Washington utility regulators have reached a deal with Frontier Communications that safeguards telephone rates and high-speed Internet access for Verizon customers here if the company’s bid for Verizon’s phone lines gets final state and federal approval.

Verizon in May proposed to sell 487,000 Washington phone lines, including its land line business in Camas and Washougal, to Frontier Communications. The deal, which doesn’t include Verizon’s wireless business, is part of an $8.6 billion bid by Frontier to acquire 4.8 million Verizon phone lines in 14 states.

A settlement agreement reached last week among the Washington Utilities and Transportation Commission staff, Frontier and Verizon calls for Frontier to commit $40 million to expand high-speed Internet access in the state and freezes telephone rates for three years after the sale is complete, among other consumer protections.

“We didn’t want to put everything in writing because it takes away from the competitive edge a little bit,” said Steve Crosby, a spokesman for Frontier Communications. “But we think we’ll help citizens of Washington and Oregon get the prices they want and broadband access (they need).”

In exchange, the WUTC staff have given their conditional stamp of approval to the sale — a reversal of their November recommendation against the sale. The proposal now goes to the three-member commission for a final hearing in February.

Financially sound

WUTC staff was concerned that Frontier’s financial health wouldn’t provide adequate consumer protections. FairPoint Communications and Hawaiian Telcom Communications both failed after acquiring Verizon telephone lines.

But Frontier has since presented new evidence to the WUTC that changed the staff’s opinion, said Jing Roth, staff regulatory economist at the WUTC. Frontier’s most recent pro forma shows the company has a leverage ratio of 2.2 — more than twice as much debt than equity — lower than the WUTC originally calculated, she said.

The lower ratio places Frontier in line with the performance of CenturyTel, the most recent merger approved by the commission in May.

“They’re financially looking better,” said Roth. “They presented compelling evidence they will be able to reach that ratio (after the sale).”

Second-largest provider

Frontier says its financial position hasn’t changed since it started negotiations in May. As the second-largest rural local telephone provider in the U.S., the company had $2.2 billion in revenue in 2008 and more than 2.3 million access lines nationwide.

“It wasn’t magic, we’ve been saying all along we have the financial capability,” said Frontier’s Crosby. “Once people took a step back (from their worries about the other companies) and took a deep breath we were able to answer their questions.”

Frontier was also overwhelmed by the regulatory logistics of providing different documents to regulators in nine states and just needed more specific requests from the WUTC to provide the correct information on the company’s finances, said Crosby.

Next for Verizon

To complete the sale, Verizon must get Federal Trade Commission approval as well as regulatory approval in nine of the 14 states where it’s selling its territory. So far, regulators in three states have approved the sale, settlement agreements have been reached with regulators in Oregon, Washington and Ohio and the company awaits hearings in three more states.

All 14 local franchises in Washington, including Camas and Washougal, have also approved the deal.

In the meantime, Verizon will continue to install fiber optic lines for its FiOS service in Washington, including Camas and Washougal.

“Verizon is committed to its build investment until the day of the sale,” said Milt Doumit, vice president of government relations for Verizon in Washington.

Print this article