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Verizon's $2.7B Wireline Spin Off

Verizon Communications said today it will spin off 1.5 million wireline accounts in Maine, New Hampshire and Vermont, merging the business with rural telecom provider FairPoint Communications .

The agreement frees Verizon to focus on broadband and provides $1.7 billion to pare the carrier's debt.

Charlotte, N.C.-based FairPoint gains 600,000 long-distance customers and 180,000 DSL customers. The arrangement means FairPoint can "dramatically increase broadband penetration across all three states," Gene Johnson, FairPoint CEO and chairman, said during a conference call.

FairPoint, which specializes in rural and small urban markets, has 31 local exchange companies in 18 states. "We have accelerated FairPoint's growth through a single transaction," Johnson said in a statement.

The swap, worth $2.7 billion, gives Verizon stockholders around $1 billion in FairPoint stock while letting Verizon shift $1.7 billion in debt to the new company.

Although Verizon won't own any shares in FairPoint, Verizon shareholders will own 60 percent of the new company while FairPoint stockholders own 40 percent.

Despite the sell-off of wireline assets to FairPoint, the carrier will still offer Verizon Wireless and Verizon Business products in the area, Virginia Ruesterholz, president of Verizon Telecom, told reporters.

Ed Dinan, president of Verizon Maine since 1992, becomes regional president for all three states. Polly Brown's duties as regional president of Verizon's operations in New Hampshire and Vermont since 2004, will be expanded to also cover Maine.

In a nod to local labor concerns, the two companies said 3,000 Verizon employees would be hired by FairPoint, which also promised to add 600 jobs after the merger is completed.

FairPoint also said it would boost customer service operations and ensured it could offer a smooth transition.

The wireline sell-off comes a year after Verizon downplayed reports it would divest Maine, New Hampshire and Vermont.

In 2004, Verizon sold its 707,000 wireline access lines in Hawaii for $1.65 billion.

"It is pretty obvious the number of lines are declining for a number of reasons," Verizon spokesman Eric Rabe told internetnews.com. While declining to mention what region might next face the ax, Rabe refused to say today's announcement would be Verizon's last.

Today's announcement is just the latest attempt to shift wireline users to Verizon's broadband service. "The business is changing."