Verizon's Former Hawaii, New England Operations Struggling

It sounded like a good idea at the time: Verizon Communications would sell off its landline operations in Hawaii and northern New England to concentrate on its fast-growing fiber and wireless units.

However, Hawaiian Telecom filed for bankruptcy Monday and the New England landline operation, now run by FairPoint Communications, saw its stock plunge nearly 35% Monday.

Hawaiian Telecom assured its subscribers that it will continue to offer uninterrupted service as it blamed "increased competition and an economic downturn" for its woes. "Business will continue as it has," said Steven Golden, a Hawaiian Telecom VP, according to Tuesday's Honolulu Star-Bulletin. "This was a step in the process to ensure our competitiveness in the market."

In the meantime, FairPoint has been reassuring its subscribers that their service will likewise continue uninterrupted. Last month, rating agency Standard & Poor's said it might lower FairPoint's debt rating sometime in the next two years. S&P said FairPoint is facing "significant integration risk, a highly competitive service territory, limited geographic diversity ... and an elevated cost structure due to merger and transition-related expenses."

Hawaiian Telecom was backed by powerful buyout company Carlyle Group and former FCC Chairman William Kennard sits on its board of directors. Carlyle bought the carrier in 2005 for $1.6 billion. Hawaiian Telecom said its board fully supports the decision to file for bankruptcy.

"Our decision to restructure through a Chapter 11 filing allows the Company to reduce its level of debt and reorganize its business, so we can emerge a stronger and more financially secure company better able to compete in the ever-changing communications industry," said Eric Yeaman, Hawaiian Telecom president and chief executive officer, in a statement. The firm said its $75 million in cash is enough to fund employee wages, customer programs, overall network operation, and payments to vendors.

While struggling at times and repeatedly delaying the transition from Verizon, FairPoint has scheduled the switchover to take place at the end of January. "A January cutover would be a truly historic event for our Company and for the residents of Maine, New Hampshire, and Vermont," said Gene Johnson, FairPoint's chairman and CEO, in a statement.

FairPoint's stock recovered Tuesday to $2.90. The company's stock has traded as high as $15.90 in recent months. The $2.5 billion takeover of Verizon's northern New England assets was announced in January 2007 and was vigorously contested by the company's labor unions, which maintained FairPoint didn't have enough financial resources to adequately fund the new operation.

Based in Charlotte, N.C., FairPoint has stakes in several telecommunications companies, although the northern New England assets represent more than 60% of its business.

Both FairPoint and Hawaiian Telecom have been challenged by the need to replace and update existing computer systems primarily utilized in back-office operations.