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FairPoint Faces Challenges In Northeast

The business in the three northern New England states accounts for more than 60% of FairPoint's business.
FairPoint Communications is continuing its epic battle to cut over its northern New England customers as its financial resources fade away. In recent days, FairPoint has suspended its quarterly dividend in the wake of switching over customers from Verizon Communications.

In recent months, FairPoint's stock has plunged from a high of nearly $16 a share to penny-stock status under 50 cents a share. Hundreds of users have complained that their e-mail and online services have been interrupted.

"My e-mail got all mixed up," reported one Laconia, N.H., woman Friday. "My neighbor's problems were so bad that she thought her computer had died and when she tried to fix things, she lost photos and other material."

FairPoint took over mostly unwanted landlines from Verizon Communications, which is concentrating on its Verizon Wireless and FiOS cable offerings. Another Verizon castoff -- Hawaiian Telecom -- is in bankruptcy proceedings, suffering from what it has called "increased competition and an economic downturn." Both Hawaiian Telecom and FairPoint have been challenged to replace and update older backhaul and computer systems when they cut over from Verizon's infrastructure.

Covering wide swathes of Maine, New Hampshire, and Vermont, FairPoint began to operate its new systems in early February and recently said it "is now in the post-cutover phase, working diligently to improve system efficiencies, employee proficiency and to return to normal operating levels."

Earlier this month, FairPoint said the build-out of its IP data network in northern New England has been accelerated and is scheduled to be completed by mid-2009. "As a result, total capital expenditures for 2009 are expected to be $190 [million] to $210 million, compared with the previous estimate of $180 [million] to $200 million," the company said.

FairPoint expressed hope that the cutover will take hold and help the company going forward. "Looking ahead, we remain extremely confident in the growth potential for the company," said FairPoint chairman and CEO Gene Johnson in a statement. "Given the very difficult economic and financial market conditions, the board's dividend action represents a prudent step to preserve capital and improve our leverage profile." The company said the suspension of dividend payments will result in savings of $93 million annually.

The business in the three northern New England states accounts for more than 60% of FairPoint's business. During long, drawn-out negotiations involving Verizon, FairPoint, and regulators from the three states, labor unions argued that FairPoint didn't have enough financing to adequately fund the transfer of customers.

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