Unions Battle Verizon-Frontier Deal and $600 Million Tax Break

Unions Battle Verizon-Frontier Deal and $600 Million Tax Break

by Mike Hall, Jan 8, 2010

There is an oddly named tax loophole—the Reverse Morris Trust—that is so big and lucrative Verizon is getting ready to pull $600 million through it if its sale of rural phone landlines in 14 states to Frontier Communications is approved.

Not only does Verizon stand to pocket the $600 million tax break, but a similar deal in New England shows consumers’ phone and Internet services are likely to deteriorate and workers’ jobs may be put in jeopardy.

The Communications Workers of America (CWA) and Electrical Workers (IBEW) are fighting the sale and are backing soon-to-be introduced federal legislation to close the loophole. The law now allows Verizon and other companies to sell assets tax-free to smaller companies such as Frontier, that end up burdened by debt. (For a detailed look at the Reverse Morris Trust, click here.)

Less than three years after Verizon’s sale of its New England landlines to FairPoint Communications, FairPoint has filed for bankruptcy. Now, workers face cutbacks and job losses, customers complain about deteriorating service and the lack of high-speed broadband and other new technologies. Hawaiian Telecom also filed for bankruptcy after Verizon used the same tax loophole to dump its landlines in Hawaii.

If the Verizon/Frontier deal is approved, Frontier would be saddled with some $3.3 billion in debt while consumers and workers in the 14 states would be in the same dire situation as those in New England and Hawaii.

Not only is current service likely to deteriorate, but Frontier’s $3.3 billion debt makes it doubtful it would be able to build out high-speed broadband or provide other advance telecommunications services to consumers.

IBEW President Edwin Hill says if the sale is approved, it would have a

lasting and residual effect on the consumers and quite frankly will be quite devastating. With the broadband deployment, the service quality, the economic development and jobs are all at risk.

The Reverse Morris Trust is “backward thinking and bad public policy,” says CWA President Larry Cohen.

The tax loophole tax means the government is spending hundreds of millions of dollars to subsidize large companies to exit the business of investing in our network.

Rep. Paul Hodes (D-N.H.) says he will soon introduce legislation to close the loophole.

Meanwhile unions and consumer groups in West Virginia, one of the 14 states affected by the proposed sale, are mobilizing. Read more in a story at In These Times, by labor journalist Steve Early and Rand Wilson, AFL-CIO Organizing Department communications specialist.