The Associated Press

MONTPELIER, Vt. – The state Public Service Board on Monday rejected a plan by to work itself out of bankruptcy in part by delaying broadband deployments and skipping penalties for poor service that were to be paid to ratepayers.

The development Monday leaves the company’s path unclear. Maine regulators last week approved FairPoint’s plan for reorganization in that state. New Hampshire hasn’t acted yet.

FairPoint shares, which trade over the counter, closed at 5 cents on Monday.

The Charlotte, N.C.-based company, which took over the former Verizon Communications landline and Internet networks in Maine, New Hampshire and Vermont in early 2009, declared bankruptcy in October.

In a 96-page order, the Vermont board said that "based upon the record before us, we cannot find that FairPoint has demonstrated the financial capability to meet its obligations under Vermont law and its (state license) as a telecommunications carrier."

The board said the company’s projections about its near-term future performance appeared to be too rosy, given recent history: "FairPoint has provided virtually no explanation as to why its projections are reasonable."

Those projections, the board said, were "based upon the assumption that FairPoint’s losses in local revenue due to competition will be less than the company has experienced recently, that it can increase revenues from broadband services and special access services faster than it has recently, and that operating costs will trend downwards relative to recent experience."

Michael Smith, FairPoint’s president for Vermont, declined to comment other than to say the company was reviewing the board’s order and that he was disappointed with the board’s conclusions about the company’s finances.

"I would not have come to the same conclusions," he said. He also praised the company’s employees for improving service quality from the problem-plagued period of months after FairPoint took over Verizon’s networks in February of 2009.

The bankruptcy workout had been supported by the administration of Gov. Jim Douglas. The Department of Public Service, the executive-branch agency that represents consumers before the quasi-judicial board, had agreed to the plan for a six-month delay in FairPoint’s schedule for deploying broadband.

"The department is surprised by the board’s ruling today," said Deputy Commissioner Stephen Wark. "We believed that the settlement was in the best interest of Vermonters to try to avoid bankruptcy litigation. Now this throws that into question."

Mike Reed, FairPoint’s Maine state president, said approvals from state regulators will allow it to move forward with plans to emerge from bankruptcy by early fall. Smith would not speculate on what impact the Vermont rejection might have on that schedule.

FairPoint faced doubts from employee unions and some state legislators when it first agreed in early 2008 to buy Verizon’s landline business in the three northern New England states for $2.3 billion. With the purchase, the company grew sixfold overnight.

"It’s interesting that the Public Service Board is now being tough on FairPoint. It should have been tough on FairPoint when it first proposed purchasing the assets from Verizon," Vermont state Sen. Vincent Illuzzi, a consistent critic from the outset of the telecom deal, said after the board’s order Monday.

"The proposed purchase and sale was entered into when it seemed like most in the telecommunications industry knew that FairPoint was paying way too much for a slowly dying land line business with lots of antiquated equipment and systems."

The board did initially reject the Verizon sale to FairPoint, saying the price was too high and FairPoint was assuming too much debt. The board later relented after the sale price was dropped from $2.7 billion to $2.3 billion.

The economic collapse, credit markets drying up and FairPoint’s own technological bungling as it tried to take over Verizon’s networks led it to bankruptcy within 18 months of the purchase and about 10 months after it went live as the system operator.

The board said it had seen improvement recently in the company’s management of customer service.

FairPoint’s "retail service quality is nearing the point where it would fully comply with the service quality standards that govern it an accomplishment that Verizon was unable (or unwilling) to achieve," the board said. "Wholesale service quality still lags well behind pre-cutover performance substantially, but is improving."

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