The FairPoint Fiasco
- By: Joshua F. Moore
For the past thirteen years, Marian Chioffi has had a dream: to own the Trailing Yew on Monhegan Island. She’s served as manager of the sixty-five-bed boarding house for all of those years, and last winter, when the trust that had operated the Trailing Yew for several summers said it wouldn’t reopen unless Chioffi could find a way to buy the inn, she cobbled together the financing she needed. A bill of sale was drawn up, loans were signed, and the utilities — water, electric, and phone — were transferred to Chioffi’s name.
That’s when the dream turned into a nightmare. While most utilities switched over to Chioffi without a hitch — as manager, her name was already on the bills — she had less luck getting FairPoint, the phone company that in March 2008 purchased all of Verizon’s landlines in Maine and northern New England, to reactivate the Trailing Yew’s phone line. “Last November, I was assured that if I turned the phone off, there would be no issues getting the same number,” Chioffi explains. “When I called in February to have one of the phones turned on, I was told I might not be able to have the same numbers, and someone would get back to me.
“I didn’t hear anything for a few weeks. The first person I had spoken to had researched the numbers and started a work order, but the second person I talked to was unable to find a work order. That person said I might not hear anything until the end of March.”
That estimation, it turned out, was wildly optimistic. In the end Chioffi’s telephone was turned on May 29, four months after the new business owner had first tried to take care of this simple clerical detail and two weeks after the Trailing Yew opened for business. Instead of having the usual twenty or so guests staying at the inn following the Memorial Day weekend, Chioffi had just one. “I know that this week our house count should be low, but not as low as it is,” remarks Chioffi during an interview in June. “Who’s to say that it’s the telephone and not the recession? But when people are making reservations, they make reservations at the first place that calls them back.”
It’s true that Chioffi’s woes are no doubt caused partly by the economic meltdown of the past year. But her frustration with FairPoint is shared by thousands of Mainers — about ninety thousand, in fact — who have found the transition from Verizon to be filled with nothing but static, headaches, and disappointment. The biggest utility switch the Pine Tree State has seen in more than a generation, affecting 80 percent of Mainers, has been more difficult than either FairPoint, the Maine Public Utilities Commission (PUC), or the Maine Public Advocate, who is supposed to protect consumers, ever imagined it could be. Protections put in place to keep customers satisfied turned out to be insufficient, and instead of improving telephone service and broadband access, FairPoint has found itself scrambling just to provide the most basic level of services.
Placing all the blame for the problems that have arisen over the past six months with FairPoint is, simply, too simple. To understand what happened requires going back to 2000, when Bell Atlantic merged with GTE to form Verizon and assumed the Baby Bell’s landlines in Maine. The years that followed saw the telecom giant gradually decreasing its level of service across Maine and the rural Northeast as it learned that delivering phone service and, increasingly, Internet lines to widely spaced locations is less profitable than focusing on urban centers and wireless service. By January 2007, Verizon was looking to drop its landlines in Maine in any way it could, remarks Richard Davies, the Maine Public Advocate, whose eight-person office represents consumers in public utility matters. “Verizon was basically looking to abandon the territory,” Davies says. “They’d already been fined by the PUC for failure to meet the standards set for them, so it wasn’t what you could call a great relationship.”
Once Verizon had made the decision to leave Maine, it sought a suitor who was significantly smaller than itself, structuring the sale through a Reverse Morris Trust, a loophole in federal tax law that would allow it to pay no taxes on the $2.7 billion sale if it could find such a willing, capable, and relatively tiny buyer. Organizing the sale this way saved Verizon an estimated six hundred million dollars. It found that company in FairPoint, a North Carolina-based company that, since its formation in 1991, had bought thirty-two local phone companies in eighteen states, comprising about two hundred thousand phone lines in all. Choosing FairPoint probably wasn’t difficult, Davies says, since few other utility companies had interest in Verizon’s outdated, problem-plagued lines. For FairPoint, too, the deal was a match made in heaven because it presented the company with the opportunity to grow tenfold while also meshing with its mission of serving rural areas. “There was always this feeling that you can’t provide data services and broadband services to rural areas, but we decided that you could if you got enough market share,” declares Jeff Allen, executive vice president of external relations for FairPoint. “The feeling was that these were areas that Verizon had largely neglected, where there had not been investment in some time. Our feeling was that if we could go back to the basics, provide what the customer wants from a customer service standpoint and from a data standpoint, we’d do well.”
But when Verizon approached the PUC with FairPoint in tow, Davies and his staff were skeptical of the company’s ability to handle the leap. “Our role is not to be opposed to a utility, but to figure out what the impact would be on ratepayers,” Davies says. “And so we had a lot of questions. Our skepticism was reinforced by the larger company selling to a smaller company, so the issue of financing was a big question. We were also interested in seeing them be more aggressive than Verizon had been in expanding broadband.”
Forcing FairPoint to expand its Internet offerings in Maine — only 63 percent of Verizon’s lines offered DSL service, while the governor and PUC wanted that number to be closer to 100 percent — was a tricky issue, however. The federal Telecommunications Act of 1996 deregulated Internet service, giving the PUC little muscle to enforce its desires. Still, Davies says he knew he could use broadband as a bargaining chip in the ongoing discussion over whether or not the PUC and Public Advocate would endorse the sale. “What we couldn’t regulate, we could negotiate,” he says.
After an initial review of the proposed deal, the Maine PUC staff recommended that the commission reject the deal, arguing that the deal “subjects both ratepayers and shareholders to substantial risks and harms that are not outweighed by any of the potential benefits of the transaction.” This warning led to a series of face-to-face meetings between Davies, Verizon CEO Ivan Seidenberg, Governor John Baldacci, the PUC, and others directly affected by the sale. In the end the sale price was lowered to $2.3 billion, a list of assurances regarding service levels, rate decreases, and debt repayment was drawn up, and FairPoint agreed to spend $57 million to increase broadband access to 90 percent by 2012. With these concessions, everyone involved was satisfied and the sale was approved in early 2008.
Davies admits that while his office also examined the “back office” computer systems — the internal operating system used to track everything from work orders and service requests to billing information and even directory listings — that FairPoint planned to implement after buying the Verizon lines, it was more concerned about the other aspects of the agreement. “Some of our concerns were the back office, but most of our energy went into the financing and the broadband,” he says. On March 31, 2008, the deal was signed and FairPoint became one of the most important companies in Maine.
Ten months later, it would be one of the most hated.
We expected a transition that was going to have some bumps in it,” admits FairPoint’s Jeff Allen. “I think the transition has been bumpier than we’d anticipated.” Talk to Raymond Brunyanszki, co-owner of the Camden Harbour Inn, and Allen might win some sort of award for understatement. Brunyanszki’s difficulties with FairPoint began in April, when his technology subcontractor advised him to replace a router, a simple maintenance chore designed to ensure the inn’s guests maintained wireless Internet service. However, part of the upgrade required that FairPoint’s system recognize the new hardware — and that didn’t happen, Brunyanszki says. “They forgot to confirm that we were on a new router, and therefore the whole system collapsed on a Friday afternoon,” he explains. For the next two weeks, the inn was without Internet service, a significant problem for the guests staying there and for Brunyanszki’s restaurant, Natalie’s, which was unable to take online reservations for dinner. “We had a guest who was having work done on a yacht at Wayfarer Marine, and we constantly had to send him to the library to get on the Internet,” he remarks.
The root of Brunyanszki’s problem, and indeed the root of practically all of FairPoint’s issues in Maine, was the fact that the “back-office” computer system the company installed to manage its accounts was simply unable to keep up with the tasks asked of it. The system Verizon had operated incorporated roughly 650 different features and fields that the telecom company had added over time. For example, a single phone listing might include fields for addresses (accepting such variations as “street” and “st.”), 911 dispatch centers, phone-line upgrades such as call-waiting and caller identification, directory information, and even billing information. This “back-office” system, however, was proprietary, and Verizon insisted on taking it with them when they sold their landlines. To cover the transition while its own “back-office” system was being created and installed by a subcontractor, Capgemini, the company leased Verizon’s system for ten months for a staggering $16 million per month.
It was when FairPoint flipped the switch, literally, on its own system on February 9 that its problems really began. Suddenly the communications company found itself unable to communicate with its own customers. Call centers were themselves overwhelmed by the sudden influx of calls as problems cropped up overnight. Squeezing Verizon’s 650 fields into Capgemini’s system of just sixty resulted in a lost-in-translation scenario that saw work orders being lost, service calls missed, and even 911 service temporarily disconnected in a few cases. Where the old system had recognized both “road” and “rd.” in an address, for instance, the new one saw these discrepancies as errors. This in turn caused a normally simple, automated procedure like transferring or reactivating a phone line to “fall out” of the computer system and require human intervention. Though the company quickly hired extra workers to man the phones, these people had to be trained for up to two months before they could talk intelligently to customers — adding to the backlog. In March, at the peak of FairPoint’s troubles, complaints had almost tripled, from 35,000 calls a week to 90,000, FairPoint’s Vice President Jeff Allen says.
“I think, in hindsight, we could have done more from a contingency planning standpoint to handle the unique events that may take place,” Allen admits. “There were some things that we underestimated from a complexity standpoint.” In addition to getting more customer service representatives on the phones as quickly as possible — “What we didn’t want to do was just hire someone to answer the phone,” Allen says — FairPoint paid crews overtime to chip away at the backlog that had developed so suddenly. That backlog was at 12,000 pending service calls in April; by June it was down to just over four thousand. Wait times, which had been a major frustration during March and April with customers reporting that they spent up to an hour on hold, was down to less than a minute on every day except Monday during June. Billing, which had lagged during February when the company discovered its new system had introduced errors, was back on schedule by mid-March, Allen says.
While FairPoint needed to fix these problems in order to get itself back on track (not least to help shore up its stock price, which had dropped to thirty-three cents from a high of eight dollars; stock dividends were suspended in March), it was also responding to pressure from the PUC. During the height of the chaos the company and the PUC developed a stabilization plan to ensure that service returned to “business as usual” by June 30.
If to err is human, what does it mean to err twice? That’s the question some of FairPoint’s customers are asking these days, now that the company seems to be recovering from the initial problems that followed the transition from the Verizon system yet still fails to connect with its customers. The Camden Harbour Inn’s Brunyanszki was still asking that question weeks after his router issue was finally resolved. “FairPoint has never called, never apologized, even though we lost $15,000 through this,” he declares. “We even got a full bill for the month that we didn’t have Internet service.”
Recently, FairPoint has begun a public relations campaign aimed at winning back the tens of thousands of customers it lost this spring. Interestingly, these advertisements have attempted to use testimonials from everyday Mainers to reinforce FairPoint’s local presence; the company has so far failed to make use of one of its most high-profile board members, University of Maine President Robert Kennedy. (Kennedy, who earns $85,000 per year for serving on FairPoint’s board, did not respond to calls asking for comment.)
Repairing the damage left after the transition to FairPoint’s computer system is critical to the company’s long-term prospects as a telecom provider in northern New England. Public Advocate Richard Davies says though FairPoint has struggled this year — the company’s second-quarter corporate filings reference the need for it to find “alternative restructuring plans” and actually uses the word “bankruptcy” for the first time — he does not believe they are at risk of failing altogether. “We’re keeping a close eye on their finances,” he says. “If they had to declare bankruptcy, there are provisions on the books in Maine where the company would stay as the operator, and the PUC could grant them a rate increase to give them financial stability, or they could look for someone to buy FairPoint. The area they might see as the most likely one to adjust their problems would be some sort of rate increase.”
Ironically, FairPoint’s problems have always been largely simple issues that could be corrected by a single phone call. But in Maine this year, that is the one thing that so many people have been unable to do.
- By: Joshua F. Moore