The deal by Verizon Communications Inc. to sell off a chunk of its rural landline system to Frontier Communications Co. is giving IBEW members across the country a disconcerting sense of déjà vu (see box below, right).

“We’ve seen this story before,” said Telecommunications Department Director Martha Pultar, who was active in the campaign to stop Verizon’s sale of its northern New England landlines to FairPoint Communications Inc. “And it’s always ended badly.”

The FairPoint deal ended up with the underfunded and debt-heavy company in financial disaster, placing the economic health of the communities they serve at risk, a fate shared by two other previous sales made by Verizon—Hawaiian Telecom and Idearc Media.

Now many Verizon employees and customers are worried that the looming Frontier sale is another catastrophe waiting to happen.

“Utility commissioners and political leaders should do their homework and look at what happened at Hawaiian Telecom and FairPoint,” said Honolulu Local 1357 Business Manager Scot Long, who represents more than 900 workers at the now-bankrupt company. "Both companies were swamped as soon as the cutover happened. They can’t just let Verizon say to heck with its customers and its responsibilities and walk away with the money."

Hawaiian Telecom’s Collapse

More than three years ago, Hawaiian Telecom Communications Inc.—a former GTE company that became part of Verizon in 1999—was sold off by the telecom giant to the Carlyle Group, a private equity firm, for $1.6 billion. Investors put up $425 million in equity and financed the rest through debt for what became the largest telephone company in Hawaii.

But soon after the switchover from Verizon’s systems, the company found itself in over its head.

"The managers they brought in knew nothing about the telecommunications field," Long said. “They were overextended.”

Customer service and billing issues began to mount, leading to an exodus of customers and uncontrollable debt levels for the company, which lost more than 20 percent of its customer base.

Hawaiian Telecom was soon approximately $1 billion in debt.

Last December the company filed for bankruptcy protection. The courts are currently reviewing reorganization plans submitted by company stakeholders. Local 1357 members—who have been working forced overtime since the sale—are still on the job. Long is fighting to make sure the company’s pension plan will remain solvent.

"It’s a demoralizing experience for our members," Long said.

For Long, the lesson from the sale is clear. “There has to be stronger oversight from regulators so this kind of bad deal can’t happen again.”

FairPoint's Dead End

According to its latest Securities and Exchange Commission filings, FairPoint Communications may soon join Hawaiian Telecom in bankruptcy. The Charlotte, N.C.-based company requested a delay in interest payments to bond holders on more than $500 million in debt it incurred when it purchased the northern New England portion of Verizon’s landlines for more than $2.4 billion in March 2008.

The deal brought 2,220 IBEW members in Maine, New Hampshire and Vermont into the company.

The IBEW and the Communications Workers of America fought the sale, saying that the mainly rural and underfunded carrier wouldn’t be able to handle the more than 1 million additional customers that came with the purchase or be in a position to compete in the growing broadband and wireless markets.

The IBEW's warnings proved to be all too prescient.

Soon after FairPoint broke all connections with Verizon’s IT and computer systems last January, problems began.

Hundreds of customers found they couldn’t access their e-mail accounts, understand their bills or reach customer service centers, where there were reports of service wait times exceeding an hour. For weeks, computer glitches left hundreds of IBEW members employed by FairPoint with incorrect paychecks.

The whole process has been difficult for FairPoint employees, who went from working for the top telecommunications company in the United States to a small and struggling company on the edge of bankruptcy. While keeping most of the contract language they had with Verizon, the company’s financial difficulties call into question how long the IBEW’s agreement can hold out.

"It’s been very stressful on my members," said Manchester, N.H., Local 2320 Business Manager Glenn Brackett. "Working for a company that is in such a precarious financial situation makes every day uncertain."

The Maine Public Utilities Commission, which approved the sale in 2008, has fined FairPoint more than $840,000 for poor service to local phone carriers, which rely on Verizon’s network.

"For months now, FairPoint has been unable to provide even the most rudimentary level of customer service to many of the retail customers it inherited when the company took over the New England operations of Verizon," stated an editorial in the Kennebec (Maine) Journal and Morning Sentinel. "Phone lines haven’t been hooked up, Internet can’t be connected and the prolonged wait for a response from customer service staff has angered customers and frustrated regulators."

For System Council T-9 Chairman Peter McLaughlin, who leads the three-local council that represents workers at the former Verizon facilities owned by FairPoint, it’s an unfortunate case of we told you so.

"Everything the ‘Stop the Sale’ coalition warned would happen is coming to pass," said McLaughlin, who is also the business manager of Augusta, Maine, Local 2327. "I can only hope that people learn from our experience in dealing with another Verizon spin-off."

Idearc Media, whose workers are IBEW members, purchased Verizon’s yellow page directory in 2006. The company quickly went into the red, filing for bankruptcy last March.

Leaving Rural America Out in the Cold

Verizon’s critics notice a pattern behind its recent sales. "Clearly the company is trying to ditch its more rural systems and less profitable services in favor of putting its resources into more densely populated areas," McLaughlin said.

Verizon’s interest clearly lies in its new fiber optic service, FiOS, a bundled high-speed communication package it has been heavily marketing in areas that have been upgraded for fiber optics. As the Wall Street Journal reported in 2006, soon after FiOS was unveiled: "The possible sales are part of the New York-based phone giant's strategy to delve deeper into the wireless and broadband arenas, while getting out of the traditional phone business in U.S. areas that aren't slated for fiber upgrades—which allow the company to sell more Internet-based services—and therefore are less valuable to the company in the long run."

But Verizon’s abandonment of its rural systems to unprepared companies to focus on urban markets has left many customers in danger of falling off the information superhighway altogether.

Companies like FairPoint and Hawaiian Telecom lacked the resources to make investments in advanced telecommunications technology like high-speed broadband, said International Representative Bob Erickson. And many are worried that the 14-state Frontier sale will put large parts of the country in a similar situation.

"Verizon is abandoning large parts of America, making products like high-speed Internet—vital for economic growth—off-limits for large areas of the country," Erickson said.