By DENIS PAISTE
New Hampshire Union Leader Staff

MANCHESTER – More than a year after a $2.7 billion telecommunications deal was proposed, the New Hampshire Public Utilities Commission yesterday gave final approval for the transfer of Verizon Communications' regional landline phone business to FairPoint Communications.

PUC commissioners, on a split vote, cleared the way for North Carolina-based FairPoint to take over Verizon's 1.7 million telephone access lines in northern New England, ending a year of regulatory wrangling and public testimony over the future of rural Internet access and phone service in Vermont, Maine and New Hampshire.

The order comes a month after the PUC staff reached agreement with FairPoint and Verizon, and follows orders in Maine and Vermont approving the amended $2.4 billion deal.

In the PUC order, released late yesterday, Chairman Thomas B. Getz and Commissioner Clifton Below joined in approval, with Commissioner Graham Morrison dissenting.

"Based on our analysis of all the evidence, including the substantial concessions made by FairPoint and Verizon in the settlement, we find that FairPoint is financially qualified to assume Verizon's public utility operations in New Hampshire," Getz and Below wrote.

"The $235.5 million reduction of debt at closing, the 35 percent cut in FairPoint's dividends and the requirement that FairPoint use funds from the dividend cuts to pay down its debt substantially improve FairPoint's cash flow and the resulting financial projections," they wrote.

Under the order, FairPoint must establish an external trust fund for pension liabilities for Verizon workers it takes onto its payroll, backstop excessive line losses up to $30 million for two years and seek PUC permission if it decides it wants to move a newly established FairPoint call center in Littleton and data center in Manchester.

"We are certainly pleased that they approved the transaction, but we have not had a chance to review any of the proposed conditions," FairPoint's Executive Vice President for Business Development Walter Leach said.

Verizon spokesman Beth Fastiggi, based in Burlington, Vt., said, "We have received approval from the New Hampshire Public Utilities Commission and are in the process of reviewing the order."

In his dissent, Commissioner Graham Morrison wrote, " ... Verizon is far better positioned than is FairPoint to manage the task ahead and the changes to come.

"Verizon and FairPoint are asking us to replace a financially healthy, well-resourced and highly experienced utility that is ultimately national if not global in scope with an infinitely smaller, highly speculative and fundamentally inexperienced venture. FairPoint's broadband commitments do not in my opinion even begin to offset these deficiencies," Morrison wrote.

PUC chief legal counsel Don Kreis said, "Everybody here worked very hard on this case."

He said New Hampshire's approval was the final hurdle for FairPoint and Verizon.

Announced in January 2007, the deal was examined in regulatory proceedings by utilities commissions in Maine, New Hampshire and Vermont as well as the Federal Communications Commission in Washington, D.C.

Unions continued to oppose the deal throughout the year, but FairPoint reached agreements with many other telephone carriers that either interconnect with the Verizon landline system or lease elements of the system to provide competitive services and with electric companies that share utility poles.

Under the plan, Verizon stockholders will receive FairPoint common stock when the sale is completed, Verizon stockholders will own approximately 60 percent of the shares of the newly expanded FairPoint, with FairPoint's legacy stockholders owning the balance of approximately 40 percent. The actual number of shares to be exchanged will be determined at closing. The transaction is tax-free to Verizon shareholders.

Newly minted FairPoint shareholders will be free to sell their shares, and it is expected some institutional shareholders will be obligated to.

In January, the PUC staff and FairPoint agreed to:

- Freeze basic telephone rates for five years (up from one year previously).

- Limit acquisitions for five years based on a combination of dollar caps and its ratio of indebtedness to earnings before interest, taxes, depreciation and amortization (EBITDA).

- Reduce its common stock dividend by 35 percent with the first full quarterly dividend paid after the closing.

- Meet quality of service guidelines.

In the New Hampshire settlement, Verizon agreed to contribute an additional $297.5 million to FairPoint and its subsidiaries as they will be constituted post-closing, the PUC noted, effectively reducing the purchase price by nearly $300 million.

FairPoint also agreed to expand broadband Internet availability to 75 percent of its access lines in New Hampshire within 18 months of the closing and to 85 percent of its access lines within 24 months of that date.

"The evidence adduced demonstrates that even under adverse conditions, FairPoint will have the ability to meet its obligations to lenders and employees, invest in new capital plant and equipment and pay sustainable dividends," the PUC order said.

Road to a deal

5/10/06: Verizon Communications Inc. tells employees it is looking to sell some phone lines.

1/16/07: Parties announce $2.7 billion plan for FairPoint Communications Inc. of Charlotte, N.C., to acquire Verizon's landline business in northern New England. Wireless is excluded.

8/22/07: FairPoint shareholders overwhelmingly approve the deal.

10/23 to 11/1/07: New Hampshire Public Utilities Commission holds hearings; unions, lawmakers criticize FairPoint as too small and underfunded to successfully operate the network.

11/26/07: Maine Public Examiner recommends that Maine PUC not approve the merger.

12/21/07: Vermont regulators turn down the deal, but leave the door open to further negotiations.

1/9/08: Federal communications regulators approve the deal.

1/24/08: New Hampshire PUC staff OKs amended deal.

2/1/08: Maine's Public Utilities Commission approves an amended $2.4 billion deal.

2/15/08: Vermont's Public Service Board approves amended deal.

2/25/08: New Hampshire PUC approves $2.4 billion deal.