Union intervenors rip proposed Frontier settlement

Public Utilities Commission of Ohio urged to reject stipulation as contrary to the public interest

"No assurances that Frontier will have the financial strength to reliably operate and maintain Verizon Ohio."

In a legal brief filed with the Public Utilities Commission of Ohio (PUCO) on Friday, CWA and IBEW urged that commissioners reject the proposed sale of Verizon's landlines to Frontier as being contrary to the public interest.

In addition, the unions urged rejection of a proposed stipulation as being "wholly inadequate in that it fails to meaningfully address the fundamental problems with the proposed transaction."  This stipulation was reached by the PUCO staff, the Office of the Ohio Consumers' Counsel, Verizon and Frontier on December 8, the day before the Commission's scheduled hearing on the proposed deal.

Recommended Rejection of Verizon's Proposed Sale to Frontier
Scott J. Rubin, the labor intervenors' attorney, submitted the unions' 39-page summary of the available evidence and legal argument with a clear message for Ohio's commissioners, "Labor's opposition is based on one over-arching concern: Frontier is not financially fit to own and operate Verizon's landline operations… [Frontier's] lack of financial fitness cannot be cured or subject to a compromise -- it simply renders the applicant unfit to assume the responsibility for serving more than half a million citizens of Ohio with an essential public service."

Rubin wrote that the proposed deal fails on all four threshold issues that the PUCO identified as being central to the case in an order issued on August 19 2009. The PUCO's concerns focused on Frontier's financial fitness, employment levels, and quality of service for retail and wholesale customers.  Rubin's brief covered each issue:

• Frontier will not be a financially sound entity. "Frontier does not have the financial wherewithal to acquire operations that would triple its size.  Frontier cannot safely absorb the additional debt burden that would come with the proposed transaction.  The Commission should reject Frontier's business model of milking its utility operations so excessive cash payments can be made to shareholders.  The Commission should deny the application because Frontier is not now, and will not be, financially sound."
   
• Frontier has not committed to retention of an adequate workforce. "The Commission should not accept Frontier's evasiveness [on staffing levels] and should not simply assume that Frontier will 'do the right thing' -- particularly in light of Frontier's allegedly confidential plans to significantly reduce its workforce shortly after the transaction closes.  Frontier has not provided the Commission with accurate information, let alone meaningful assurances, about the impact of the proposed transaction on employment in Ohio."
   
• Frontier's track record in other states calls into question its commitment to the provision of adequate service quality.  "Frontier's lack of financial soundness will place the company under tremendous pressure to try to meet the expectations of Wall Street lenders, so that Frontier can service the more than $3 billion in debt it will issue.  Frontier has promised Wall Street that it will be able to cut Verizon's costs by $500 million in less than three years -- an unprecedented level of cost reductions that would require Frontier to drastically reduce the size of its workforce.  The combination of financial pressures and drastic cuts in employment are likely to adversely affect the timeliness and quality of Frontier's installation, maintenance, and repair activities."

Recommended Rejection of the Proposed Stipulation
Rubin also explains how the proposed stipulation fails to cure any of the problems with the proposed transaction. Specifically, labor's brief explains that the stipulation "contains no financial protections whatsoever.. fails to address the staffing of Verizon Ohio… the broadband [and] capital expenditure targets are totally inadequate.. [and] the retail service quality provisions… are insufficient to protect the public."

Regarding the stipulation's treatment of broadband, Rubin wrote, "It would require Frontier to meet a broadband deployment standard in Ohio four years from now that is not only far less than what Frontier already has achieved in Pennsylvania and other states, but that is even less than Frontier said it could achieve in its testimony."

"The retail service quality provisions are similarly deficient in that they do not provide Frontier with an incentive to retain a skilled workforce or spend an appropriate amount of money to maintain service quality," Rubin concluded.  "Frankly, it would be far cheaper to and easier for Frontier to just pay the miniscule penalty contained in the Proposed Stipulation than it would be to spend the money to do the work."

CWA or IBEW have intervened in state regulatory proceedings on the proposed sale in West Virginia, Illinois, Ohio, Pennsylvania and Washington.  Both unions are also intervenors in the case before the Federal Communications Commission. 

Hearings are set in West Virginia for January 12, Illinois on January 19 and in Washington state on February 2.  Settlements are pending in Arizona and Oregon and a partial settlement has been reached in Washington.  Commissions in California, Nevada, and South Carolina have approved settlements.  There was no state regulatory review in Idaho, Indiana, Michigan, North Carolina or Wisconsin.