Public Counsel recommends UTC reject proposed sale of Verizon Northwest to Frontier

SEATTLE – The Public Counsel Section of the Washington State Attorney General’s Office today recommended that the state Utilities and Transportation Commission (UTC) not approve the sale of Verizon Northwest’s local and long distance telephone services in Washington to Frontier Communications because the transaction, as proposed, is not in the public interest.

“This deal raises numerous concerns for Verizon’s landline customers in Washington,” said Public Counsel Assistant Attorney General Sarah Shifley. “As proposed, the transaction raises serious risks that Verizon customers will be transferred to a new company, Frontier, that will be financially weakened by the takeover. We are concerned those customers could experience poorer service quality.”

Verizon Northwest provides local landline telephone service to more than 500,000 customers in Washington. On May 13, Verizon Communications announced plans to divest its local landline operations in 14 states through the sale to Frontier. Frontier does not currently operate in Washington.

Public Counsel, which represents residential and small business customers of regulated telecommunications companies, today filed expert witness testimony with the UTC based on review and analysis of extensive documents and data underlying the acquisition request. Public Counsel’s testimony concludes that the proposed transaction should not be approved because, as structured, it would result in an unacceptable level of risk being shifted onto Verizon Washington ratepayers. Public Counsel believes the proposed transaction could result in:

• a weak financial condition for Frontier  due to the amount of debt the company will assume;
• complications and system failures that could result from integration of the two companies’ systems used to serve customers;
• reduced broadband deployment; and,
• degradation of service quality.

If the UTC decides to approve the transaction, Public Counsel recommends that it impose conditions addressing the identified risks. These conditions would require:

• a monetary guarantee from Verizon regarding the condition of its Washington network and performance of the systems it transfers to Frontier;
• commitment by Frontier to increase high-speed broadband availability;
• notification to all customers of the transaction and the option of changing contract terms for various services without penalties;
• no increases in rates or decreases to service for 24 months after the close date;
• long-term reporting regarding integration of operations and any costs savings;
• limitation on dividend payments tied to the post-merger company’s bond rating;
• independent analysis to determine necessary infrastructure investment and creation of a plan for such investment; and
• a self-enforcing service quality index to ensure reasonable levels of service are maintained.

The UTC will examine the testimony and evidence presented by Public Counsel and other parties. Hearings to cross-examine expert witnesses will begin on Dec. 15, 2009. The UTC is expected to issue a decision in early 2010.

Frontier currently provides local landline telephone service in 24 states, serving a total of 2.8 million voice and broadband connections. Frontier offers telephone and Internet services, as well as wireless Internet, data security solutions and specialized bundles for businesses and home offices.

PUBLIC COMMENTS:

A public comment hearing was held Oct. 15 in Everett. However, members of the public can still comment on the proposed transaction until Dec. 18. Comments can be made online at utc.wa.gov/comment, by e-mail at comments@utc.wa.gov or by writing to UTC, P.O. Box 47250, Olympia, WA, 98504. Include your name, mailing address and docket no. UT-090842.

The Public Counsel Section advocates for the interests of consumers on major rate cases, mergers and other rulemakings before the UTC. Public Counsel also advocates for consumers in court appeals, through technical study groups and before the Legislature and other policy makers. The office maintains contact with the public through a citizen advisory committee, community organizations, public hearings and personal contact with consumers in major cases. More information about Public Counsel’s work is available online atwww.atg.wa.gov/utilities-regulated.

Media Contacts:
Kristin Alexander, Media Relations Manager - Seattle, (206) 464-6432
Sarah Shifley, Assistant Attorney General, (206) 464-6595