FairPoint Eliminating 190 NH Jobs

by: susanthe

Fri Sep 09, 2011 at 03:00:00 AM EDT

FairPoint Communications said Thursday it is cutting 400 jobs.

"We value the contributions of our employees and workforce reductions are never easy," CEO Paul Sunu said in a statement. "We are making this decision after careful evaluation to ensure that FairPoint is staffed appropriately to serve our customers well, while prudently managing expenses."

About 300 union positions and 100 management jobs will go.

Of course no one could have seen this coming. From 2007:

When the topic of jobs and the economy in the northern part of the state comes up, mention of the need for the infrastructure for high speed internet access will soon follow. All of us agree that northern NH should be allowed to join the 21st century. The problem seems to be determining exactly how that will happen. Verizon has promised us for years that they were going to make it happen. They haven't. Not only have they failed to make good on their promises of development in the north country, they're hoping to unload the unprofitable north all together, by selling their landline business in Vermont, New Hampshire, and Maine to a small telecommunications provider from North Carolina, called FairPoint. It's billed as a merger of Verizon and FairPoint, though essentially it allows Verizon to focus on developing FIOS systems to cities and affluent suburbs, while farming the low rent rural customers out to FairPoint.

Why would Verizon do this? Why would they sell rural northern New England customers out to a small company already deeply in debt, knowing that FairPoint can't possibly make the kind of investment in northern telecommunications infrastructure that Verizon themselves didn't make? The answer is money, of course. There is an obscure IRS loophole known as a Reverse Morris Trust. Using this loophole will result in $600 million in tax savings for Verizon, if approved by the PUC. According to union consultant Randy Barber, "a parent corporation can spin off a subsidiary into an unrelated company, tax free, if the shareholders of the parent end up controlling more than 50 percent of the voting rights and economic value of the merged company. The Verizon-FairPoint deal has been designed this way. The bad news for rural consumers is that this tax dodge is only possible if parts of the old copper wire network are sold to a "tiny partner" rather than a larger, more financially secure buyer. (See: www.stop-the-sale.org)

In September 2006, FairPoint had $890 million in assets and $610 million in long term debt. This merger will result in $1.7 billion in new debt for FairPoint. The company has promised to continue paying high dividends to shareholders. Given the already significant level of debt the company carries, one wonders how they'll manage to invest the kind of capital required to improve existing service and expand DSL. One really shouldn't wonder. One should be quite sure that they will increase rates, reduce expenditures, reduce labor, and cut service quality.

This deal means job insecurity for some 2,800 union employees. FairPoint has made no firm commitment to keep them beyond current contracts. Once those contracts expire, the debt level alone will surely cause management to outsource as much work as possible to non-union employees, while slashing benefits and pensions.

I really hate to say I told you so. FairPoint is losing money in a bad economy, they've got an unsustainable debt load, and they've got shareholders who expect big dividends. Oh, and they're also an anti-union company.

That's 190 good paying jobs being lost by NH residents, as the direct result of a merger that should never have been approved.