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.