FairPoint’s Problems

Posted April 03, 2009, at 6:09 p.m.

State regulators are right to keep a watchful eye on FairPoint Communications and its troubled takeover of Verizon’s landline services in Maine. The threat of fines from the Public Utilities Commission, however, may be a less effective tool to fix FairPoint’s problems than the threat of lost revenues.

The company has acknowledged serious service problems and has put in place a plan to fix them, as required by state regulators. FairPoint also acknowledged that the ongoing problems have cost it money and customers. Worse, the problems have delayed the introduction of new products and services. That should be enough incentive for the company to hire the necessary personnel and make the technical upgrades needed to smooth the transition.

When FairPoint announced plans in January 2007 to take over Verizon’s landline operations in Maine, New Hampshire and Vermont, many worried that the small company could not handle the job. After reviewing the takeover proposal, staff at the Maine PUC warned that it was too risky. Utility regulators in the three states ultimately approved the takeover, but with dozens of conditions attached.

Completion of the takeover was delayed until regulators were convinced that FairPoint was ready to handle the transition. Verizon’s systems were fully transferred to FairPoint on Feb. 9. Problems began immediately. As the company understated in the nine-page stabilization plan it filed with the PUC last week: “As we started to utilize our new systems to run the business, we encountered some areas that did not work as well as anticipated.”

A major problem was that customers could not get through to service centers and had long waits before getting assistance. Many customers had trouble with the e-mail conversion. Bills were sent out late and there were long waits to get new services, which increased calls to the service centers.

While some of these may appear to be what are called “back office” problems, in an area where there is little choice of phone service providers forcing a business or residential customer to wait weeks before getting a phone line activated is bad business at best, dangerous at worst.

FairPoint says it aims to have all the problems resolved by June; a consultant monitoring the takeover for the three New England states warned that this may be optimistic.

It is easy to see how the company, which went from a small, regional entity to the nation’s eighth largest communications company, became overwhelmed. In the last three months of 2008, for example, FairPoint averaged about 150,000 calls per month to its consumer call center. In March, it received more than 350,000.

These are just the types of problems that the company and regulators should have anticipated and been prepared for, especially because FairPoint had a record of customer service problems in Maine well before the takeover.

Since it didn’t and wasn’t, regulators must keep the pressure on FairPoint to ensure it meets the service standards required as part of the takeover.

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