Reject Frontier/Verizon, Judge Urges Illinois Utility Commission

Disparate reactions greeted an order proposed Monday by an administrative law judge with the Illinois Commerce Commission opposing the proposed acquisition by Frontier Communications of Verizon landlines in that state. The companies questioned the order’s logic. The International Brotherhood of Electrical Workers and the Communications Workers of America, foes of the deal in Illinois and elsewhere, lauded the proposed order.

"The proposed reorganization will adversely affect Frontier’s ability to perform its duties under the [Commerce Commission] Act, in that the proposed reorganization will diminish Frontier’s ability to provide adequate, reliable, efficient, safe and least-cost public utility service; and will significantly impair Frontier’s ability to raise necessary capital on reasonable terms and to maintain a reasonable capital structure,” Judge Lisa Tapia wrote. “Accordingly, the proposed reorganization must not be approved.” She recommended denying the Verizon-Frontier application and rejecting the proposed deal. “The minimal benefit to Illinois customers is not worth the substantial risks to which customers would be exposed. Thus, the risk level is so great that it warrants rejection outright."

Tapia’s proposed order “ignores the numerous public interest benefits outlined in the complete record developed in the Frontier/Verizon transaction,” said Frontier Chief Operating Officer Dan McCarthy. “This record fully addresses the issues raised by the ALJ. We are confident that once the full Illinois Commerce Commission reviews the record, they will vote to support the transaction."

Frontier and Verizon have addressed all major issues in settlements, the company said. The companies said they had agreed to multiple conditions proposed by commission staff and signed settlement agreements raised by wholesale customers and other intervenors including Comcast Phone, Level 3, the Illinois Public Telecommunications Association, federal agencies, the attorney general and the Citizens Utility Board.

Frontier formally committed to spending more than $40 million to bring broadband to 85 percent of households in Verizon’s Illinois service areas covered by the transaction, the company said. Frontier and Verizon have until March 19 to respond to the proposed order. Reactions to their responses are due March 25.

In a decade of operating in Illinois, Frontier has shown “our ability to meet our commitment to providing quality service,” McCarthy said. “Without any regulatory mandates we have deployed broadband availability to more than 90 percent of our footprint in Illinois. We hope to deliver these same broadband benefits to even more consumers in Illinois as soon as possible."

"We disagree with the administrative law judge’s proposed order, which, it’s important to note, is just a recommendation,” said Carl Erhart, president of Verizon’s central region. “The record developed in this case provides comprehensive evidence and assurances that the transaction with Frontier Communications is in the public interest and will ultimately provide many benefits to Illinois residents.” Among intervenors in Illinois, only the IBEW did not come to terms with Frontier in a settlement, he said. The commission staff has recommended the transaction be approved by the commission, he added.

Tapia’s reasoning “is consistent with the positions that our union took and the arguments that we made about the enormous risks this deal poses for consumers and workers,” said IBEW Local 51 Business Manager Jim Bates. Local 51 represents Verizon workers in the Springfield vicinity. “We have been concerned from the beginning about the impact of this proposed merger on Frontier’s financial stability given the enormous debt that it would incur,” said Ron Kastner, Business Manager of Local 21, the largest IBEW telecom union in Illinois.

"Customers and workers from both Verizon and Frontier need to be protected from this Wall Street-backed scheme. We hope the ICC, other state regulators, and the FCC pay close attention to the ALJ’s recommendations,” said Ron Collins, Vice President for CWA’s District Two. “If the ICC or another state reject the deal, that should send both companies back to the drawing board to restructure the deal.”