Verizon won FCC approval today to spin off its rural wireline assets in 14 states to Frontier Communications -- but only after the agency imposed extensive conditions on the $8.6 billion transaction in an effort to safeguard consumers and smaller competitors.
The commission vowed to hold the companies to "enforceable" commitments that include a substantial increase in broadband capability for the 4.8 million phone lines being sold. As of now, only 62 percent of those lines can facilitate high-speed Internet access.
Frontier also agreed to "deploy fiber to libraries, hospitals, and government buildings, particularly in unserved and underserved communities," and to honor Verizon's agreements for offering competitors access at wholesale rates, the agency said.
The FCC characterized the sale as advancing the goals of the agency's ambitious national broadband plan, which outlines a comprehensive strategy for extending high-speed connectivity to more than 90 percent of Americans by 2020.
"I am pleased by Frontier's robust commitments to increase private investment in broadband in rural America," FCC Chairman Julius Genachowski said in a statement, adding, "We conclude that on balance the likely public-interest benefits outweigh the potential public-interest harms."
But he also addressed critics, saying: "I take seriously concerns that have been expressed about the risks this transaction poses for consumers, employees, and competitors." While the commission conducted what he described as a "rigorous, data-driven" review, "no transaction is without risk, and this one has its fair share," Genachowski added.
Looming large over the agency's review was Senate Commerce Chairman John (Jay) Rockefeller, whose home state, West Virginia, would be directly affected, along with rural portions of the Midwest, South and West.
In November, CongressDaily reported that Rockefeller was so worried about the consequences that he met with the chief executives of both companies to relay his concerns and urged the FCC to closely scrutinize the deal, which was announced May 13, 2009.
The senator's spokeswoman could not be immediately reached for comment.
Last week, Verizon and Frontier informed the FCC that they would abide by an additional 21 commitments, the investment firm Stifel Nicolaus revealed in a Thursday advisory.
The spin-off has been cleared by the nine states that conducted regulatory reviews, with the Public Service Commission of West Virginia green lighting the deal May 13. West Virginia regulators are requiring Frontier to satisfy several conditions, including expenditures totaling $279 million for capital investments through 2013.
"This transaction will benefit consumers by enabling Frontier to strengthen its position as a premier broadband and communications provider focused on rural and small- to medium-sized cities," Kathleen Grillo, Verizon senior vice president of federal regulatory affairs, said in a statement. "It also will allow Verizon to accelerate its focus on wireless, broadband and global [Internet] networks for its customers."
The sale also enables Verizon, the nation's second largest telecommunications carrier, to concentrate more heavily on populated areas that are less expensive and more lucrative to serve.
Frontier Chairman and CEO Maggie Wilderotter called the FCC action "a significant milestone in a transaction that is overwhelmingly in the public interest."
"We share the commission's goal of closing the broadband availability gap in rural and small city areas and have committed to the FCC that we will be focused on increasing broadband deployment and penetration," she said.
Among the most vocal critics of the deal has been the Communications Workers of America, which is skeptical that Stamford, Conn.-based Fairpoint can fulfill its commitments. "This deal is . . . four times larger than any other Frontier acquisition. If the transaction is approved, Frontier will have to contend with a tripling of its access lines, a tripling of its workforce and -- most significantly -- a 75 percent increase in its debt," the labor union warned in a May 3 report.
Today, CWA said in a statement that it would evaluate the FCC's decision to determine "what action we can take to best address the consumer and labor issues we raised over the past year."