Vermont lawmakers conducted a high-profile grilling of FairPoint honchos, demanding answers about the abject failure of this corporate little-engine-that-couldn’t that swooped in to take over Verizon’s internet and telephone services, over the concerns voiced by Unions (and others). At this point, of course, the stories about the many problems are inescapable – all of which extend from the inability to make FairPoint’s existing systems integrate with the established Verizon ones (after all, its the same staffers and the same systems here on the ground that were working just fine before… it aint the locals’ fault).
Of course today was largely a dog and pony show for the press and public. The Public Service Board is hardly going to de-certify FairPoint to operate in Vermont, as nobody knows exactly what that would even mean. Politicians just wanted to tell FairPoint executives that they really, really want things to improve, and were looking for some reassurance that they will, and that FairPoint isn’t about to slip into bankruptcy, which would also take us into unknown territory.
And yet, despite the tepid reassurances to the contrary, bankruptcy is exactly where FairPoint is going – and soon. A quick glance at what that might mean for customers and local workers after the flip…
Stock marketeers can read the tea leaves. FairPoint’s stock is in the crapper. Valued at below a dollar, they may end up dropped from the New York Stock Exchange. The situation is simply not sustainable. Word is (and I don’t have links for this) that they have approached their investors for wiggle room – either more money, or the conversion of some debts to stock, etc – but haven’t gotten very far.
This doesn’t signal bankruptcy in and of itself, but insiders do believe Chapter 11 is on the way. Chapter 11 does not mean liquidation, it means reorganization. Debts and obligations are put on hold while a plan for recovery is put into place. That plan must meet certain criteria and be approved by creditors, as well as the court, otherwise liquidation could end up on the table. All this means that day to day operations should not be affected, but don’t expect service problems to get much better during this period.
Everything can be on the table for reorganizing the business, including (under Chapter 11, Subchapter 1, Section 1113 of the bankruptcy code) collective bargaining agreements.
If a company petitions under Section 1113, the court has 30 days to rule, and they could rule virtually any way they want. Unions are going to be at a disadvantage in this process (aren’t they always?) as the secured creditors (such as banks) will be the big dogs in the reorganization and will be major drivers in the process. The Unions will likely try to negotiate with FairPoint to avoid the 1113 process which could get ugly for them – particularly in an unfriendly bankruptcy court.
About 80% of the 640 FairPoint employees in Vermont are Union members – either the International Brotherhood of Electrical Workers or the Communications Workers of America. These folks are not the people responsible for this mess, of course, and were in fact the very ones trying to tell everyone that this was a bad idea in the first place.
And unlike the banks that have invested in FairPoint and will have the most influence in the reorganization process, nobody in Washington is standing by to bail them out.
Without question, workers in Vermont and across New England will have targets on their heads in this process. FairPoint will grab the best lawyers, make sure the court will be one unfriendly to labor, and will try to get away with what they can at the expense of the Unions.
What do the Unions have going for them in this process? What they always do – they are the people who actually make it all work. You can’t “reorganize” a broken company, and if they push the already-stressed workforce on the ground, things could well break.
And then nobody gets anything.
Verizon eventually buys the network back from Fairpoint at pennies on the dollar, after having busted the union and dumped most of the costs of the infrastructure onto Fairpoint’s investors.
Coming next from the PSB …. Enexus, Entergy’s junk bond spin off. Fairpoint on Steroids.
At least Vermont DPS hired a bankruptcy legal advisor a few weeks ago,but little mention is ever made of the union workers.
It is alarming that the same Vermont State regulatory wizards that gave this mess the go ahead are now handling(being handled by) Entergy/Enexus and Vt. Yankee .
Back in July in the Nashua Telegraph had an article on how a FairPoint bankruptcy might play out and all of it looks ugly . They suggest it might be just restructuring debt or a court also has the option of requiring portions of the company to be sold off to small rural providers.
Public Service of New Hampshire and Seabrook is the last example of a utility bankruptcy it dragged on for years and cost rate payers.
http://www.nashuatelegraph.com/apps/pbcs.dll/article?AID=/20090708/BUSINESS/307089944/0/NEWS01
Fairpoint was headed for bankruptcy the moment it signed the sales agreement with Verizon. Why did Verizon sell its operations here? Because it was a losing proposition. Too many miles of wire for too few paying customers. A behemoth like Verizon can absorb that. A pipsqueak like Fairpoint can’t.
Why, aside from a servitude to the corporate world, the Vt. state government allowed this, I don’t know. Why, aside from sheer hubris, Fairpoint took this on, I don’t know.
I wouldn’t be surprised at all if mataliandy is right. It looks like yet another case of “Second buyer wins.” Same thing happened with all those telecom companies and their thousands of miles of unused fiber optic cable. The companies that came in after them and bought up all that dark fiber at pennies on the dollar gave us the communications backbone we enjoy today. Perhaps Verizon even planned it that way.
Time and time again, we allow essential services to be toyed with in the marketplace because our angst over “government control”is too easily exploited.
Under the category of “Debts and obligations” we can find the promises about unionized job retention and expansion, and also the extravagant promises for better service in Vermont. Whether the carcass is picked by large scavengers or small, the implosion of FairPoint will mean a signficant setback for Vermont’s transition to the digital age.
Also, the FairPoint and Enexus situations both indicate a huge problem with public-service regulation. The providers are so big and deep-pocketed that state-level regulators have little to no leverage, even if they are sympathetic to the ideal of public service. Dave O’Brien has been sharply critical of FairPoint in recent months; but his only punitive option was to impose fines — and he didn’t want to do that, because it would only further weaken the company’s finances. Without commenting on his interest in the ideal of public service, he’s got a point there. And as for the original Verizon sale, he has said that Verizon wanted to get out and FairPoint was the best option. He may well be right about that; who else wanted to take over the landline business in a sparsely-populated, not particularly affluent state?
Part of the problem in both the FairPoint and Enexus cases is a Republican administration that tends to act in favor of corporate interests, but I suspect that there’s a systemic problem as well: the current regulatory framework isn’t up to the challenge of holding huge corporate providers accountable.
Not that I would wish it on them but my dream is that someday I will wake-up and find myself a customer of Waitsfield Telecomm, far and away the best run, most forward looking local telecommunications provider in New England.
My heart goes out to the Verizon/Fairpoint workers. They are continuing to do their best in an impossible situation and are in the front lines, taking the abuse that should be directed upstream, not only at Fairpoint management but also at the Douglas Administration which once again is pushing big corporate interests instead of the interests of Vermonters. The current fiasco will seem small potatoes when Entergy’s spin-off goes toes-up and hands Vermont taxpayers a billion dollar clean-up bill. Of course, by then Douglas and his cronies will have moved on to well paid corporate jobs!