Merger of telephone firms comes with caveats

Central Penn Business Journal, Mar 9, 2007 by Dagan, David

REGION

Rates for basic service to be capped for next three years

Rates for basic telephone service from Commonwealth Telephone Enterprises Inc. and Citizens Communications Co. will be capped for three years after the companies merge.

The caps are included in a settlement among the companies and various advocates that imposes conditions on the merger. The state Public Utility Commission voted 4-0 March 1 to approve the settlement.

Commonwealth, of Luzerne County, is the incumbent, or primary, telephone company in the areas of Quarryville, Lewisberry and Elizabethville and in other rural parts of Pennsylvania. The company also serves Harrisburg, Lancaster, York and other cities as a competitor to the primary phone company. Citizens, of Stamford, Conn., is the incumbent telephone company for the New Holland and Leola areas. It is known by the brand name Frontier.

Citizens is acquiring Commonwealth in a cash-and-stock deal that was valued at $1.16 billion when it was announced in September. The companies said March 1 they expected the acquisition to close within the following two weeks.

Incumbent telephone companies can increase rates for basic service by the rate of inflation or slightly less. Rates for the newly combined firms can still rise, but more slowly. In 2007, charges for business lines cannot rise by more than 50 cents per month. In 2008, the maximum monthly increase is 25 cents. No increases are allowed in 2009. Residential rate increases were also capped, albeit at higher monthly levels.

Lloyd's office estimates that business customers will save close to $12 million over the next three years because of the caps. The rate caps apply to the areas where the merging companies are the incumbent providers. The caps do not affect customers who use competing phone companies.

Business rates for basic service in Commonwealth's territories range from $15.78 to $23.28, said Small Business Advocate William Lloyd Jr. Citizens' business rates range from $20.39 to $30.44, he said. The state caps rates paid by residential customers at $18.

There is a wrinkle to these caps, however. The caps apply to rates for basic telephone service, but the companies could raise rates on certain other services to make up for the lost revenue, Lloyd said.

The firms also agreed to provide standalone high-speed Internet service for two years after the settlement's approval. That means the combined firm will not bundle customers' telephone service with Internet access. Customers who turn to the firm for Internet access would not have to use it for telephone service, too.

The deal also requires that 88,000 lines be given access to a higher level of bandwidth than is required under the state law that governs high-speed Internet access.

The settlement with Commonwealth and Citizens includes a guarantee that the merged company will keep union employment at about the same level through at least November 2008.

About 430 of Commonwealth's workers are represented by the Communications Workers of America, a party to the settlement. The vast majority of those employees are in Wilkes-Barre, but two small CWA locals have midstate members, said Alex Minishak, a CWA staff representative.

The companies also agreed to file confidential reports about service quality to the Office of Small Business Advocate, Office of Consumer Advocate and a PUC office through 2008.

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BY DAVID DAGAN

davidd@journalpub.com