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.”

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