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W. Va. Regulators Hear Verizon-Frontier Arguments

Verizon Communications Inc. (VZ) and Frontier Communications (FTR) continue to face resistance to their pending, $8.6 billion landline transaction.

On Tuesday, West Virginia’s Public Service Commission starting hearings as it begins the process of deciding whether to approve the transfer of assets from Verizon to Frontier.

Many union members and consumer advocates don’t support the deal, saying they fear it will turn into another Verizon-FairPoint debacle. FairPoint bought Verizon access lines in New England two years ago for $2.7 billion. But, drowning in debt, and dogged by poor technology and billing integration, FairPoint filed bankruptcy last October. Opponents of the Verizon-Frontier deal don’t want to see a repeat in West Virginia, nor do they want to risk the inevitable job losses. FairPoint further has experienced a number of 911 problems since taking over the Verizon lines.

But supporters insist a Verizon-Frontier sale would boost West Virginia’s ailing economy and bring more broadband access to the state, which has a significant rural population.

Frontier stood up for itself, too. The company has settled with four other carriers that were challenging the wireline purchase and has promised to spend $12 million to improve landlines in West Virginia. Frontier representatives also told state regulators the operator will honor Verizon’s interconnection agreements. They also said it’s unfair to compare Frontier to FairPoint.

To that point, Frontier is profitable, unlike FairPoint. In the third quarter of 2009 – the latest earnings data available – Frontier reported $52.2 million in net income, as compared with $47 million in the same period a year earlier. Frontier said the increase stemmed mostly from improvements in operating income and a gain on debt repurchases, somewhat offset by higher interest costs.

Perhaps most interesting is that Frontier, like other wireline providers, continued to lose access line subscribers. About 37,400 customers cut the cord in the third quarter, although Frontier still claimed 2.15 million access lines. And, buying Verizon’s assets would bring Frontier’s phone-line count to more than 760,000, including in West Virginia where it already operates about 144,000 phone lines.

Nonetheless, critics are concerned Frontier – which is slated to take on $3.3 billion in debt if the Verizon deal goes through – won’t have the money to update the wireline network


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