FairPoint bankruptcy not necessarily bad

The bankruptcy filing by FairPoint Communications has a lot of people wondering how a company could go broke running a regulated monopoly for something as essential as telephone service. As New Hampshire Consumer Advocate Meredith Hatfield told The Associated Press, it is extremely unusual for a regulated utility to go into bankruptcy.

Unfortunately, the world of regulated monopolies isn’t what it used to be, and the financial problems of this small fish that tried to swallow a whale are a case in point.

Opponents of the sale of Verizon’s land-line business to the relatively small company from North Carolina warned that FairPoint would be in over its head. Some consumer advocates and spokesmen for unions representing Verizon employees can now say, “We told you so,” as FairPoint sheds debt in return for stock and attempts to get back on solid financial footing.

The inability of the company to pay debt service on the $2.4 billion it paid for Verizon land-line operations in New Hampshire, Maine and Vermont is not a major concern for the average customer. The quality of service has been and continues to be the issue, especially for Internet customers.

Even if FairPoint had been able to offer exceptional customer service, which is far from the case, it could still be in the same position. The company is losing customers from its more profitable land-line business at a faster rate than predicted, but that has as much to do with the evolution of wireless communication as poor service.

Verizon was able to provide land-line service and still remain profitable thanks to growth in its wireless business. FairPoint had also planned to offset loses in land-line customers with new customers for high-speed Internet and television services, hoping to create a “triple-play” option and compete with cable and satellite services.

But the “triple play” has failed to materialize in any significant way, leaving FairPoint with little more than a dying land-line business for which it paid $2.4 billion, amid a recession with rising interest rates on its debt payment. The outcome surprises no one.

Despite all that, we stand by our initial endorsement of the FairPoint takeover because Verizon wanted out, was not investing in the region, and there was no suitor on the horizon that was any more qualified.

Population density in much of Northern New England does not lend itself to cable or fiber-optic service, and satellite service is not available everywhere. Someone has to service the low-profit markets that the big players are abandoning.

In the old days of regulated utilities, serving the outlying markets on a break-even or losing basis was the trade-off for maintaining the lucrative business in the more densely populated areas.

But today, companies are free to skim off the cream and leave the less desirable pieces for someone else.

Verizon is abandoning the land-line business and rural markets across the nation so it can concentrate on highly profitable wireless and fiber-optic services in urban areas. That’s great for Verizon and its shareholders. Not so great if you live in Washington County, Maine.

The telecommunication needs of Northern New England will be best served by a company whose business model and corporate culture supports operating in rural and suburban markets. FairPoint has many problems it needs to solve, but at least it is committed to solving them.

The bankruptcy erases millions in debt and converts it into equity in the company. The banks and other large creditors will end up with stock in FairPoint and a genuine stake in its success beyond monthly interest payments.

The Chapter 11 restructuring should leave FairPoint better positioned to invest in expanding broadband, which is the key to its long-term success in competing with cable and satellite.

If the company can then resolve many of the computer system and training problems contributing to poor service, it could be back on track within a year – just in time for the economic turnaround to be gaining momentum.