JNB backs Verizon sale—finally

After putting up a strong opposition to the sale of Verizon, Gov. Juan N. Babauta finally changed his stance and threw his support behind the multi-million-dollar telecom deal.

Babauta said yesterday that he would not contest the Commonwealth Telecommunications Commission’s final order, which removed all obstacles to Pacific Telecom Inc.’s purchase of Verizon from Micronesian Telecommunications Corp. Babauta has until Monday to elevate the matter to the Superior Court, his lawyer, assistant attorney general James Livingstone, said.

“Our objections resulted in many concessions from MTC and PTI for the benefit of our people. I believe the public interest has been served,” the governor said.

In a media statement, the governor highlighted some of the components of the 27-point settlement agreement regarding the Verizon sale:

* Ending the interisland toll;

* Ensuring that PTI commits to bring the best technology to the Commonwealth;

* Protecting MTC’s current employees and making certain that future hiring and promotions to management will be done locally;

* Guaranteeing that there will be no increases in long-distance or local rates for years;

* Encouraging and fostering future competition in the Commonwealth;

* Stipulating to financial protections, “so that we know PTI will be run in a safe and sound manner”;

* Ensuring that CTC had the information it needs to make its decision; and

* Fostering future regulation by agreeing to support a bill to provide the resources for CTC and the Office of the Consumer Counsel to properly do their jobs.

“I believe each stipulation will greatly help the Commonwealth, our people, and our economic future,” the governor said. “I am not pleased that the CTC ruled that the government could not get full disclosure on the buyer’s financial situation or their ability to run a complex communications company. But given the concessions and regulatory ability we now have, we are more comfortable to let the sale go forward.”

Babauta noted that the issue on Verizon’s sole ownership of the only fiber optic cable in the CMI would be resolved in a separate contested case proceeding. “The only way the CNMI can come up to the same communication standards of the U.S. or even the neighboring island of Guam is for competitive pricing on the only cable that links the CNMI with the rest of the world.”

In a separate interview, Livingstone said the governor is generally pleased with the CTC’s final order, which upheld a settlement agreement that will mandate a $20-million capital investment by the company’s new owner within the next five years.

Livingstone said the governor favored the CTC’s order mandating Verizon’s membership with the National Exchange Carrier Association, which is expected to provide assistance to rate and tariff development, industry database management, compliance auditing, economic forecasting, trend analysis and regulatory policy analysis.

“The governor is pleased that the CTC upheld the intent behind the settlement agreement, particularly Pacific Telecom Inc.’s promise to spend $20 million in capital expenditure, and CTC made clear that the money has to be spent for the benefit of the CNMI,” Livingstone said.

CNMI consumer counsel Brian Caldwell, who also intervened in the CTC proceeding, said he is satisfied with the CTC’s final order. “We got everything that we wanted.”

Caldwell said the CTC has imposed enough safeguards regarding financing and the implementation of the five-year capital expenditure. “We’re also very pleased that the CTC, upon reconsideration, mandated that Verizon will join NECA,” Caldwell added.

Had the decision been otherwise, he said he could have considered the possibility of appealing the decision before the Superior Court. Caldwell said non-membership with the NECA would impact on the analysis on financial audits earlier performed by Economics.com and Deloitte & Touché.

The CTC issued the final order nearly two years after Verizon owner Micronesian Telecommunications Corp. and prospective buyer PTI applied for approval for the transfer of all common stocks.

Top PTI executives Jovino Lorenzo and Rogelio L. Singson said Wednesday that the company has already begun due diligence work on MTC and would complete the process as soon as possible to consummate the telecom deal, which has been estimated at $60 million.

With the CTC setting the deadline for the deal’s closing on Aug. 31, the executives said the telecom sale is good as a done deal, and PTI would take over Verizon’s operations on or before Sept. 1.

Lorenzo and Singson said there would be no change in Verizon’s management and employees, except for the board’s membership.

Lorenzo also disclosed PTI’s interest to become a regional player in the Pacific islands. He said the company would comply with the settlement that PTI would join the NECA.

Singson welcomed the CTC’s modification order last Monday, saying that the commission relaxed its requirements on CoBank, PTI’s main financier in its acquisition of Verizon, by requiring it to provide information to the CTC only in default cases. He said the decision was proper because it is PTI, not CoBank, which the CTC regulates.

The order also included a force majeure provision, which would give Verizon a grace period within which to comply with certain obligations if the delay in performance was due to any event arising from causes completely beyond the control of the company. The CTC outlined procedures on how Verizon could seek relief should force majeure events occur.

The CTC also clarified certain restrictions, including that on the $20 million capital expenditure plan. “If a capital investment is not sited on NMI soil, the company must apply to the commission in advance for approval, and show how the primary purpose is the benefit of CNMI jurisdictional customers.”

The CTC ruled that the interveners, Babauta and Caldwell, should receive a copy of Verizon’s capital expenditure plans at the same time as the commission. It also declared that the companies should provide the CTC their technical assistance agreement at least 10 days before the transaction’s closing.

In granting some requests of Babauta and Caldwell, the commission imposed dividend-reporting obligations on PTI. Reporting obligations will cover the company’s intention to declare a special cash dividend at least 28 days before the declaration, its intention to transfer more than 5-percent of retained earnings to a corporate parent over a six-month period at least 63 days before the actual transfer, and the company’s most recent quarterly common stock cash dividend payment.