent rural customers out to FairPoint.

Why would Verizon do this? Why would they sell rural northern New England customers out to a small company already deeply in debt, knowing that FairPoint can’t possibly make the kind of investment in northern telecommunications infrastructure that Verizon themselves didn’t make? The answer is money, of course. There is an obscure IRS loophole known as a Reverse Morris Trust. Using this loophole will result in $600 million in tax savings for Verizon, if approved by the PUC. According to union consultant Randy Barber, “a parent corporation can spin off a subsidiary into an unrelated company, tax free, if the shareholders of the parent end up controlling more than 50 percent of the voting rights and economic value of the merged company. The Verizon-FairPoint deal has been designed this way. The bad news for rural consumers is that this tax dodge is only possible if parts of the old copper wire network are sold to a “tiny partner” rather than a larger, more financially secure buyer. (See:

In September 2006, FairPoint had $890 million in assets and $610 million in long term debt. This merger will result in $1.7 billion in new debt for FairPoint. The company has promised to continue paying high dividends to shareholders. Given the already significant level of debt the company carries, one wonders how they’ll manage to invest the kind of capital required to improve existing service and expand DSL. One really shouldn’t wonder. One should be quite sure that they will increase rates, reduce expenditures, reduce labor, and cut service quality.

This deal means job insecurity for some 2,800 union employees. FairPoint has made no firm commitment to keep them beyond current contracts. Once those contracts expire, the debt level alone will surely cause management to outsource as much work as possible to non-union employees, while slashing benefits and pensions.

The Public Utilities Commission has to approve this deal. Hearings are currently being held around the state, and the next closest one will begin at 7 pm, at Littleton High School, on May 24. Everyone who is concerned about telecommunications in the north country should attend. I’ve spoken to people so unhappy with Verizon that they say, “anything is better.” I don’t believe that the sale of NH landlines to a small company who won’t be able to make the investments in infrastructure because of debt and shareholder dividends is going to make anything better. It is entirely possible that in just a few years, the failures of Verizon may look awfully good to us in comparison to exorbitant rate hikes and lousy service.

NH needs to create a solid plan for stimulating investment in high speed internet, and then develop state policy from this plan. We must also consider passing legislation that would protect us by establishing strict guidelines for sales and mergers of this type. The future economic development of the northern part of our state depends on telecommunications. We can’t afford to let this sale go forward.

“We are not going to let Verizon turn the information super highway into a dirt road in New England.” Glenn Brackett, IBEW Local 2320 business manager.

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