New Hampshire’s utility regulators have finished hearing testimony about Fairpoint’s proposed 2.7 billion dollar purchase of Verizon’s Northern New England telephone network.
During the hearings, critics and regulators raised concerns about Fairpoint’s finances, and the company’s ability to extend broadband to thousands more customers.
But company officials argued they can deliver what they promise and make their business grow.
New Hampshire Public Radio’s David Darman has more.
Several Public Utility Commission analysts expressed concern at the hearings with the 2.7 billion dollars Fairpoint is paying for Verizon’s network.
And they worried even more about the 1.7 billion dollars the company is borrowing to pay for it.
State Consumer Advocate Meredith Hatfield said she’s troubled by Fairpoint’s calculation that it can increase sales to help pay off its debt.
Its just very concerning to us that the company’s whole plan is based so much on growth in an industry that in the same time they admit is a declining industry. The land line industry is, we hear from them, even, you know, Verizon has line loss year after year.
Fairpoint officials say they believe they can slow the losses and increase business by making broadband available to nearly 58,000 more customers.
One PUC consultant said that Fairpoint should pay less than 2.7 billion to buy Verizon’s network.
But Fairpoint president Peter Nixon insists his company is not paying too much.
It was important to note that one of the other witnesses indicated that the purchase price from Verizon represents an industry uh, extremely low, I think it was around 1800 dollars per access line, relative to the comparable properties, which are exceeding 3,000 dollars an access line. So the structure of the deal, what fairpoint paid for it was extremely reasonable.
Another PUC consultant also recommended that Fairpoint cut its annual 12 percent dividend for shareholders.
The company’s own financial statements filed with the Securities and Exchange Commission show Fairpoint would lose money in just two years if the deal with Verizon doesn’t go through.
If regulators approve the deal, projections show the company losing money in five years, should the dividend remain in the mix.
The head of the Whittemore School at UNH says he’s not sure if Fairpoint can make enough money to stay out of the red.
But Dean Daniel Innis says when he looks at the company’s projected cash flows, he doesn’t see anything more unusual than what he’s found at other, bigger companies in the marketplace.
..so I don’t think we should pile on to fairpoint and say it looks like they have a problem or we have these concerns five years out. I think our concerns are based on the fact that they’re a relative unknown. And that’s what makes people uncomfortable.
Verizon managers also came under rigorous questioning at the hearings about how much money the company has invested in the last few years.
Attorney Scott Rubin represents Verizon workers unions at the hearings.
He used Verizon’s own filings with the Securities and Exchange Commission to focus on what the company was spending in the 3 state region.
Rubin questioned Verizon vice president John Nestor whether the company had been keeping up the network.
And this shows that in the three states Verizon has invested between 182 million dollars and 228 million dollars per year over the last 5 years. Would you agree with that? For the first line, yes.
But after those years, Verizon’s investment seemed to drop off.
And would it be correct that Verizon has made a commitment to fairpoint to invest only 137.5 million dollars in capital expenditures during 2007? Um, I’m not familiar with them but that’s what these words say.
The unions have accused Verizon of under investing in the network.
But other Verizon officials said the drop off in investment was mostly due to their company’s decision to quit deploying fiber optic technology in the three states.
Fairpoint officials have no plans to reinstate the fiber build out.
But they did tell the PUC they would fix any problems they find in the network within two years after taking control.
Fairpoint’s operations manager John Smee said if that effort cost more than budgeted, the company would adapt.
In the highly unlikely chance, that there are significant expenditures necessary over and above what we believe are necessary right now, we would do what all businesses do. We would come together, make an assessment of the total spend of the company and the goals of the company and make adjustments in the goals and in the spend rates and in the areas of spend to achieve the most necessary goals. And in my view, and I think in our company’s view the ability to deliver high quality service is one of the most necessary goals.
Fairpoint officials say no matter how high expenses get, they have committed to not raising rates for one year after taking control.
But they have also said they can’t make promises beyond that year, given the uncertainties of the telecommunications industry.
The PUC hearings may be over, but it will be many weeks before the commissioners make any decisions about the phone system.
Regulators in Maine and Vermont also have to make their rulings.
And since Vermont held the first round of hearings, their decision will likely be issued first.
