Story + video: Illuzzi seeks to loosen rules for Fairpoint

Sen. Vince Illuzzi, D-Essex-Orleans, at a press conference on Jan. 12, 2011

Sen. Vince Illuzzi, D-Essex-Orleans, has proposed legislation that would exempt FairPoint Communications, the largest telephone carrier in Vermont, from “regulatory burdens” that hamper the company’s ability to return to profitability.

FairPoint has been in financial trouble and recently went through Chapter 11 bankruptcy.

Illuzzi’s bill would lower fines for violations of service quality standards and allow FairPoint to make rate changes without going through a lengthy regulatory approval process.

Illuzzi, who is chairman of the Senate Economic Development, Housing and General Affairs, said the existing regulations are a holdover from the Ma Bell era, when AT&T, and then its successor, Verizon, dominated the national telephone service industry.

“As the world has changed, Vermont has not kept up with those changes,” Illuzzi said. “We have a number of telephone and Internet providers in the state that are totally unregulated by state government, and then, on the other hand, we have FairPoint communications, which is regulated the way it was 30, 40, 50 years ago, and I believe that results in an uncompetitive environment for FairPoint.”

Large cable companies, wireless providers and small telecoms in Vermont are not subject to the same requirements, according to Illuzzi.

“It’s an uneven playing field and the legislation we’re proposing is a step in that direction of leveling that playing field,” Illuzzi said. Mike Smith, Vermont president of FairPoint, said large cable companies, wireless providers and small telecom companies, such as Waitsfield and Champlain Valley Telecom, are not subject to the same restrictions imposed on Fairpoint.

FairPoint can’t match the rates of other telecom carriers without seeking prior approval from state regulators, he said. That process can take one to seven weeks, while other providers can “quote prices immediately.”
“In today’s world, that doesn’t work with a customer,” Smith said. “We need the ability to be competitive in our pricing structure.”

Illuzzi said: “You can understand the disadvantage, the uncompetitive environment in which FairPoint is operating at the present time, simply because the law has not kept up with reality.”

In 2009, the company was repeatedly penalized because of service quality problems. The maximum fine is $10.5 million. Smith did not recall how much the company has been assessed in fees over the last several years. Smith described that period, in which his company embarked on “one of the biggest telecommunications computer switches ever attempted in telephone companies through history of the United States,” as a “challenging time.”

“We moved from a legacy, Verizon system, to a new system, and it did not go well,” Smith said.

Smith said the problems have been resolved, and FairPoint’s service records indicate that the quality of the company’s service has increased dramatically.

“There are many metrics we haven’t hit in a decade that we are far surpassing,” Smith said. “That’s a hill we’ve climbed over.”

Smith described the fines, which kick in automatically, as “disproportionate.” On a per- customer basis, he said, FairPoint is the highest penalized telephone company in the country. Illuzzi proposes to change the triggering mechanism for penalties. Under his proposal, the trigger would no longer be the quality of the service provided, but instead would be related to line losses.

“We’re not saying, lift the service quality standards that we have,” Smith said. “We’re not saying don’t fine us if we miss some of these quality service standards. What we’re saying is put us on a level playing field with everyone else and let’s try to work together to provide broadband to every last mile.”

If Illuzzi’s bill passes as written, fines would only be assessed if Fairpoint sustains greater than 15 percent line loss over a year.

“In order for FairPoint to make its system more robust and to enhance service, it needs to generate revenue, and as the regulatory system and structure is set up, it’s not able to respond to customer demands, pricing and service,” Illuzzi said. “That’s the essence of the bill. FairPoint, we want you to stay here. We want you to continue to provide good quality, good- paying jobs for Vermonters. In order for the company to do that, it needs to retain its customer base, and in order to keep its customer base,
it needs to be more nimble.”

Illuzzi, who opposed the sale of Verizon to FairPoint in 2007, said he believes it’s now important for the state to help the company succeed because it is “one of our largest employers in Vermont, and it’s a
provider for many corners of the state.”

FairPoint employs about 600 people in what Illuzzi described as high-paying union jobs. The average worker earns a base salary of $74,000 a year, he said.

Illuzzi said he originally opposed the sale because he thought FairPoint was paying too much for a company that needed significant line system improvements.

“Now that Fairpoint is here, it’s important to work with it to ensure that it has fair oversight by the state and has the ability to compete and do business in the state,” Illuzzi said.

FairPoint has expanded broadband availability to “more than all of its competitors combined,” according to a letter supporting the bill from Smith, that was also endorsed by representatives of the Communications Workers of America #1400 and the International Brotherhood of Electrical Workers Local 2326. FairPoint will provide broadband access to half of its exchanges in 2011, according to the letter.