Expert says Verizon - FairPoint deal not in Maine’s best interest

FairPoint poses “unacceptable risks” for customers, employees and the public.

A prominent financial expert submitted testimony to the Maine Public Utilities Commission saying the proposed sale of landline operations in northern New England to FairPoint “is not in the best interests of Verizon’s customers or employees, or the State of Maine as a whole.”

The testimony by Randy Barber was submitted on behalf of the Communications Workers of America and the International Brotherhood of Electrical Workers on July 24. With about 2,500 members in Northern New England, the two unions are intervenors in the pending review of the sale by the Maine Public Utilities Commission.

Barber is the president of the Center for Economic Organizing. He has worked as a consultant for more than 25 years specializing in complex financial and operational analysis of companies and industries.

“Mr. Barber backed up his testimony with powerful evidence showing just how shaky FairPoint could be after the merger,” said Myles Calvey, IBEW T-6 System Council Chair. “I hope the Commissioners take his statement very seriously.”

Barber testified that “FairPoint is a very risky holding company, specializing in acquiring, operating, and selling telecommunications companies. Fundamental to its financial strategy is the utilization of “free cash flow,” derived primarily from depreciation, to pay very high dividends.

“FairPoint is cannibalizing itself by continually paying out more in dividends than it earns. It generates the cash to do this from depreciation – taking money that should be reinvested in its networks and, instead, paying it out to stockholders as a dividend. …[I]n the last two years, FairPoint has paid dividends equal to nearly twice its level of net income.

“In order to sustain FairPoint’s approach to business, it must continually acquire new companies and use the depreciation-based cash flows from those new companies to provide the cash to support its high payments.

“In other words, FairPoint’s approach to business is to invest as little as possible in capital plant and siphon the rest of the cash out of the operating companies to support its extraordinarily high dividend payment.

“If its projections prove to be over-optimistic and its results materially suffer, FairPoint will need to adjust by squeezing its employees’ compensation, raising prices, permitting service to deteriorate, reducing investment, cutting dividends, or, more likely, a combination of these. The impact of such actions is likely to be devastating to Maine.

“In summary, based on the size and complexity of the transaction, FairPoint’s demonstrated inability to reduce operating expenses on a per-access-line basis, and its heavy reliance on depreciation-based dividend and debt retirement strategies, among other considerations, I conclude that the proposed FairPoint acquisition of the Verizon Northern New England properties poses unacceptably high risks. Those risks are posed not only to FairPoint itself, but to the customers, employees, communities and economies that rely upon Verizon’s telecommunications network in Maine,” Barber concluded.

Copies of Randy Barber’s full testimony are available from Rand Wilson at the above number. More information about the campaign to Stop the Sale is on www.stop-the-sale.org and www.no-deal.org.