Proposed Verizon-Frontier merger bad for consumers

Earlier this month, the Office of the Ohio Consumers' Counsel filed comments with the Public Utilities Commission of Ohio opposing Verizon's proposed sale of its rural access lines to Frontier Communications.

"The lack of specific benefits for consumers fails to make this merger in the public interest," Consumers' Counsel Janine Migden-Ostrander said in her office's statement. "We are concerned that Frontier will not be able to afford to maintain and improve residential customers' service. We need a guarantee that consumers' needs will not be on the back burner."

Among the specific concerns that Migden-Ostrander cited was high speed Internet access.

Migden-Ostrander said merger approval should include, among other suggested conditions, a commitment that the merged company will, within three years, make broadband service available to 90 percent of residential customers in its Ohio service areas.

Ohio's Consumer Counsel has ample justification to be concerned about Verizon's proposed sale to Frontier.

Verizon is abandoning rural America and leaving a broad swath of destruction in its wake. Verizon sold its telephone lines in Hawaii. The result: consumers received terrible service quality and Hawaiian Telecom went bankrupt. Verizon sold its lines in Maine, New Hampshire and Vermont to tiny FairPoint. The result: terrible service quality and FairPoint is nearly bankrupt. Verizon spun off Idearc - its Yellow Pages operation. The result: bankruptcy. The August 11th Wall Street Journal stated "In all, these companies have lost upward of $13 billion in value and counting." The Journal continued "...[Verizon's CEO] extracted prices that literally sucked the life out of the buyers."

Verizon structured each of these deals to take advantage of an obscure tax loophole called the Reverse Morris Trust. By spinning off these operations to much smaller companies, Verizon can walk away with billions of dollars tax free. But to do this, Verizon abandoned millions of customers, and left them at the mercy of companies that have been snowed under by debt and unable to sustain profitable operations. Consumers, workers and the purchasing companies have suffered.

Now, Verizon is at it again - expanding the pain it will inflict to 14 additional states. Verizon has proposed the sale of 4.8 million access lines in 14 states to a much smaller company, Frontier for $8.6 billion. This includes more than $3 billion in new debt to be taken on by Frontier. Verizon chose a much smaller company so that it could obtain this $3 billion tax free! In effect, we are all subsidizing Verizon's abandonment of rural America.

Frontier, just like FairPoint and Hawaiian Telecom, is promising everything to everyone. It promises to increase investment, improve service quality, significantly expand broadband availability and increase jobs - and to do this while taking on more than $3 billion in new debt while cutting operations by 21%! If it sounds too good to be true - it is!

Regulators in a number of states and the Federal Communications Commission must approve the deal before it can close. Hopefully, these regulators will learn from the mistakes made by regulators who approved Verizon's other sales.

The proposed merger is also being questioned by two unions who represent 8,000 workers who will be directly affected by the sale, the Communications Workers of America and the International Brotherhood of Electrical Workers. These unions have first hand experience with the adverse impact such deals have had on consumers and communities, as well as workers, in Hawaii, Maine, New Hampshire and Vermont.

The bottom line: consumers, workers and communities will face significantly less risk with Verizon than with Frontier. Instead of approving a deal that puts all the risk onto consumers and workers, the state legislatures, governors and utility commissions should ensure that Verizon meet its responsibilities.

Office of the Ohio Consumers' Counsel

Frontier Communications New Communications Holdings and Verizon (Public Utlities Commission)

Phone merger of Frontier, Verizon should be rejected, counsel says (Daytona Daily News)

Two sides of Verizon's deal making (Wall Street Journal)

Verizon Frontier Sale: Get the Facts