Fairpoint aims to renegotiate broadband rollout requirements

As the company heads into Chapter 11 bankruptcy today, Fairpoint Communications (NYSE:FRP) will try to negotiate changes to the broadband deployment requirements it agreed to in exchange for state approval of its 2008 acquisition of Verizon assets.

Fairpoint’s lawyers are currently examining whether or not its Chapter 11 protection from creditors might also allow the company to renegotiate regulatory requirements in Vermont, New Hampshire and Maine, where it acquired 1.7 million access lines from Verizon.

“It’s my preference that all that will be resolved on a dialogue basis instead of on a court basis,” Fairpoint’s chief executive officer, David Hauser, said on a conference call today. “We’re very committed to broadband rollout and to the next-generation network. People should feel comfortable that we’re going to continue to expand our business.”

As part of the regulatory approval process for its Verizon deal, Fairpoint had to commit to spending set amounts on broadband expansion in all three of the states involved. In Maine, it was required to spend an average of $47 million on broadband expansion during the first three years following the deal. In Vermont, it was required to spend an average of $40 million per year in the first three years. And in New Hampshire, it was required to spend at least $52 million in each of the first three years and $49 million in each of the two years after that; Verizon contributed $49.2 million to that effort, but this year the state allowed Fairpoint to use Verizon’s contribution for general purposes.

The reorganization plan submitted today would convert about $1.1 billion of Fairpoint’s $2.7-billion debt load to equity, giving its lenders near-total ownership of the company.

When asked today whether Fairpoint’s new owners might feel differently about its broadband plans, Hauser said, “I talked to them. But even if I hadn’t, they’re going to be the equity owners in this company. They want this company to be very financially successful. The way you’re financially successful is to add customers, provide great customer service and keep rolling out new products. So they’ll be very supportive of us deploying capital…They told me [they would be], and it’s just logical.”

Fairpoint will have its work cut out for it in trying to get state regulators to bend, having frustrated customers with service problems while it struggled to integrate Verizon’s assets into its network. Vermont’s public service board conducted a hearing this month in consideration of whether it should investigate revoking Fairpoint’s license to operate in the state.

As another result of the bankruptcy process, the company may also look for further concessions from labor unions with which it continues to negotiate. Last week Fairpoint executives met with union leaders to try to renegotiate contracts and cut costs in order to avoid bankruptcy. Today Hauser said layoffs are another way Fairpoint may look to cut costs.

“Could we have layoffs? That is certainly a possibility,” Hauser said. “That’s more about running the company than it is the Chapter 11 process.”