FairPoint Communications Inc. (FRP) edged one step closer to bankruptcy on Sept. 30, the day it missed a $28 million interest payment. The rural LEC’s bank lenders knew the default was coming, and have given the company until Oct. 30 to make good. But the chances of FairPoint not filing Chapter 11 grow bleaker as FairPoint continues to struggle with unhappy customers, state regulators and money woes. And now that ratings service Standard & Poor’s has downgraded FairPoint to a ‘D,’ it seems everyone has lost faith in the provider’s ability to recover from its problems. All in all, FairPoint’s downfall, brought on by a disastrous takeover of Verizon Communications Inc. (VZ) landlines in New England, highlights how the back-office and its complexities can make or break a company.

FairPoint’s spiral started last year after it paid $2.17 billion for 1.6 million Verizon phone lines in Maine, New Hampshire and Vermont. The challenge was to consolidate those lines into one regional network, on the same OSS/BSS platform.

Things have not gone well.

FairPoint rescheduled its final cutover several times and, when it did move all subscribers onto a single system, chaos ensued. Many customers lost phone and Internet access for days, billing errors became the norm. In fact, FairPoint only recently removed a notice from its Web site that warned customers of continued miscalculations – more than six months after switching from Verizon’s software.

For subscribers, then, the specter of a FairPoint bankruptcy doesn’t look too frightening, because not much would change. Brian Washburn, principal analyst of network services at Current Analysis said Chapter 11 “would have a fairly limited new impact” on end users.

There is a chance, though, that service quality could degrade, and network upgrades placed on indefinite hold, said independent telecom analyst PJ Louis, who’s tracked the FairPoint debacle. Other than that, the negative implications seem to be greater for FairPoint and its suppliers.

“You’re probably in the crosshairs right now if you’re an existing vendor,” said Ed Vilandrie, director of tech consultancy Altman Vilandrie. But, he added, “I think bankruptcy is a way for FairPoint to clean the slate.”

The risk for business partners is that some may not get paid for the products and services they’ve sold to FairPoint. When a company files for Chapter 11, its financial assets become property of the court and a judge decides who gets compensated first. Senior secured creditors usually win.

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