NEW YORK (AP) – Verizon Communications Inc. is selling its residential telephone business in three New England states for $2.72 billion, shedding more of what the company sees as non-core assets as it invests billions to upgrade its wired and wireless networks for next-generation services.

The operations in Maine, New Hampshire and Vermont, serving 1.5 million homes, will be acquired by FairPoint Communications Inc. of North Carolina, the companies announced Tuesday. FairPoint owns local phone networks in 31 mostly rural markets in 18 states, including the three where it is acquiring Verizon’s business.

Hoping to head off worries among local officials that Verizon’s planned exit might lead to deterioration in phone and Internet service, the companies emphasized there would be no layoffs and that FairPoint would invest heavily in the region to expand broadband availability to more homes.

Verizon had previously indicated it might sell or divest its northern New England business as part of a slimming-down exercise that has included the spinoff of its phone directory business and the sale of its Hawaiian operations to an affiliate of The Carlyle Group for $1.3 billion in cash.

The company has indicated it may also divest local phone operations in more rural parts of the Midwest, though it’s unclear whether any deals are in the works. Media reports have suggested the assets for sale are located in Indiana, Illinois, Ohio and Michigan.

Though it did acquire the MCI long-distance business a year ago, Verizon’s overall corporate shrinkage contrasts sharply with the strategy at AT&T Inc., which just weeks ago completed the $86 billion buyout of BellSouth Corp., a company with extensive rural operations.

The focal point of the BellSouth deal was to gain complete ownership of Cingular Wireless, but AT&T has said it sees opportunity in adding BellSouth’s traditional phone business to its own. Likewise, AT&T is investing in its phone book and online directories operations, whereas Verizon opted to exit that business in November, reducing its debt by $7 billion and raising $2 billion in cash with the spinoff of a company named Idearc Inc.

Verizon and FairPoint stressed that there will be no layoffs as a result of the deal, with FairPoint saying it expects to hire 600 more employees in the three-state region. The operations being sold employ 3,300 workers, and roughly 3,000 of them will work for FairPoint after the deal. The remaining 300 employees will remain with Verizon, which is retaining the business-services operations in those states that were acquired with MCI.

FairPoint said it plans to invest $200 million on infrastructure improvements and systems development in the region, with half of that that amount being spent “even before we close the transaction,” said Gene Johnson, chairman and chief executive. FairPoint also said it plans to significantly increase broadband Internet availability in the region within the first 12 months after the deal is completed. The operations being acquired currently provide DSL Internet service to 180,000 customers.

It was unclear, though, whether FairPoint might revive any of the network upgrades that Verizon had begun in the region as part of “FiOS,” a multibillion project in which copper phone wires are being replaced with fiber-optic lines that can deliver cable TV and super-fast Internet access. FiOS Internet service is currently available to roughly 80,000 homes in southern New Hampshire.

The Verizon operations being sold will first be transferred to a newly created unit that will issue $1.7 billion worth of new debt before being sold to FairPoint.

Of the $2.72 billion being paid by FairPoint in the deal, Verizon shareholders will receive about $1.02 billion in FairPoint stock. Verizon will receive $1.7 billion, consisting of both cash and an undisclosed portion of the debt securities issued prior to the spinoff.

Verizon said it may exchange the newly issued debt for some of its own outstanding debt, thereby reducing its overall liabilities. Verizon ended the third quarter with debt of $41.7 billion, a tally that doesn’t refelect the Idearc divestiture.

FairPoint’s shares jumped $2.87, or 15.48 percent, to close at $21.41 on the New York Stock Exchange. Verizon’s stock slipped 17 cents to finish at $37.16 on the NYSE.

AP-ES-01-16-07 1742EST

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