Verizon/Frontier Wireline Deal to Face Review by California, Texas Regulators

The California Public Utilities Commission (CPUC) expects to review the Verizon/Frontier deal, as does the Public Utility Commission of Texas, spokesmen for the two commissions said separately. Neither commission had received formal applications for review at our deadline. The Florida Public Service Commission (PSC) won’t review the deal because the PSC no longer has statutory authority to review telecom mergers, a spokesman said. Florida Public Counsel J.R. Kelly told us his office isn’t taking a position on Verizon/Frontier since the PSC doesn’t have authority to review the merger.

The CPUC is expected to scrutinize the Frontier/Verizon deal closely, though how that review compares with the CPUC’s ongoing review of the Comcast/Time Warner Cable deal will depend on what parties get involved in the CPUC’s review, industry lawyers and public interest advocates told us in interviews. The CPUC hasn’t yet received a formal application for review from Verizon and Frontier, but once it does the commission “will begin to assess the merits” of the deal, a spokesman said. Public interest groups will need to become involved as parties in the review to ensure it doesn’t become a “pro forma review," said Media Alliance Executive Director Tracy Rosenberg.

The deal is likely to “get a great deal of scrutiny” from the CPUC given the ongoing concerns about the condition of Verizon’s existing copper network in the state, said The Utility Reform Network (TURN) Telecom Director Regina Costa. TURN filed an emergency motion with the CPUC last year that claimed Verizon was allowing its copper network, largely comprised of GTE’s former network in southern California, to deteriorate in an attempt to push landline customers to its FiOS and Voice Link services (see 1403200046). The CPUC’s review is also likely to involve many of the issues included in the FCC’s November IP transition NPRM, Costa said. Verizon cited the FCC’s upcoming Feb. 26 vote on new net neutrality rules as a major factor in its decision to make the Frontier deal, but “it’s not a surprise” that the IP transition issues up for debate also likely played a factor, Costa said. The NPRM also sought comment on rules for copper retirement, backup battery power for 911 services and conditions for assets paid for by ratepayers (see 1502050039).

Frontier’s financial health post-transaction and its ability to integrate Verizon’s former networks will also likely become an issue, Costa said. Verizon previously sold its wireline assets in 14 states to Frontier in 2010 and its wireline assets in northern New England to FairPoint Communications in 2008. FairPoint encountered trouble integrating Verizon’s former network and filed for Chapter 11 bankruptcy in 2009. FairPoint’s problems handling the Verizon deal became a factor in state regulators’ review of the previous Verizon/Frontier deal (see report in the Oct. 8, 2009, issue). The past history of Verizon’s wireline asset sales could become a factor if parties make a “concerted effort” to bring that history up, Rosenberg said. The Lifeline and public safety issues involved in maintaining wireline service are also likely to play a role in the CPUC’s review, she said.

Verizon/Frontier is “definitely going to attract the CPUC’s attention” because of the concerns about Verizon’s copper network, said Greenlining Institute Telecom Policy Director Stephanie Chen. Greenlining also “wants to see what kind of service quality Frontier can provide” in the areas that Verizon currently serves, but the copper network’s condition will play a major role, she said. “One of the big questions that came up for me when I heard about this deal is how is Frontier going to do at maintaining that basic Lifeline service and keeping it affordable,” Chen said. “The quality of that infrastructure is the 1.0 question right now.”