Unions Ask Ohio Regulators to Reject Verizon-Frontier Deal

The unions’ positions are “bunk,” a Frontier spokesman told us. “These are old, stale arguments,” he said. “I'm shocked that they're still bringing them up.” The unions are intervening in state proceedings on the deal in Ohio, West Virginia, Illinois, Pennsylvania and Washington and in the FCC’s proceeding. The transaction involves landlines in 14 states.

Hearings are scheduled Tuesday in West Virginia and Jan. 19 in Illinois. In Washington -- where commission staff, the companies and other parties have arrived at a partial settlement for approval -- a hearing is scheduled Feb. 2. Settlements aimed at approval are in the works in Arizona and Oregon. South Carolina, California and Nevada have approved the transaction. No state review was done in Idaho, North Carolina, Indiana, Michigan or Wisconsin.

“Labor’s opposition is based on one over-arching concern: Frontier is not financially fit to own and operate Verizon’s landline operations,” Scott Rubin, the unions’ attorney, wrote in the Ohio filing. Frontier’s “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 Ohio with an essential public service,” he said. The deal fails on every measure that an Aug. 19 order by the commissioners called central, the unions said. The order stressed financial fitness, employment levels and retail and wholesale service quality, Rubin said.

Frontier lacks financial solidity, the brief said. “Frontier does not have the financial wherewithal to acquire operations that would triple its size.” The telco is predicted to not be able to handle $3 billion in debt from the deal, the filing said. “The Commission should reject Frontier’s business model of milking its utility operations so excessive cash payments can be made to shareholders.”

Frontier hasn’t promised to keep an adequate work force, said the unions, condemning the company for “evasiveness” on plans for employment after the purchase. The commission “should not simply assume that Frontier will ‘do the right thing’ -- particularly in light of Frontier’s allegedly confidential plans to significantly reduce its workforce shortly after the transaction closes,” the brief said. “Frontier has not provided the Commission with accurate information, let alone meaningful assurances, about the impact of the proposed transaction on employment in Ohio.”

The unions said they view Frontier’s commitment to service quality as having wavered over its history. They predicted a slump in the timeliness and quality of installation, repair and maintenance work if the merger goes through. “Frontier has promised Wall Street that it will be able to cut Verizon’s costs by $500 million in less than three years -- an unprecedented level of cost reductions that would require Frontier to drastically reduce the size of its workforce,” the brief said.

The proposed commitments are inadequate because they include no financial protections, don’t deal with staffing and set “totally inadequate” broadband and capital spending targets as well as service quality provisions “insufficient to protect the public,” the brief said. The stipulation “would require Frontier to meet a broadband deployment standard in Ohio four years from now that is not only far less than what Frontier already has achieved in Pennsylvania and other states, but that is even less than Frontier said it could achieve in its testimony,” the brief said.

The stipulation’s service-quality provisions “do not provide Frontier with an incentive to retain a skilled workforce or spend an appropriate amount of money to maintain service quality,” the brief said. “Frankly, it would be far cheaper to and easier for Frontier to just pay the minuscule penalty contained in the Proposed Stipulation than it would be to spend the money to do the work.”

Frontier is very sound financially, is well-positioned to handle debt from the deal and has the confidence not only of Wall Street but also of its investors and the utility commissions that have approved the transaction, company spokesman Steven Crosby said Saturday. “We will be getting billions -- that’s ‘billions,’ with a ‘b’ -- more in revenue than the amount of debt involved,” he said. “Wall Street supports the deal. Frontier has refinanced its debt the past nine months to get better rates, and all the offerings have been oversubscribed.” The company’s board voted a 25 percent reduction in dividends to ensure further access to capital, he said.

Crosby pooh-poohed labor’s claim that Frontier wouldn’t have enough employees after the deal. “These are dumb arguments, and they're not true,” he said. “We will be taking all the people we can get and more. We'll be adding 5,500 people to our work force and afterwards will be at 15,000 or 16,000 employees.” Frontier has guaranteed that unionized technicians, installers and customer service representatives will have jobs at least 18 months after the deal closes, according to Crosby.

A recession-battered market and efficiencies brought by better management and increased purchasing power will let Frontier make the $500 million it estimates in savings from Verizon’s costs, Crosby predicted. “We won’t be a $2.5 billion company. We'll be an $8 billion company, and we'll be able to negotiate better deals.”