MONTPELIER, Vt. – Vermont’s Public Service Board has rejected a plan by FairPoint Communications to work itself out of bankruptcy in part by delaying broadband deployments and skipping penalties for poor service that were to be paid to ratepayers.

Monday’s rejection leaves the company’s path unclear. Maine regulators approved FairPoint’s plan for reorganization in the state last week. New Hampshire hasn’t acted yet.

The North Carolina-based company, which took over Verizon Communications’ landline and Internet networks in Maine, New Hampshire and Vermont in early 2009, declared bankruptcy in October.

In its 96-page order, the Vermont board said that “based upon the record before us, we cannot find that FairPoint has demonstrated the financial capability to meet its obligations under Vermont law and its (state license) as a telecommunications carrier.”

The board said the company’s projections about its near-term performance appeared to be too rosy, given recent history: “FairPoint has provided virtually no explanation as to why its projections are reasonable.”

Those projections, the board said, were “based upon the assumption that FairPoint’s losses in local revenue due to competition will be less than the company has experienced recently, that it can increase revenues from broadband services and special access services faster than it has recently, and that operating costs will trend downwards relative to recent experience.”

Michael Smith, FairPoint’s president for Vermont, declined to comment other than to say the company was reviewing the board’s order and he was disappointed with the board’s conclusions about the company’s finances.

“I would not have come to the same conclusions,” he said.

He also praised the company’s employees for improving service from the problem-plagued months after FairPoint took over Verizon’s networks in February of 2009.

Mike Reed, FairPoint’s president in Maine, said approvals from state regulators will allow it to move forward with plans to emerge from bankruptcy by early fall. Smith would not speculate on what effect Vermont’s rejection might have on that schedule.

The bankruptcy workout was supported by the administration of Vermont Gov. Jim Douglas. The Department of Public Service, the executive-branch agency that represents consumers before the quasi-judicial board, had agreed to the plan for a six-month delay in FairPoint’s schedule for deploying broadband.

“The department is surprised by the board’s ruling today,” said Deputy Commissioner Stephen Wark. “We believed that the settlement was in the best interest of Vermonters to try to avoid bankruptcy litigation. Now this throws that into question.”

FairPoint faced doubts from employee unions and some state legislators when it agreed in early 2008 to buy Verizon’s landline business in the three northern New England states for $2.3 billion. With the purchase, the company grew sixfold.

“It’s interesting that the Public Service Board is now being tough on FairPoint. It should have been tough on FairPoint when it first proposed purchasing the assets from Verizon,” said Vermont state Sen. Vincent Illuzzi, a consistent critic from the outset of the telecom deal, after the board’s order Monday.

“The proposed purchase and sale was entered into when it seemed like most in the telecommunications industry knew that FairPoint was paying way too much for a slowly dying landline business with lots of antiquated equipment and systems.”

The board initially rejected Verizon’s sale to FairPoint, saying the price was too high and FairPoint was assuming too much debt. The board relented after the sale price was dropped from $2.7 billion to $2.3 billion.

The economic collapse, credit markets drying up and FairPoint’s own technological bungling led it to bankruptcy within 18 months of the purchase, and about 10 months after it went live as the system’s operator.

 

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