Regulators have denied FairPoint Communications’ planned purchase of Verizon's network in Vermont, according to the Burlington Free Press. The decision puts Verizon's entire $2.7 billion plan to offload their Maine, New Hampshire and Vermont networks in jeopardy. The plan aimed to use a Reverse Morris Trust to obliterate $1.7 billion in Verizon debt, and gain a $600 million tax write off. Verizon theoretically could then focus on FiOS and wireless revenue in more profitable States instead of low ROI DSL expansion into rural America.

However, unions and consumer advocates were concerned that Fairpoint couldn't effectively function under that sort of debt load. Vermont regulators agreed, issuing the following statement:The board notes that the deal could be positive for New Englanders given Verizon has no interest in rural America -- but the $2.5 billion Fairpoint would need to borrow to complete the deal would be too risky. "They did not have enough money to run the state as it should be run," says a union worker to the Associated Press. "Where is it going to come from? The telecommunications world is wicked expensive."

One report suggested that Fairpoint planned to avoid giving anyone a raise for seven years in order to stay in sound financial shape. It's somewhat of a lose-lose scenario for rural New Englanders. Verizon has no interest in serving them, yet Fairpoint might not have survived long enough to do so either. Fairpoint also planned to stick with DSL, which obviously would have nixed FiOS deployment in those States.

Update: Verizon has offered up their position on the ruling here.