Posted on: Sunday, March 20, 2005

EDITORIAL
Verizon-Carlyle deal leaves serious doubts

There's a residue of confusion in the wake of the approval by the state Public Utilities Commission of the sale to the Carlyle Group of Verizon Hawaii.

First, many observers wonder how the PUC could approve a deal that will triple the debt of the local phone company.

Why is that bad? As Advertiser business reporter Sean Hao's story illustrated, the large debt load could increase the risk that the company could run into trouble if its financial targets are not met. A foreclosure by lenders in such circumstances could affect customer service and rates along with the jobs of employees.

"Overall, I find the potential risks and the potential benefits in the record ... indicate that the proposed transfer of control is not in the public interest," PUC Commissioner Wayne Kimura wrote in voting against the sale. Kimura was the lone dissenter in the PUC's 2-1 vote to approve the deal.

Where is the good news in all this? For cynics, it's in the many conditions imposed on Carlyle by the PUC, demanding enough that some observers predict Carlyle will walk away from the deal.

For optimists, it's that this global investment company with its enormous clout will bring impressive resources and expertise to what has been a somewhat backward and sleepy telephone operation.

But we've been concerned all along about Carlyle's business model, which is to leverage the buyout of companies, turn them around by rationalizing some of their costs and operations, and then sell them in three to five years.

It appears Verizon was content to offer the Hawai'i company at an attractive price because it's walking away with $280 million in excess pension payments. Meanwhile, the company's credit rating is being downgraded.

Perhaps we're simply too provincial to see how all this will result in better, more reliable and more cost-effective phone service.