State utilities commission staff urge rejection of Verizon's plan to sell landlines

The staff of the Washington Utilities and Transportation Commission recommends state regulators reject the proposed sale of Verizon's landline residential and commercial telephone business in Washington to Frontier Communications.

The deal, part of an $8.6 billion bid announced by Frontier last May to acquire 4.8 million Verizon phone lines in 14 states, includes 487,000 customer lines in local cities such as Redmond, Kirkland, Everett, Bothell and Woodinville.

The staff report says consumers wouldn't get any benefits "that offset the financial harm and operational risks" of selling lines to "a company without enough financial strength to make necessary improvements to local telephone facilities and widen deployment of broadband access."

It cited problems with "other Verizon spin offs in Hawaii and New England that have resulted in bankruptcies." Last week FairPoint Communications, which took on $2.3 billion in debt in 2008 to buy Verizon's New England operations, sought refuge from creditors in Chapter 11.

Frontier, based in Stamford, Conn., would triple in size with the acquisition.

The WUTC staff said it doubts Frontier would be able to raise capital for wireline improvements because the company's credit rating is lower than Verizon's. The staff also said it's concerned Frontier "will not succeed in generating synergies from this transaction because the phone company will face higher per unit costs in the Washington operations than Verizon faces today."

Frontier said last week that regulators in three states — California, Nevada and South Carolina — had approved the transaction. Six others must still rule on the deal, including Washington, whose three-member commission is due to decide by early next year.