FairPoint's mistake: Verizon sale didn't include IT systems

With complaints mounting, embattled FairPoint Communications is being called on the carpet by the New Hampshire Public Utilities Commission today. The carrier will be asked to explain its poor performance since acquiring Verizon's land line operations in Maine, New Hampshire and Vermont in a $2.4 billion deal last year -and what it's doing to fix the problem. Much is at stake.

Operations have been chaotic since FairPoint finally transitioned customers off of Verizon's computer systems in January, and matters don't appear to be getting any better.

So far, the takeover has been a lose-lose deal for both ratepayers and FairPoint. Verizon, however, has walked away with billions earned from a monopoly operation that underserved its constituents. Regulators had little choice but to approve the deal. The PUC was presented with a take-it-or-leave it deal from Verizon, which made it clear that it was not interested in improving its poor performance nor investing in northern New England.

How does a rural telephone company in Charlotte, NC with 300,000 customers scale up its systems and business processes to support an additional 1.5 million customers 1,000 miles away? FairPoint had less than one year to prepare for a seamless cutover. And it was at a distinct disadvantage from the start because it had to build those systems from the ground up.

According to a story about FairPoint's travails in yesterday's Concord Monitor, Verizon used more than 600 computer systems to run its New England operations. In every other deal Verizon has made, the information systems went with the operation. Not this time. In the FairPoint deal Verizon kept everything, leaving the smaller carrier on its own after a relatively short transition period.

Customer service remains iffy (I personally waited 15 minutes on Monday to speak to a representative), and customers who have alternatives are bailing out at an increasing rate. Time Warner Cable, which offers competing voice over IP services through its cable network, is trying to exploit FairPoint's customer service woes by undercutting it on prices while presenting this message on its Web site.

Time Warner Ad

New England needs FairPoint to succeed. It has few choices for broadband service. Neither Time Warner nor Comcast is pushing hard to extend broadband into rural areas. FairPoint has made that commitment. And the lack of competition in areas where only one broadband provider is available helps to keep prices high. Comcast, for example, charges $60 per month for its lowest speed broadband offering unless the user also signs on for its television or voice over IP telephony offerings. The a la carte pricing for rural users, who have no DSL alternative, borders on extortion.

Broadband is the new dialtone. But federal regulators have ruled that ISPs who are defacto monopolies in rural areas need not be regulated as telecommunications companies like FairPoint are. Consumers are paying the price.

But I have heard some good news: A field worker for FairPoint in Portsmouth tells me that while the back office is struggling to get its customer service operations in order, the teams there are going all out to install the new lines and equipment needed to support an expanded DSL footprint in that area. He says the crews are moving quickly when compared to the lethargic pace set by Verizon.

That's truly good news. But FairPoint is running out of time. The heavily leveraged new company needs to get its systems up and running and rebuild its reputation before it loses too many more customers. If it doesn't, the consequences could be devastating.

The last thing ratepayers need in this economic climate is another bailout.

Copyright © 2009 IDG Communications, Inc.

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