Illinois Commission Approves Frontier/Verizon, With Extensive Conditions

The Illinois Commerce Commission conditionally approved the Frontier/Verizon wireline transaction, voting 5-0 Wednesday. Regulators demanded that Frontier improve service quality and expand broadband throughout its territory. “This grant of authority to Frontier will help to close the gap that still exists for many Illinoisans by giving them access to essential 21st century technologies,” Commissioner Erin O'Connell-Diaz said. West Virginia is the lone state where approval remains pending. The FCC also must approve.

Frontier meets the financial, managerial and technical qualifications to provide the service it envisions, Illinois commissioners agreed. The smaller company’s Illinois holdings would grow from 97,000 to more than 670,000 lines as Verizon leaves the state, the commission said. Bringing broadband to rural and underserved areas will mean “real opportunities for job growth in the state and for improved access to services ranging from education to medicine, government and economic development,” said acting Chairman Manuel Flores.

While ruling that the deal wouldn’t harm competition in Illinois, the commission stipulated Frontier meet a list of conditions. Frontier not pay dividends or otherwise transfer any Illinois cash balances to its parent company if its Illinois operation fails to meet or exceed standards on toll and assistance answer time, information answer time, repair office response, action on installation requests taking more than five business days, service interruptions exceeding 24 hours and trouble reports per 100 lines.

Frontier must have access to at least $50 million exclusively for its Illinois operations; by Dec. 31, 2013, be providing 85 percent of households within the service territory broadband at 3 Mbps download; and cap regulated noncompetitive retail rates for the former Verizon operating companies for three years after closing. After three years, Frontier may propose non-competitive retail rate increases. Frontier must assume all obligations under Verizon’s current interconnection agreements, interstate special access tariffs and intrastate tariffs, commercial and line sharing agreements and other existing arrangements with wholesale customers. Frontier may not change those rates, terms or conditions or terminate those agreements until they run out or in less than 30 months from the deal’s closing.

Frontier must run an annual internal audit to document that cost allocations between regulated and non-regulated activities comply with a cost allocation manual filed with the commission and that the manual itself is correct and complete. The commission tightened Frontier’s reporting requirements. Rather than annual reports, Frontier is required to report in January and July of each year on compliance with quality standards and on its financial commitment to having enough cash to meets its Illinois operating needs.

Both companies are pleased with the approval, spokesmen said. The Illinois conditions are in line with what Frontier expected, Frontier spokesman Steve Crosby said. “We have a line of credit to cover that $50 million requirement, and it was part of our original plan, just as our broadband plans line up with the commission’s stipulations. … We can deliver what any commission asks for on capital and on broadband deployment.”