Verizon plan to sell landlines hits bump: State utility commission fears deal with Frontier would hurt consumers

Nov 05, 2009 (The Columbian - McClatchy-Tribune Information Services via COMTEX) -- FTR | Quote | Chart | News | PowerRating -- Verizon suffered a setback Tuesday in its plans to sell its Washington telephone landlines to Frontier Communications in a proposed multibillion-dollar deal. The Washington Utilities and Transportation Commission staff recommended rejecting the sale, saying it would harm customers.

Verizon in May proposed to sell about 487,000 Washington phone lines, including its landline business in Camas and Washougal, as part of an $8.6 billion bid by Frontier to acquire 4.8 million Verizon phone lines in 14 states. Verizon would hold on to its wireless services and hand over its high-speed Internet, local and long-distance telephone, DirecTV and FiOS customers to Frontier.

WUTC has been assessing the potential impact to customers as well as the financial stability of Frontier, which would triple in size with the acquisition. The staff recommendation is the latest hurdle facing the transaction before the three-member commission makes its final decision early next year.

The Federal Communications Commission must approve the transaction and government regulatory approval is needed in nine states, including Washington, before the transaction is complete.

In a written statement, WUTC staff expressed concern that Frontier could suffer the same fate as other Verizon spin-offs in Hawaii and New England that have resulted in bankruptcies. FairPoint Communications and Hawaiian Telcom Communications both struggled after acquiring Verizon telephone lines.

Staff is also worried that Frontier wouldn't be able to raise capital for wireline improvements because the company's credit rating is lower than Verizon's and that the phone company will face higher costs in the Washington operations than Verizon faces today.

"There may not be any way for Frontier to provide benefits to Washington customers that offset the financial harm and operational risks," said commission staff in their written testimony. "The failure of the companies to offer adequate consumer benefits or protections puts customers at risk of being served by a company without enough financial strength to make necessary improvements to local telephone facilities and widen deployment of broadband access."

Frontier has said it's in a different financial position than the other acquiring companies. As the second-largest rural local telephone provider in the U.S., the company had $2.2 billion in revenue in 2008 and more than 2.3 million access lines nationwide.

Verizon customers who would like to comment on the case are encouraged to mail their correspondence to the WUTC at P.O. Box 47250 Olympia, WA, 98504; e-mail comments to comments@utc.wa.gov; or call toll-free 888-333-9882. WUTC's deadline for accepting public comments is Jan. 11.

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