FrontierOregon regulators have cleared the way for Frontier’s acquisition of Verizon’s network assets in the state, reports The Oregonian’s Mike Rogoway. The vote of approval clears another stepping stone toward closing an $8.6 billion transaction that would see Frontier taking over Verizon assets in 14 states. Oregon PUC staff initially opposed the deal, but have since had a change of heart.

“Everybody’s more or less on board,” said Michael Dougherty, the utility commission case manager overseeing Frontier’s application, who had initially advised the commission block the deal.

Concerned about potential layoffs, Frontier’s ability to seamlessly take over and manage Verizon’s operations and Frontier’s financial health and resources–it will triple in size if and when the deal closes as is–Oregon regulators negotiated a set of conditions with company management before agreeing to come to terms. Local and state regulators do not want to see a repeat of the experience with Fairpoint Communications, which filed for bankruptcy earlier this year after closing a $2.7 billion deal to acquire Verizon assets in Maine, New Hampshire and Vermont.

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The stipulations include committing to invest $10 million to expand broadband access across the carrier’s entire territory by July 2011 with $15 million set aside in escrow as assurance; an operational audit paid for by Verizon to ensure Frontier has the technical capabilities required; and an opt-out for Verizon FiOS subscribers that would allow them drop long-term contracts without penalty if Frontier reduces Internet speeds or drops any of its video channels.

The deal now moves on to Oregon’s utility commission, which is to vote on the transaction next year. Frontier and Verizon hope to close by the middle of 2010.

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