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FairPoint Update - MPUC Info Sheet

March 15, 2010

FAIRPOINT--Latest News

FairPoint files bankruptcy reorganization plan: On March 5th, FairPoint filed a Petition with the Commission requesting approval under Maine law of its bankruptcy reorganization plan and its proposal for modifications of certain provisions of the January 2008 Merger Order granting the company the right to take over Verizon’s phone network.

• The Petition includes a variety of requests. Among them, the following requests for authorization: to delay—from April to December 2010 the completion deadline for the first phase of the broadband expansion project; to reduce—by 3%--the total percentage of lines which will be able to carry broadband at the end of the 5-year expansion project; to lift certain pricing restrictions for broadband; to attain relief from certain debt restrictions imposed in the original merger case.

• The Commission has issued a formal notice of the filings and set a deadline for interested persons to request intervention as parties in the proceeding. Commission staff has established a procedural schedule for the case, including deadlines for testimony filing, technical hearings and evidentiary hearings. The Commission’s goal is to complete these proceedings in the next three months. (Docket numbers: 2010-76, 2010-77, 2010-78)

Recent Commission Action

Rate Adjustment for Service Quality Failure: In late November, the Commission ordered FairPoint to file a rate adjustment to include a rebate for its Maine customers because it had failed to meet its required service quality benchmarks for 2008-2009. FairPoint had asked for delays of the ordered rate adjustment, and each time the Commission had denied those requests. Accordingly, the Commission directed FairPoint to lower customer bills by $1.72 per line per month for a year commencing December 1, 2009. After a delay and court-ordered mediation described below, this rate reduction will now go into effect in March 2009 for a 12-month period.

• Rate Adjustment Order Delayed: FairPoint filed a motion in bankruptcy court asserting that the Commission’s orders (above) which enforce the rate reduction violates the so-called “automatic stay” (a temporary hold on actions against the Company during the bankruptcy process) put in place by bankruptcy court. The Commission objected and asserted that the “stay” does not apply to the ratemaking activities of the Commission.

• Court-Ordered Mediation: After several court dates for a hearing were adjourned without action, ultimately, the bankruptcy judge ordered, over the Commission’s objection, FairPoint and the Commission into mediation. The Commission is a quasi-judicial state agency and conducts its business and decision-making in public through formal proceedings. Therefore the Commission staff member appointed to participate in the mediation sessions had no authority to bind the Commission’s future actions on such matters. The mediation session recommendations have been brought before the Commission for its consideration as part of the Reorganization plan just filed by FairPoint (see top item). The Plan will be considered in an open proceeding during which interested parties will have a full opportunity to be heard prior to the public deliberations of the Commission.

Dark Fiber Access Ruled FCC Issue: In a February 5th decision arising from a dispute between FairPoint and Great Works Internet (GWI), the Commission ruled that the issue of access to “dark fiber” (unused high capacity fiber optic cable) must be decided by the Federal Communications Commission (FCC) in an open proceeding currently at that agency. The federal Court of Appeals had previously decided that access to dark fiber is a federal, not a state, matter. The Commission also denied a petition from GWI to open an investigation in the case. This case is part of an ongoing dispute between FairPoint and GWI about to what degree and at what financial terms GWI—and wholesalers like them—may access dark fiber owned by FairPoint.

• Notification of dark fiber disconnections: In the February 5th decision, the Commission strongly encouraged GWI and FairPoint to negotiate in good faith in order to prevent any service disruptions and to file comments at the FCC. The Commission also reminded GWI of its obligation to notify its commercial customers of any possible disconnection of dark fiber service by FairPoint.

FairPoint and Bankruptcy-October 2009

• Monday October 26th, FairPoint filed for voluntary Chapter 11 bankruptcy in federal bankruptcy court in New York. In filing for Chapter 11 bankruptcy—the section of the federal code dealing with debt restructuring not liquidation—the Company obtained certain protections from its creditors.

• FairPoint’s ongoing financial reporting, both to the Commission and to the Securities and Exchange Commission, had showed increasing concern about its ability to manage and pay its sizable debt which consists of bank debt and bond obligations. Starting in early September, the CEO of FairPoint spoke publicly about the possibility of bankruptcy as a tool for debt-restructuring.

• The Commission retained special legal counsel to participate in the bankruptcy proceedings in order to ensure that the Commission retains authority over FairPoint rate-making and service quality regulation, and to make certain that the Company follows the Commission order for improved, expanded broadband in Maine—a key stipulation of the FairPoint purchase of Verizon’s phone network.

“Cut-Over” from Verizon to Fairpoint Systems-February 2009

• Starting with the February 2009 “cut-over” of phone network and operations from Verizon to FairPoint, the Commission has closely monitored FairPoint’s efforts to reach “business as usual” operations in several ways: through daily reports on operational statistics and issues, through the daily monitoring activities of its consultant, the Liberty Group, and through direct Commission staff contacts at least once a week with senior FairPoint staff.

• In response to a Commission request, FairPoint continues to provide bi-weekly updates on progress toward date-specific milestones including for improved services in areas such as customer call response, number of new service orders pending and number of bills with known errors. In April 2009, the Commission was first among three state regulatory agencies to call on FairPoint to file a stabilization plan and to call FairPoint management in to provide further details.

• The Consumer Assistance Division (CAD) of the Commission established an “escalation” process to ensure that FairPoint resolves customer complaints in a timely manner. CAD staff work in conjunction with FairPoint’s escalation team to ensure that customer complaints filed with the CAD against FairPoint are properly and quickly investigated.

Merger Order-January 2008

• Approval of FairPoint’s purchase of Verizon phone network: FairPoint was granted the authority to buy Verizon’s phone network and operations in January 2008, in part, because Verizon—despite having more financial resources—was not serving Maine customers well and was unwilling to invest in the northern New England network, and, because FairPoint agreed to invest substantially in infrastructure upgrades and expansion of broadband in Maine and the region.

Download the file (Fairpoint Reorganization Litigation Schedule)

Contact: Evelyn deFrees, 207-287-6141 evelyn.defrees@maine.gov