Summary
Recently, we wrote about Verizon possibly urging Windstream to buy the FairPoint assets. Even if there was a bankruptcy, it would help the RBOC in selling its properties if FairPoint was immediately picked up by a stable telco. Yet, Verizon has been very recently bending over backwards to state that it has done everything possible to help FairPoint – and will do no more.
Analysis
It is possible that FairPoint could go bankrupt and no carrier picks up the properties for an extensive period of time. Verizon will continue to have a lot of political clout with regulators in the states in which it is selling off lines (as well as additional properties in the future). In this business, politics can be everything because it is not really a wide-open, competitive type of market. The RBOC also has an advantage with these matters being below the level of the FCC and DOJ. Those agencies are more interested in the headline-making, national concerns such as net neutrality. They will tend not to get into local aspects such as failing to upgrade a remote terminal to VDSL somewhere in Maine. These issues over line sales involve the politicians at the regulatory agencies who have played golf, etc. with Verizon managers for a very long time. These are the same people that will allow the RBOC to charge 10 cents to make a call within a state on the east coast, while it only cost half of a penny to call the west coast. While more onerous conditions will likely be placed on any pending or future deal with Verizon, the PUCs will ultimately play ball on these sales. Not to mention, even if the cost to eliminate these properties goes up significantly, it will still be worth it from an operations standpoint to do whatever it takes to get these transactions done.
In addition, Verizon will have more of a hands-on approach to the selling off any more lines, including the ex-GTE assets being purchased by Frontier. These handoffs will go a lot smoother than was the case with FairPoint. One is not likely to see the flash cutover that was conducted in New England.
Verizon can also point to all of the positive aspects of the sale to FairPoint. A lot of money has already been spent on those northern New England networks. In a very short period of time, over 90% of the RTs in the three-state region now have DSL cards. From a public good standpoint -- in terms of providing broadband to a lot of small towns in rural areas, one could not argue about the results.
Still, Verizon is between a rock and a hard place regarding FairPoint. It may be hard to believe that the RBOC is doing absolutely nothing. For example, it may be encouraging FairPoint to talk with the unions to make some concessions in order to prevent bankruptcy.
The RBOC would help itself greatly if it is not a similar situation to the lines going to Frontier. In these cases, Verizon to a large extent neglected these networks. In effect, Frontier is currently being forced with insufficient money to upgrade this infrastructure. It would behoove Verizon to substantially improve the networks in NY, PA, MD, and VA to entice Windstream or any other carrier to be interested. For example, make Buffalo look like the FiOS cities along I-95. Make sure that DSL is delivered to all of the terminals.
The portions to be sold by Verizon in New York, Pennsylvania, Maryland, and Virginia, after the ex-GTE territories are gone, could make up the final big piece. It will also be the most valuable in terms of the attractiveness of the incumbent territories that have been up for sale.
Samuel Greenholtz consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
