FairPoint files for Chapter 11 - a sign of things to come?

Observers of the developing deal between Verizon and Frontier Communications could learn something from recent history.

FairPoint, the company that acquired Verizon’s land lines in New England in 2008, filed for bankruptcy on October 26. This news comes as Verizon is seeking approval to sell 4.8 million landlines to Frontier Communications in 14 states.

This is not the first time Verizon "spin-offs" have run into trouble.

Hawaiian Telecom, the company to which Verizon sold its Hawaiian land lines in 2005, filed for bankruptcy in 2008. Verizon's yellow pages spin-off Idearc arrived at the same fate earlier this year.

FairPoint is the fourth strike in Verizon's campaign to unload a number of its operations onto smaller, obviously unprepared companies that end up taking on massive increases in debt to fund the deal. FairPoint's bankruptcy underscores that these smaller companies aren’t in a position to take on the size and volume of Verizon’s operations.

The owner of 1.7 million landlines in Maine, New Hampshire, and Vermont, FairPoint is currently using its Chapter 11 status to get out of previous commitments to broadband expansions in those states and to collectively-bargain agreements with its workers. The FairPoint bankruptcy agreement with lenders includes reference to $30 million annual labor cost reductions. The company's lawyers are trying to find a way to extricate FairPoint from the $136 million in broadband infrastructure it promised as part of the 2008 sale.

This does not bode well for the future of Frontier, which already has a reputation for shoddy customer service and questionable labor practices.

These deals are driven by a tax-avoidance scheme called the Reverse Morris Trust. Closing that loophole would protect workers and consumers from these and similar deals.

State and federal regulators shouldn't allow Verizon to walk away with $3.3 billion tax free while leaving consumers and workers to pick up the pieces when Frontier is not able to meet all of the promises they have made. This deal isn't in the public's best interest plain and simple.

Fairpoint aims to renegotiate broadband rollout requirements (Telephony)

FairPoint filing alarms unions (Concord Monitor)

Congressmen oppose tax loophole in proposed Verizon-Frontier Deal (Verizon-Frontier Deal)