Union's final brief slams Frontier's high-risk, unsustainable business model

Union intervenors make final arguments in support of Illinois ALJ's proposed order on Verizon-Frontier deal

Frontier's high-risk, unsustainable business model would harm Illinois consumers

Deal falls short on two key ICC criteria that must be met by law

Springfield, IL -- In a legal brief filed with the Illinois Commerce Commission (ICC) on Thursday, March 25 the IBEW urged that commissioners reject the proposed sale of Verizon's landlines to Frontier as being contrary to the public interest.

The union's final "brief in reply to exceptions" submitted to the ICC, refuted the two companies' pleadings and reiterated its support for Administrative Law Judge Lisa M. Tapia's proposed order denying the Verizon-Frontier application and rejecting the proposed merger.

The union's 20-page brief supports the ALJ's findings that Frontier's business model is not viable and that the deal would harm customer service.

Financially viability
"IBEW's opposition is based on one over-arching concern that is accurately reflected in the Proposed Order: Frontier is not financially fit to own and operate Verizon's landline operations, including Verizon Illinois," wrote Scott J. Rubin, the labor intervenors' attorney, "As the ALJ correctly found, a lack of financial fitness cannot be cured or subject to a compromise – it simply renders the applicant unfit to assume the responsibility for serving more than half a million citizens of Illinois with an essential public service."

"…Frontier also pays out far more to stockholders than it reinvests in its infrastructure. [F]rom 2005 through 2008 Frontier made capital investments of $1.1 billion, but it paid stockholders more than $2.1 billion during that same time."

"…Frontier is headed for a crash: within two or three years, it will run out of retained earnings and will no longer be able to pay dividends in excess of its earnings. This would require Frontier to drastically reduce its dividend – by 60% or more – and then come up with a new strategy for providing value to its stockholders."

Quality of service
"The ALJ properly found that Frontier's record of service quality performance in other jurisdictions is questionable," Rubin wrote. "She is correct that there are reasons to believe that Frontier will not be able to maintain Verizon's current level of service quality, let alone improve on that level of performance."

Inadequate Broadband
Frontier will also fail to deliver high speed, quality broadband. "Under Frontier, Illinois faces the very real prospect of every customer in Verizon's service area being "underserved" because Frontier is committing to deploy service at a speed of only 1.5 megabits per second," the brief stated.

"In contrast, the FCC's National Broadband Plan sets a national goal of a minimum broadband speed of 4 megabits per second with at least 100 million households having access to 50 megabit per second service by 2015 – just two years after Frontier hopes to provide only 85 percent of its Illinois customers with 1.5 megabit per second service."

Good for Wall Street, Bad for Illinois and America
The IBEW's brief also identified how the deal puts Wall Street in the drivers seat, "The fact that some group of investment banks must provide more than $3 billion in capital to Frontier – and that Frontier has so far been unwilling or unable to obtain such financing – should lead the Commission to question Frontier’s financial soundness; it should not give the Commission comfort that some unknown group of lenders will eventually present Frontier with a set of unknown terms and conditions…The Commission cannot let Wall Street dictate the terms and conditions under which Frontier will have to operate… The Commission cannot simply assume that investment bankers will be looking out for the best interests of Illinois consumers; indeed, exactly the opposite might be true."

"The IBEW and CWA only want to ensure that the people who work for Verizon in Illinois, and the public they serve, will not be harmed by the proposed sale," said Ron Kastner, Business Manager of Local 21, the largest IBEW telecom union in Illinois. "As the ALJ correctly found, the deal as it is presently structured is just too risky, and Frontier is too financially unstable, for the sale to be in the public interest."

CWA or IBEW have intervened in state regulatory proceedings on the proposed sale in West Virginia, Illinois, Ohio, and Washington. Both unions are also intervenors in the case before the Federal Communications Commission.

No decision has been made yet in the proceedings before the commissions in West Virginia and Washington state or the Federal Communications Commission. Commissions in Arizona, California, Nevada, Ohio, Oregon and South Carolina have approved settlements. There was no state regulatory review in Idaho, Indiana, Michigan, North Carolina or Wisconsin. Frontier recently announced that it also will need to seek approval from the Virginia Corporation Commission.

More information about why citizens are mobilizing to stop the Verizon sale to Frontier is at: www.verizonfrontierdeal.org. For information about ending the digital divide visit: www.speedmatters.org.

Telephone workers rally for workplace safety

About 75 telecom workers and community supporters rallied in support of a Verizon technician in Lynn, MA who was recently threatened by a supervisor while acting in his capacity as an IBEW Local 2321 steward during a "captive audience" safety meeting.

In response to the steward's statement that management often retaliates against workers who ask questions during meetings, the foreman forcefully pointed his finger in the steward's face and said, "you're dead!!" For emphasis, he said it twice.

It is an unfair labor practice to threaten stewards for acting on behalf of the membership and it is just plain wrong to use violent threats to threaten anyone in the workplace. Verizon management is creating a "hostile work environment" for its employees in the Lynn garage and elsewhere.

IBEW union members are not going to tolerate violent threats in the workplace. They are demanding that Verizon apologize to the steward and take immediate steps to end the "hostile work environment" that it is responsible for in Lynn.

IBEW Local 2321's Business Manager Ed Starr was the Master of Ceremonies and principal organizer for the rally.

Speakers at the rally included IBEW T-6 Chair and Local 2222 Business Manager Myles Calvey, North Shore Labor Council President Jeff Crosby, CWA Local 1400 President Don Trementozzi, Jobs with Justice director Russ Davis, AFL-CIO Legislative Director Tim Sullivan, State Rep. Mark Falzone; Rep. Steven M. Walsh, and Lynn City Councilor Daniel F. Cahill.

One of the high points of the rally was a moving speech by Mike Upton, a strike captain and member of UFCW Local 791 who is on strike at the Shaw's warehouse in Methuen.

Pictures from the rally may be viewed on the Picasa photo sharing site at:
http://picasaweb.google.com/randwilson.aflcio/TelephoneWorkersRallyForWorkplaceSafety
(Higher resolution photos are available from Rand Wilson).

Illinois Commerce Commission, other regulators, urged to heed Judge's concerns

After hearing the case on the proposed Verizon Frontier landline sale in Illinois, the Commerce Commission's Administrative Law Judge (ALJ) issued her proposed order today.

Judge Lisa M. Tapia recommended denying the Verizon-Frontier application and rejecting the proposed merger.

Tapia wrote, "the proposed reorganization will adversely affect Frontier's ability to perform its duties under the [Commerce Commission] Act, in that the proposed reorganization will diminish Frontier's ability to provide adequate, reliable, efficient, safe and least-cost public utility service; and will significantly impair Frontier's ability to raise necessary capital on reasonable terms and to maintain a reasonable capital structure… Accordingly, the proposed reorganization must not be approved." (Prop. Order p. 44)

"The ALJ's reasoning is consistent with the positions that our union took and the arguments that we made about the enormous risks this deal poses for consumers and workers," said IBEW Local 51 Business Manager Jim Bates whose local represents Verizon workers in the area around Springfield, IL.

"We have been concerned from the beginning about the impact of this proposed merger on Frontier's financial stability given the enormous debt that it would incur," said Ron Kastner, Business Manager of Local 21, the largest IBEW telecom union in Illinois.

Tapia's decision also raised serious doubts about Frontier's qualifications to step into Verizon's shoes as the second largest incumbent carrier in Illinois, given the enormous problems and disruptions that resulted from two previous Verizon selloffs. "The minimal benefit to Illinois customers is not worth the substantial risks to which customers would be exposed. Thus, the risk level is so great that it warrants rejection outright," wrote Tapia." (Prop. Order p. 32)

The ALJ's decision recognizes that a switch from Verizon -- one of the largest, most financially secure telecommunications companies in the world -- to a financially and operationally challenged company like Frontier would be disastrous for consumers and workers. After all, Verizon's two other recent divestitures to smaller companies ended in bankruptcy and a significant deterioration in customer service.

The ALJ's decision is only a recommendation to the Illinois Commerce Commission (ICC). On March 19, the Joint Applicants will file briefs with the Commission making their final case for the deal. On March 25, intervenors will respond to the briefs by Verizon and Frontier.”

"Customers and workers from both Verizon and Frontier need to be protected from this Wall Street-backed scheme. We hope the ICC, other state regulators, and the FCC pay close attention to the ALJ's recommendations," said Ron Collins, Vice President for CWA's District Two. "If the ICC or another state reject the deal, that should send both companies back to the drawing board to restructure the deal."

CWA or IBEW have intervened in state regulatory proceedings on the proposed sale in West Virginia, Illinois, Ohio, Pennsylvania and Washington. Both unions are also intervenors in the case before the Federal Communications Commission.

Commissions in Arizona, California, Nevada, Ohio, Oregon and South Carolina have approved settlements. A partial settlement has been reached in Washington state. There was no state regulatory review in Idaho, Indiana, Michigan, North Carolina or Wisconsin.

More information about why citizens are mobilizing to stop the Verizon sale to Frontier is at: www.verizonfrontierdeal.org. For information about ending the digital divide visit: www.speedmatters.org.