BY TUX TURKEL

Portland Press Herald

Telephone and Internet customers in northern New England who rely on FairPoint Communications would notice little immediate change if the company were to file for bankruptcy, according to Maine regulators, consumer advocates and labor leaders.

Any bankruptcy filing likely would take the form of a court-supervised financial reorganization, they said, which would allow the company to continue normal operations. Several airlines have followed this course, but perhaps more relevant is the experience of Hawaiian Telecom, a landline carrier that filed for bankruptcy protection last year and continues to operate statewide on the islands.

FairPoint is the region's dominant telecom company. It has been weighed down by crushing debt since last year's $2.3 billion acquisition of the landline phone network in Maine, New Hampshire and Vermont from Verizon Communications.

The potential that FairPoint could be forced to seek bankruptcy protection was elevated last week by statements it made in a document seeking to have bondholders delay interest payments due in October on debts totaling more than $500 million.

If new agreements can't be reached for 95 percent of the debt by July 22, the company said, it might need to seek "alternative restructuring plans" that could include "a bankruptcy proceeding."

Maine officials say that action likely would be a Chapter 11 filing, in which FairPoint would seek protection from paying creditors while it restructures its finances. During that period, all parties would have an interest in keeping the system operating to generate revenue, according to Wayne Jortner and William Black, lawyers at the Maine Office of Public Advocate.

"There's almost no scenario in which the phone system would stop working," Jortner said.

Jortner and Black also said a bankruptcy judge likely would seek to continue FairPoint's efforts to expand broadband service. Increased revenue from high-speed Internet is critical to the company's long-term survival, they said.

FairPoint borrowed heavily to do the deal with Verizon, which has been unloading less-profitable assets in rural areas. It was counting on revenue from landline and expanded Internet service to pay the debt, but problems have snowballed.

The so-called cutover from Verizon was delayed for months. Then the company began wrestling with software and other back-office glitches that delayed orders and billing, reducing revenue. Angry customers switched to other providers, worsening the revenue drain. At this time, the company says in financial statements, it has borrowed nearly all it can and is short on cash.

If the situation doesn't improve, FairPoint might not be able to make the October interest payments. That would constitute a default, and trigger the possible bankruptcy proceedings.

Maine's Public Utilities Commission would hire a bankruptcy counsel and seek to participate in any proceeding, officials at the agency said. Their goal would be to enforce conditions that the PUC placed on the sale upon approving it last year. Those include discounted basic rates, service-quality benchmarks and spending targets for Internet expansion.

"But until or unless there's a filing for protection from creditors, there's really little the commission can do," said Andrew Hagler, a PUC division director.

The PUC might get a better sense of FairPoint's financial situation on July 16, when a meeting is scheduled to discuss whether the company was able to make good on its pledge to restore service to "business-as-usual" conditions by the end of June.

The most recent status reports show that FairPoint has made strides, but remains short of its goal.

In Maine, the company is focused on meeting those performance goals and not being distracted by the larger financial threats, according to Jeff Nevins, a FairPoint spokesman.

"Everyone's hopeful," he said. "Everybody wants to make this work."

Also on workers' minds is FairPoint's new chief executive officer, David Hauser, who takes over the post today. A former chief financial officer at Duke Energy, Hauser replaces company co-founder Gene Johnson, who is retiring.

Hauser has served on the FairPoint board since 2005, and has said that he wants to address operational and financial problems quickly. He's expected to visit northern New England to meet employees as early as next week, Nevins said.

The potential for bankruptcy is being followed closely by union workers who make up the bulk of the company's work force. The International Brotherhood of Electrical Workers union was an early critic of the sale, questioning the debt structure.

In Hawaii, their members were involved in a situation in which a private equity firm borrowed heavily to buy the state's largest telephone carrier from Verizon in 2005. Back-office transition problems led to poor customer service, declining revenue and bankruptcy reorganization. Hawaii was held up as a cautionary tale during the debate over the FairPoint-Verizon deal.

"There's no satisfaction in saying I told you so," said Rand Wilson, a spokesman for IBEW Local 2222 in Boston. "FairPoint said their experience would be different."

The IBEW has 2,500 members at FairPoint, 800 of them in Maine. The union has been in contact with its counterpart in Hawaii to keep up on the bankruptcy proceeding there.

In late June, a competing cable operator made a buyout offer to take over Hawaiian Telecom, a motion opposed by the company, which is operating normally in the meantime. In May, it began promoting new pricing for service that bundles phone and Internet connections.