I think it is unfair to think the Verizon deals with Fairpoint and the Carlyle Group were cursed.

Since I don’t believe the Fairpoint deal or the Carlyle deal were cursed then why did the deals fail? I don’t think it was any one issue that caused the deals to go south.

In both cases, debt was an issue. In both cases, the buyers’ operational problems were the result of under estimating the challenges of operating a landline carrier. Building your own billing system is not an idea to pursue when capital is in short supply. When cap ex is in short supply you need to outsource. Very few carriers have deep customer service teams because they are simply too expensive to maintain. Both companies lacked the deep understanding of what is a carrier’s true strength – system integration. Managers of the best operated carriers understand how all of the piece parts work together. Old Bell System managers were expert system integrators and process integrators – in other words, we all knew how and why the pieces of the company work the way they do.

No matter how smart the telecom management team is, poor team work can mean the death of the carrier. In both cases, I believe a lack of teamwork and a fundamental understanding of the business doomed both deals.

Both Fairpoint and Hawaii Telcom suffered from massive debt loads. Well, whoever thought it was a bright idea to build a billing system from scratch really did not understand the complexity of landline billing rates. Fairpoint’s backoffice problems were so severe that Fairpoint had to rely on Verizon for billing, which automatically handcuffed Fairpoint to Verizon’s processes. Hawaii Telcom wanted to build its own billing system. Fairpoint and Hawaii Telcom lost control of their companies. Without an ability to understand how your customers are behaving or see how fast you are losing customers, your carrier has no ability to innovate or even scale, hence relying on someone else is a death knell. For those folks who depend on outsourcing just understand that outsourcing can actually hurt if you are already having problems elsewhere in the company.

In both cases, the backofffice troubles led to increasing customer losses, which ultimately put downward pressure on revenues. It is like a vicious cycle. Once the backoffice troubles began to impact customer service, both companies could only recover by rapid corrective action. In hindsight it appears the corrective actions were too little too late

Of course the recession hurt both Fairpoint and Hawaii Telcom. Aside from losing business the companies no longer had easy access to capital.

Will Frontier suffer the same fate as Fairpoint and the Carlyle Group (in Hawaii Telcom)? I believe the answer is no. Why? After two recent industry disasters how could you not learn from someone else’s mistakes? Hmmm is that wishful thinking?

Financial engineering will enable Frontier to lower its debt load. The question is whether or not the management team can successfully integrate the Verizon properties without driving off the cliff. This question has everything to do with operational engineering.