Maine regulators delayed final action on the $2.7 billion Verizon-FairPoint merger until Dec. 20 to review of a last-minute proposal by some parties to settle major financial, broadband deployment, ratemaking and service quality issues. The settlement offer to the Public Utilities Commission was agreed to by the two companies, state public advocate, PUC staff and wireless carriers. Others, notably competitive landline carriers and unions representing Verizon workers, refused to sign onto the proposal, citing major objections.

FairPoint Communications and foes of its acquisition of Verizon landline assets in Maine, New Hampshire and Vermont are running mass media campaigns trying to exert indirect sway on the three state utility commissions that must approve for the deal to close. All three states have closed their records and are in deliberations, eliminating direct lobbying of the commissions. A spokesman for the IBEW local enrolling Verizon workers in northern New England, which opposes the merger, said the commissions are supposed to rule based on the case record, but “they're making the decisions in an environment, and everyone is trying to affect that environment.” Walter Leach, FairPoint executive vice president for corporate development, said such affairs have “become a political process,” bringing election-style campaigning to bear on what technically is a non-political matter. Each side blames the other for starting the media war over whether FairPoint can live up to promises it made to extend broadband service to homes and businesses in rural portions of the three states.

USTelecom urged the FCC to approve Verizon’s wireline spinoff to FairPoint in a July letter, FairPoint said Tuesday. The transaction is “pro-consumer” since rural telco FairPoint is more focused than Verizon on rural customers’ needs, said USTelecom. FairPoint wants to acquire Verizon wireline operations in Maine, Vermont and New Hampshire. FairPoint shareholders will vote on the transaction Wednesday. Meanwhile, unions sent FairPoint shareholders paper bags urging they vote “no” on the deal they said would “pose unacceptably high risks” that could “leave shareholders holding a costly bag” of customer complaints, old equipment and expensive PUC findings, the Communications Workers of America said Tuesday. “The cash flow from these access lines will have to be plowed back into network upgrades in order to satisfy regulators and customers who are demanding improved service quality,” said Chris Shelton, vice president of CWA District 1. “Management’s projected profit windfall from this deal is an illusion.” The International Brotherhood of Electrical Workers agreed: “We are concerned that FairPoint’s business model is to acquire small companies and then use the cash flow from those companies to pay inflated dividends at the expense of the long-term health of the company,” said Jim Voye, IBEW research director. “But that model won’t work in New England. The telephone lines and equipment are old and there are potentially costly regulatory decisions pending.”

Verizon and a union began formal arbitration on the union’s claim that terms of Verizon’s $2.7 billion agreement to transfer its northern New England landline assets to FairPoint Communications violate Verizon’s labor contract. System Council T-6 of the International Brotherhood of Electrical Workers (IBEW) represents 2,500 Verizon workers affected by the merger in Maine, New Hampshire and Vermont. The union said the merger agreement’s job transfer terms violate a contract provision limiting involuntary job transfers for employees hired before August 2003. “We're saying the merger agreement Verizon has with FairPoint violates the contract, and we're going to let an arbitrator decide if that allegation is true,” a union spokesman said. Arbitration began Thursday at Verizon’s New England headquarters in Boston, with eight sessions scheduled through September. The IBEW said if it wins, “it would be incumbent upon Verizon and FairPoint to change their agreement to be in compliance with the contract,” since FairPoint vows to honor the pact. The spokesman said an arbitration victory would not change IBEW opposition to the merger. Verizon said the deal with FairPoint “doesn’t violate any contract provisions.” FairPoint declined to comment, saying the matter is between Verizon and the IBEW.

Verizon union employees in New England protested a company e-mail cautioning employees not to speculate publicly about the impacts on business operations of the proposed $2.7 billion spinoff of the Maine, New Hampshire and Vermont operations to FairPoint Communications. The June 18 message said Verizon had entered a “quiet period” required by the SEC in merger and acquisition transactions, which will last until the end of July. But the International Brotherhood of Electrical Workers (IBEW) council representing 11,000 Verizon New England workers termed the e-mail “an attempt by Verizon to place a gag order on its employees” in violation of their free speech rights. The union said quiet periods didn’t totally preclude public discussion of transactions. It demanded that Verizon either rescind the e-mail or immediately send a follow-up message stating exactly what information is restricted during the quiet period. IBEW and Communications Workers of America members in the three states have been vocal opponents of the FairPoint transaction. Union members quoted the message as saying Verizon employees “should not make public statements which speculate about either the operations of northern New England before or after the FairPoint transaction, or the success or future performance of FairPoint.” At our deadline, Verizon hadn’t returned calls seeking comment.

The CWA and IBEW filed testimony with the Vt. Public Service Board (PSB) detailing their opposition to Verizon’s $2.7 billion spinoff of its landline assets to FairPoint Communications. They presented testimony by consultants that calls into question FairPoint’s ability to maintain service quality. The testimony cited Vt. Dept. of Public Service data showing FairPoint’s existing Vt. local exchange operation had a complaint rate roughly 5 times higher than Verizon’s and a disconnect rate about 25% higher than Verizon’s. The CWA urged the PSB either deny the deal or set strict quality conditions. But the IBEW said merger conditions won’t work, because FairPoint lacks the resources to meet meaningful conditions. IBEW economic consultant Randy Barber said FairPoint relies heavily on depreciation to ensure enough cash flow to support its next acquisition while maintaining high dividend levels. He said FairPoint “came perilously close to bankruptcy” in 1998, when it took over a fairly large CLEC and had to end operations in 2001 after 3 years of operating losses. Meanwhile, Rep. Kucinich (D-O.) followed through on a promise he made at an anti-FairPoint rally in N.H., sending a letter to FCC Chmn. Martin asking the FCC to scrutinize the Verizon-FairPoint deal. Kucinich, a presidential candidate and House Domestic Policy Subcommittee chmn., told Martin that FairPoint’s debt burden from this deal would prevent it from fulfilling its promises to improve the Verizon network and expand broadband availability in rural areas. He suggested Verizon picked FairPoint for the spinoff because FairPoint qualified under IRS rules for a reverse Morris Trust, making the deal tax exempt.

The CWA and IBEW in Vt. will rally June 2 in Burlington against Verizon’s planned $2.7 billion spinoff of its northern New England assets to FairPoint Communications. The unions doubt FairPoint can keep promises of no layoffs as it expands broadband service across the region, they said.

Rep. Kucinich (D-O.), a presidential candidate and chmn. of the House Domestic Policy Subcommittee, told a N.H. crowd his committee plans hearings on Verizon’s proposed $2.7 billion sale of its northern New England landline assets to FairPoint Communications, and said he thinks the deal should be blocked. Kucinich said he will ask the FCC and SEC to decide if the transaction is in the public interest. He told a Portsmouth, N.H., rally that “Verizon doesn’t want to serve rural communities and, based on its finances, FairPoint can’t. This deal doesn’t pass the smell test.” He said he doubts that FairPoint can keep promises of improved rural service. The rally was staged Sat. by the IBEW and CWA, which oppose the deal as bad for labor. Kucinich said transactions like this usually mean less service, fewer jobs and higher rates. He said Verizon would retain a majority interest in the spun-off operation. The transaction raises state and federal legal and regulatory questions, he said, “and all these issues will be explored.”

The Ky. PSC rejected union claims that a March layoff by Windstream Communications broke a promise that the company would make no merger-related layoffs. Windstream was formed in May 2006 by the merger of the landline operations of Alltel and Valor Communications. The CWA and IBEW claimed the layoff violated a no-layoff pledge on which the PSC conditioned its merger approval. The state Attorney Gen. Office backed the unions. Windstream said the layoffs weren’t related to the merger, adding that the unions misread its promise as a broad pledge ever to lay off workers for any reason. Windstream also noted the PSC rejected an explicit employment freeze as a merger condition. The PSC said the final merger approval order didn’t require maintenance of specific employment levels for set periods, so Windstream didn’t violate the approval’s terms. It said the layoff might tarnish Windstream’s image with Ky. customers, but that’s up to customers.

The FCC added 2 weeks to the comment cycle on Verizon’s plan to spin off units in Me., N.H. and Vt. to FairPoint. CWA and IBEW sought the extension so they have time to prepare “meaningful comment on the applications,” the FCC Wireline Bureau said. The new dates are April 27 for comments and petitions to deny; May 7 for responses and oppositions; May 14 for replies.