FairPoint Reputation Cited as Risk, Opportunity for Consolidated

quality issues raised in an ongoing PUC probe about missed service quality benchmarks from Q3 2014 to Q2 2016 (see 1701030041). FairPoint turned its business around after initial problems, but “there is a certain amount of reputational issues associated with the name,” said Consolidated Chief Financial Officer Steve Childers. When Consolidated sought financing for the deal, one of the acquirer's lead banks “pulled out at the last minute on us when we were putting the commitment papers together simply because they lost quite a bit of money on the Verizon/FairPoint thing,” he said. FairPoint went bankrupt after buying Verizon Northeast wireline systems. Consolidated Vice President-Regulatory and Public Policy Michael Schultz cited public-relations risk from FairPoint/Verizon integration problems and the bankruptcy that followed. “Even though that was several years ago, there’s still a memory here” FairPoint improved, but some could bring a “here-we-go-again mentality” to the Consolidated deal, he said. Consolidated aims to meet or exceed Maine’s service quality standards, Schultz said. The company plans to apply customer-service best practices from its footprint, including a self-service support tool that reduces the number of trouble reports the company receives, he said. Consolidated Vice President-Operations Gabe Waggoner said the telco also intends to deploy in Maine a GPS tool that optimizes service technicians’ routes to keep them on schedule, and a “virtual hold” feature that lets customers calling into support hang up while keeping their place in the queue. Separately, telecom analysts told us they expect strong state scrutiny of the deal but that FairPoint’s history could end up helping Consolidated secure OKs. “FairPoint has history of service quality issues,” said Technology Business Research analyst Chris Antlitz. “A lot of the issues stem from underinvestment in back office systems and the network. Consolidated can and is likely to use this factor to its advantage to seal the deal because they can promise to clear up some of those issues and boost investment if allowed to merge.” FairPoint’s weak finances kept the company from fixing service issues, but the companies combined could resolve them, he said. Cowen analyst Paul Gallant agreed “having new management of the Maine system probably is a plus in the PUC’s eyes.” The analyst said he'd be “surprised if the Maine PUC isn’t extremely focused on the merger’s impact on service quality.” The Verizon/FairPoint transition “was a game changer in how states review rural telco takeovers," Gallant said. "That was not a good experience for Maine and I expect regulators will take no chances of it happening again.”