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State regulators approve Verizon sale to Frontier Communications with numerous conditions

April 16, 2010
Docket Number: UT-090842

OLYMPIA, Wash. – State regulators today proposed numerous consumer protections in approving the sale of Washington’s Verizon landline residential and commercial telephone business to Frontier Communications Corp.

The Washington Utilities and Transportation Commission (UTC) imposed numerous consumer protections in accepting and modifying five separate multi-party settlement agreements. The proposed merger does not include Verizon Wireless customers or Verizon’s Internet-related business.

“The overarching decision we face here is which entity, Frontier or Verizon, will better be able and, more importantly, willing to address the long-term interests of the assets and consumers affected by the proposed transaction,” said the commissioners in their written decision. “Although we consider the choice between approving and disapproving the transaction to be a very close call, we are persuaded that, on balance, Frontier is that entity.”

The companies will now have 10 calendar days to accept the UTC’s modifications and conditions to the multi-party settlement agreements signed last winter. A party may also appeal the ruling to any Superior Court within Verizon’s service territory in Washington.

In approving the landline-telephone transaction, the UTC is requiring local residential and business telephone rates to not increase for three years after the transaction is completed. Customers would receive credits if the company’s service quality does not meet specific standards. The new company, to be called Frontier NW, also would be required to pay an additional $10 – from $25 to $35 – to residential customers for missed service repairs or installation appointments. In addition, customers would receive a $5 credit if their telephone line is out of service for more than two days.

Another provision would allow a 90-day window for customers who use Verizon for their long-distance carrier to choose another provider without incurring a $5 switching fee. Current Verizon long-distance customers may retain Frontier as their toll provider in the future. Low-income customers who qualify for phone service through the Washington Telephone Assistance Program would receive a one-time $75 credit if the company fails to offer appropriate discounts or deposit waivers.

The commission adopted a number of other provisions to protect customers, including:
A $40 million fund to be used by the company to expand high-speed Internet service in unserved and underserved areas.
Frontier submitting detailed financial reports for regulatory review.
Transition costs to be paid by stockholders, not ratepayers.
An incentive plan to prevent any decline in service quality.
Penalties if service quality deteriorates.

“To encourage customers to purchase the high-speed broadband services, Frontier proposes a promotion to offer free computers to customers who sign-up for voice and high-speed Internet services,” said the commissioners in the order.

Some of the additional conditions on the transaction imposed by the commission include:
The company must notify UTC of any changes in transaction prior to closing.
Frontier to conduct extensive testing of its back-office and operating systems to ensure a smooth transition for customer services such as billing, repairing and ordering.
Extending Frontier’s timeframe from 1 to 2 years for the company to offer stand-alone Digital Subscriber Line services at current rates, terms and conditions.

Last May, Verizon announced an agreement in which Frontier would acquire about 4.8 million landline phone lines as part of an $8.6 billion transaction. The acquisition will increase Frontier’s telecommunication customer base in 14 states, including Washington. The Federal Communications Commission also must approve the transaction and government regulatory approval is needed in nine states. The transaction has been approved by California, South Carolina, Nevada, Ohio, Arizona and Oregon regulatory commissions. Applications are pending in Illinois and West Virginia. Five states do not have jurisdiction over the transaction. The companies are expecting the transaction to close this summer.

Verizon and Frontier had originally filed the proposed transaction on May 29, 2009. The five multi-party settlements were reached over several weeks beginning Dec. 22 to Jan. 29. The commission has received 170 public comments with 49 in favor, 41 undecided and 80 opposed to the proposed transaction.

Verizon, created in 2000 by a merger of Bell Atlantic and GTE, is the second-largest local telephone service provider in Washington, serving more than a half-million phone lines in cities such as Redmond, Kirkland, Everett, Bothell, Woodinville, Wenatchee, Kennewick, Pullman, Chelan, Richland, Naches, Westport, Lynden, Anacortes, Mount Vernon, Newport, Oakesdale, Republic and Camas-Washougal.

Headquartered in Stamford, Conn., Frontier Communications serves 2.3 million customers in rural communities, suburban markets and smaller cities. If the transaction is approved, Frontier will become the fifth largest local phone company in the U.S. About 273,000 Verizon long-distance lines in Washington will be transferred to Frontier. Currently Verizon has approximately 1,300 employees in Washington, who would be transferred to Frontier once the deal is complete.

The UTC is the state agency in charge of regulating the rates and services of telephone companies operating in the state of Washington.

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Editor’s Note: A copy of the UTC order is available at: www.utc.wa.gov/090842.

Staff contact: Marilyn Meehan
Posted/updated: 08/24/2010

 

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