It’s obvious from reading the press that Frontier Communications is in trouble. The company visibly bungled the integration of the properties most recently purchased from Verizon, including some FiOS properties. The company was already experiencing customer losses, which have accelerated in the last year. Frontier is already looking to raise cash by finding a buyer for some of the properties they just purchased from Verizon.
I have no idea if Frontier is going to declare bankruptcy or fail. Watching them struggle, though, brings back memories of other big telcos that have struggled badly in the past. We’ve seen this scenario enough times to understand what poor performance will mean.
Not every telco that has struggled has gone through bankruptcy. Probably the best example of a company that almost went under, but which instead struggled for years was Qwest, which is now owned by CenturyLink. Within a few years after Qwest took over U.S. West the company fell on hard times. The company carried too much debt, and they didn’t do as well as expected in the long-line transport business that Qwest brought into the newly formed venture. The company was even fined $250 million by the Security and Exchange Commission for shady deals made with Enron’s broadband business.
We saw the consequences of Qwest’s financial struggles. They company had little money for capital and let the copper plant deteriorate a lot faster than would be expected. There were widespread reports of rural outages that were repeatedly patched rather than fixed while the company focused its limited resources on the major urban markets. Qwest lost huge numbers of broadband customers to the cable companies and also got clobbered in enterprise sales.
We saw something similar with Charter Communications. The company filed for bankruptcy protection in 2009. They pared back on capital spending and went for a number of years without making the upgrades we saw from Comcast, Cox and Mediacom. Much of the company’s footprint was stuck with first generation cable modems with slow broadband speeds.
Frontier looks to on a similar path to Fairpoint Communications after they purchased Verizon properties. Fairpoint took on massive debt to buy the New England properties from Verizon and struggled after adding 1.4 million customers to a relatively small company. Within two years after the purchase Fairpoint went through bankruptcy reorganization and continued to struggle since then due to lack of cash. They were recently purchased by Consolidated Communications.
What we’ve most learned from big ISPs that struggle is that the customers pay the price. All of these companies dealt with cash shortages by reducing staff and slashing capital expenditures. I remember Qwest staffing being reduced so much that there were entire rural counties that had only one Qwest technician. Qwest shuttered local business offices and lost the local touch in communities. Customers reported major delays in getting installations and repairs, with many reports of problems that were never solved.
We saw from Qwest and Charter that the first thing that goes in tight times is upgrades of technology. When those companies got into trouble they froze technology investment and innovation during a time when broadband speeds were climbing everywhere else.
The struggles of the big ISP invited in competition and many communities served by Qwest and Charter saw competitors build new networks. I know of some towns where the new competitors got practically every customer, showing how fed up customers were with being neglected by their big ISP. Unfortunately, the majority of communities served by such ISPs saw no competition and suffered with poor service.
Sometimes companies that struggle eventually right the ship. We see Charter now making upgrades that are a decade or more late. CenturyLink is under new management and is trying hard to make things better, but still doesn’t have enough capital to fix decades of neglect to the network. CenturyLink even got more than a billion dollar subsidy through the CAF II program to try to revitalize old rural copper. We’re going to have to wait to see if these big ISPs can make enough amends for communities to forgive them for decades of neglect.
My guess is that Frontier is not going to get the chance to reinvent themselves. They are struggling at a time when most of their rural communities are screaming for better broadband. It’s hard to imagine them somehow fixing their many problems.