Ohio Commission Denies Unions’ Petition to Rehear Frontier/Verizon

Ohio’s Public Utility Commission rejected telecom union demands to rescind an order approving Frontier’s proposed acquisition of Verizon landlines and convene a new set of hearings on the matter. Ruling Tuesday, the commission said it found no merit in arguments for a rehearing advanced by the Communications Workers of America and the International Brotherhood of Electrical Workers. The unions claimed the commission wrongly and unlawfully approved the proposed transactions.

In denying the union petition, the commission said the CWA and IBEW ignored key parts of reports by Moody’s and other analysts that support the commission’s decision to approve the transaction. “The portions of the agency reports relied upon by the Unions do not contradict the Commission’s findings and conclusions,” the regulator said. “The Unions’ criticisms of our reliance on rating agency reports miss the mark. The favorable reviews that we rely on are for Frontier’s post-merger financial prospects, in contrast to its current condition. Because Frontier’s operating subsidiaries are currently financially sound in rural markets, we take added assurance that ratings agencies give the transaction favorable reviews. We are also confident that Verizon North, by joining a financially sound Frontier organization, will likewise remain a financially sound company."

Verizon’s investment grade bond rating “establishes it as a stronger company than Frontier” and Verizon likely will remain the financially stronger of the two, the commission said. “Nevertheless, as we stated in the Opinion and Order, it is Frontier’s agreement to increase capital expenditures above current levels of capital expenditures made by Verizon North that makes the Stipulation particularly attractive."

The unions also erred in claiming that the commission was content to take the word of investment bankers when it should have been more skeptical and independently analytical, the commission said. “It is merely an exercise of common sense that the Commission would lend weight to the idea that a lender will take a prudent review of Frontier’s financial capacity to determine whether to lend $3.3 billion,” the regulator said. “The role that investment banks play in approving the transaction was merely additional assurance, not the core reason for the Commission’s finding that Frontier is financially fit to acquire Verizon North. … We were convinced by a body of evidence that showed that Frontier would be a financially sound post-transaction company and that it commits to make significant capital expenditures in Verizon North’s territory."

The CWA and IBEW incorrectly impugn a Stifel Nicolaus report endorsing the transaction as skewed by conflict of interest because the analyst company has a business relationship with Frontier, the commission said. The unions also contorted their recapitulation of a UBS report to suit their purposes, the commission said. The arguments posed on behalf of a rehearing focus on Frontier’s pre-transaction financial status, but the real point is “whether Frontier will have the financial means to maintain Verizon North’s operations,” the commission said. “There is an abundance of evidence that Frontier is financially strong and that it will be financially strong after the transaction."

The commission reaffirmed its expectation that Frontier will keep about 1,000 Verizon employees in customer service centers in Norwalk and Marion. Along with operating on faith, the regulator will apply strictures in the settlement to make sure that Frontier meets service standards, it said. As for the relative adequacy of the penalties called for in the settlement if Frontier doesn’t maintain quality, the unions had an opportunity earlier in the process to contest those terms but chose not to, the commission said.

"We're pleased with the rejection of the union leadership’s attempt to scuttle this worthwhile transaction,” Frontier spokesman Steven Crosby told us by e-mail. “As we've said all along, we believe we are the right company for Ohio and that we shouldn’t be painted with any negatives being thrown at us.”