Comments on article at: www.billingworld.com/news/2010/06/fairpoint-reorganization-vermont-denies-post-bankruptcy-plans.aspx

The Vermont Public Service Board rejects Fairpoint’s plan of reorganization (PoR) on grounds that Fairpoint remains financially unsound. In a word; YIKES.

The Plan of Reorganization (PoR) is a bankruptcy court approved document that details the treatment of the claims of a bankrupt company’s various classes of creditors. This document is binding on all classes of creditors; even parties who object to the PoR are bound by the document.

If Fairpoint decides to travel down the path of engaging the Federal bankruptcy courts in a fight with the Vermont PSB, it would be the first I have ever seen. All public utility commissions operate under the guidance of the public interest standard. The courts operate under the rule of law.

Now here is the problem, the public interest standard is a not a real standard. The public interest standard is as much of a political tool, as it is a financial tool and a social tool. In the case of telecommunications, the FCC (Federal Communications Commission) has used the public interest standard to govern policy. The Radio Act of 1927 gave the Federal Radio Commission (FRC) broad discretionary powers to regulate the airwaves. The FRC later became the Federal Communications Commission (FCC). The Radio Act of 1927 gave the FCC the power to regulate anything involving communications if it found it was in the “public interest, convenience, and necessity.” The same philosophy is embedded in the Communications Act of 1934 and then later in the Telecommunications Act of 1996.

It sounds nice; protecting the consumer is great. The problem with the public interest standard that politicians, regulators, and special interests can run amuck regulating in the name of the consumer without any input from the consumer.

There has been an ongoing debate around the public interest standard since 1927. This matter involving Fairpoint will become a part of the debate about the public interest standard.

I believe that the debate will spill over into the whole matter of net neutrality, broadband for rural and underserved markets, as well as the whole national effort to upgrade the country’s telecommunications infrastructure.

Fairpoint and its creditors have opened Pandora’s Box but they may be able to avoid the bulk of the fallout if Fairpoint’s management and the Vermont PSB can have a rational discussion about the PSB’s concerns. My suggestion to Fairpoint’s creditors: Talk to the Vermont PSB and come to an understanding.

Should we be cheering the Vermont PSB for standing up to Fairpoint, Fairpoint creditors, and the US bankruptcy courts? Sure, why not. The biggest challenge with any PoR is executing it in a fashion that positions the emerging company for future growth. I think Vermont ‘s PSB ought to be heard; however, we are looking at Pandora’s Box.

If Fairpoint decides to fight this in court, it will get messy. A fight with Vermont’s PSB can turn so nasty that Fairpoint may have trouble operating as a carrier anywhere. State public utility authorities tend to support one another; so this means trouble ahead for Fairpoint.

As I had noted earlier, the Plan of Reorganization is designed to treat claims of creditors; making secured creditors as whole as possible and secondarily making unsecured creditors as whole as possible. This leads to short term decisions to make cash and not necessarily position the company for a 3 year growth strategy. Vermont’s PSB is worried about financial and operational stability. Therefore we may be looking at two parties