Tuesday, March 1, 2011

Vermont Dust Up: FairPoint Says No Formal Complaint Yet vs. Broadband Stimulus Project 03/01/2011 San Francisco - Fairpoint Communications, Inc. (NasdaqCM: FRP) is now stating it has no current plans to file a formal appeal or complaint with any gov- ernmental body about the $33.393 million middle mile broadband stimulus project in the State of Vermont. 

Over the weekend, the firm's state President for Vermont, Michael K. Smith, said in a televised interview that the federally financed project "is overbuilding a network with another network," and that the state authority administering the project should "refocus" the grant on "the last mile". 

This afternoon, FairPoint's Sabina Haskell told us in a telephone interview "there has been no discussion" inside the company of any movement toward a formal appeal or legal complaint to either Vermont state government, or the federal agency, the National Telecommunications and Information Administration (NTIA), that issued the project grant. 

"To the best of my knowledge," said Ms. Haskell, the authorized spokesperson for the company's Vermont operations, "I know of no conversation within the company about filing an appeal."

Smith of FairPoint vs. Evslin of VTA Board
Smith was interviewed last Friday on Burlington broadcast television station WCAX, for the program You Can Quote Me that aired Sunday morning, February 27. 

Even before the video or transcript of the program became available, Smith's remarks knocking against the broadband stimulus project were picked-up and argued against by former Vermont Chief Recovery Officer Tom Evslin. Evslin, an appointed Director of the state's Vermont Telecommunications Authority (VTA), and the former first chief of AT&T's pioneering WorldNet ISP, published a lengthy response on his personal blog, Fractals of Change. 

This afternoon Smith responded with his own blog post on The Vermont, leading off with the statement, "I was surprised by the vindictiveness of Tom Evslin’s rant about FairPoint Vermont."  

Boiling it all down, Smith is asking for the full reprogramming of the $33 million federal grant from middle mile to last mile infrastructure support. Evslin responds stating that Smith purposely misses the intent of the NTIA funding as focused on a middle middle mile networks, and misreads the charter of VTA.

Ironically, Evslin and Smith both served in the administration of former moderate (it is Vermont, after all) Republican Governor Jim Douglas (R-VT). Smith was the Governor's Secretary of Administration, while Evslin served as stimulus program chief. Both played an active role in crafting the legislation that established VTA, while Evslin's wife, Mary, served as the first chair of VTA's Board.

Current Anti-Stimulus Climate, Meet FairPoint's Past
With the current climate around the broadband stimulus program as one framed by increasing hostility from the new Republican majority in the House, Smith's statement has to be seen as at least a trial balloon. FairPoint attacked another middle mile stimulus award, the Three Ring Binder project in Maine. The firm's charges of improper use of federal funds were voiced by Republican members of Congress. FairPoint's resistance to the project become so intense that the carrier threatened to deny pole attachment rights to the project's operator, Maine Fiber Company.  

In Round 2 of the federal program, FairPoint applied for funds to extend its network across the same areas of Maine already funded for the Three Ring Binder project. At the time, our assessment was that FairPoint itself was seeking federal funds for an overbuild.

The Vermont project was part of the first group of awards in Round 2 of the $7.2 billion federal program announced by President Obama on July 2, 2010. The recipient is VTA, the state broadband agency which holds both capital bonding powers and the legal right to operate wholesale networks under charter from the Vermont Legislature. VTA's selected network operating partner for the venture is the Sovernet Communications division of Atlantic Tele-Network, Inc. (NASDAQ: ATNI), of Beverly, MA.

FairPoint's relationship with its Northern New England customer base has been nothing if not star crossed. The rural local exchange carrier (RLEC), which in 2008 acquired all the wireline assets of Verizon Communications Inc. (NYSE: VZ) in the states of Maine, New Hampshire, and Vermont, proved unable to integrate the scores of legacy operational support systems (OSS) inherited from Verizon in any effective time frame. OSS platforms manage the operations of telephone and data networks.

The ongoing operational failures caused what many analysts and regulators consider to be the single worst such back office meltdown in U.S. telecom history. In August of 2009 Vermont regulators opened an investigation into allegations made by an anonymous former consultant working on the OSS project. While the specific substance of the charges proved incorrect, what became a three state joint investigation laid bare the extent of FairPoint's operational dysfunction.

The company emerged from bankruptcy, caused by the heavy debt service and operational burdens taken on in in the Northern New England misadventure, on January 24 of this year. 

Our Take: As we mention, the Smith statements must, in the present climate and with the past militancy of the company, be seen as a trial balloon now aloft. Smith spent most of his time in the WCAX interview supporting  emerging state deregulatory legislation for the carrier. That is certainly the company's priority today in the Green Mountain State.

If however FairPoint gains a greater foothold for that issue inside the Barre granite walls of the State House in Montpelier, look for at least noise around the overbuild allegations. Noise from FairPoint is predictable, given its past history. The framing of a persuasive complaint based on legitimate facts is something else again. We don't see that FairPoint has the facts on its side to move beyond the noise. 

CrunchBase Information
Web Analytics