The Frontier Bankruptcy

To nobody’s surprise, Frontier declared bankruptcy. What is somewhat ironic is that the company blamed their problems on the lack of fiber – something that the company had the last decade to address. The company lost 6.3% of broadband customers and 21% of video customers in 2019.

People that live in rural areas in the Frontier service areas know them as a dreadful ISP. They probably don’t know the company’s history. Frontier was originally Citizens Utilities based in Minneapolis. The company decided to grow by acquisition. The company first acquired 500,000 telephone lines from GTE starting in 1993 – customers that had originally been served by Contel. In 1994 they acquired 117,000 telephone lines from Alltel – properties that were originally operated by CP National. The company picked up another 187,000 rural access lines when GTE merged with Verizon since Verizon wasn’t interested in acquiring more rural customers. In 1999, Citizens purchased Rochester Telephone that served Rochester, New York. In 2001 the company acquired the assets and customers of Global Crossings, which included local telephone customers, a long-distance network, and long-haul fiber. In 2006 the company purchased Commonwealth Telephone in Pennsylvania.

The biggest acquisitions came in 2009 when Frontier purchased the Verizon customers in thirteen states for $8.6 billion. This was followed by the purchase of Verizon customers in California, Florida, and Texas in 2016 for $10.5 billion. In 2014 the company purchased AT&T’s customers in Connecticut, which had formerly been called the Southern New England Telephone (SNET). Everybody I talked to who was knowledgeable about acquisitions thought that Frontier massively overpaid for the last three purchases. The prices paid per customer were high considering the condition of the properties they were purchasing.

There is probably no better example than West Virginia. When Frontier purchased the customers in that state, Verizon had already had the market up for sale for over a decade. During that time Verizon had stopped doing maintenance, had cut staff and had taken the normal steps to ‘dress-up’ the bottom line to enhance a sale by cutting costs wherever possible. Frontier bought a telco in West Virginia that was already in dreadfully bad shape, as were many of the other properties purchased from big telcos.

Frontier’s shortcomings were recently addressed in a 164-page report by Schumaker and Company that was funded by the West Virginia Public Service Commission. The report looked in detail at Frontier’s problems in West Virginia – a state where Frontier is the only ISP for the vast majority of the state.

Unfortunately, the current version of the report is highly redacted since Frontier claimed that details of their operations in the state are proprietary. Hopefully, the redactions will be overruled due to the fact that the company is the carrier of last resort in a state where there are still huge areas with little or no cellular coverage. However, even with the redactions it’s clear from the report that the Frontier spends little money in rural areas, has cut staff significantly in recent years, and has done very little to upgrade the networks since the original purchase. Frontier recently sold some of their properties in the Northwest as a way to raise cash.

The Frontier bankruptcy plan asks for a quick restructure and the ability to walk away from $11 billion in debt. I’ve read several analysts who are skeptical that the bankruptcy will be that easy. If the company keeps losing customers at the current pace, I find it hard to think there will be many lenders willing to front big loans for the company to rebuild.

A giant telco comprised of huge rural areas never made sense. I predicted that Frontier would eventually fold when they purchased some of the most neglected telco properties in the country. It took a decade, but those purchases finally brought the company down.

Any restructuring is not going to help the rural properties served by Frontier. The best possible solutions in terms of benefits to customers would be to restructure Frontier to just operate in its larger markets and to force it to divest of rural properties to the highest bidder – even if that offer is pennies on the dollar. New owners of the rural properties would be more likely to tackle upgrades, while Frontier is not likely to care about rural America even should they start over out of the bankruptcy.

4 thoughts on “The Frontier Bankruptcy

  1. This surprises me exactly none at all, including Frontier straight up lying in their PR and bankruptcy filings. Their claim of ‘1.2 million fiber customers’? That’s just not even remotely true.

    For one, they literally just sold off most if not all of their FTTH business to Ziply. Secondly, Frontier has a policy of deliberately misclassifying service. So I would expect at least 50% of that “1.2 million” is actually DSL customers serviced by FTTN pedestals.

    But even with all that, Frontier is basically cut-rate Windstream. They are the Dollar General to Windstream’s Walmart. And believe you me, rural CLECs claiming to be ‘investing’ could not be further from the truth. West Virginia fined Frontier $160M for repeated service outages, deliberately misleading Internet speeds, and billing issues. Much of this was outright classified as fraud on their part. Minnesota found that Frontier deliberately and as a matter of business violated no less than 35 laws including failure to keep accurate records of outages of regulated systems like 911, accurate billing records, accurate tax records, and refusing to invest in their own network.

    They’re a ‘provider of last resort.’ They are still required by law – despite their efforts in lobbying against it – to provide telephone service to any person in their service area who requests it, and prohibited from charging ‘unreasonable’ installation fees. Which over decades upon decades of litigation has been set as “you can’t charge them $25,000 to string up a copper pair exactly because they don’t have a choice. You can only charge them the same as your cheapest installation, period.”

    Consequently, Frontier has never invested a penny in their actual infrastructure, much less spent any money repairing it. Not one red cent, as Minnesota’s investigation found. Instead they tried to force customers on to lower-cost, unreliable garbage like VoIP over 1.5Mbit ADSL – that itself was so oversold on copper so neglected and rotted as to be completely unusable. Minnesota’s investigation found that Frontier’s technicians were routinely engaging in the old practice of cannibalizing working equipment – except they weren’t bothering to replace the parts they cannibalized.

    Allowing Frontier to file for chapter 11, or bankruptcy period, is just more proof of how fundamentally broken telecom in the US has become in the post-regulatory world. This is a company whose operations manuals require employees to deliberately and knowingly aid, abet, and commit unlawful acts by the literal dozen. Some of which could justifiably be classified as felonies.

    The only morally and legally justifiable answer is the seizure of all of their assets, and the arrest and prosecution of every last one of their executives starting with the one who oversaw all of this. Though good luck finding Dan “The Disappearing Man” McCarthy; he dumped his shares and almost certainly fled the country in December when the creditors started calling in auditors.

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  2. Pingback: Taking recommendations from a failing broadband provider? Frontier makes 400,000 ineligible for RDOF | Blandin on Broadband

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