One of the Pacific Northwest’s largest Internet Service Providers has filed for Chapter 11 bankruptcy protection, with years of mismanagement and the consequences of ill-advised deals having taken a predictable toll:
Frontier Communications filed for bankruptcy protection from creditors on Tuesday night as a last-ditch recourse to eliminating debt coming due, more than five years after acquiring Southern New England Telephone territory in Connecticut only to take on a crippling amount of debt in a subsequent deal.
Control of Norwalk-based Frontier would shift from shareholders to creditors holding unsecured debt that would be converted into equity shares, according to Frontier’s filing in the U.S. Bankruptcy Court for the Southern District of New York which entered the company’s petition at 10:30 PM.
Frontier Communications replaced Verizon as the telecommunications provider for many people and companies in the Pacific Northwest about ten years ago in a megadeal that this organization, the Northwest Progressive Institute, opposed.
On the day that the Federal Communications Commission rubber stamped the sale from Verizon to Frontier, which entailed Frontier taking on an enormous amount of debt in order to satisfy the greed of Verizon executives, I wrote a satirical press release spoofing the FCC and assailing the deal in blunt terms:
Today, the Federal Communications Commission once again rubber stamped a tax-exempt, unjustifiable megadeal between a big telecommunications company (Verizon), which selfishly wants to concentrate on providing service to denser, wealthier neighborhoods and a smaller communications company (Frontier) eager to triple in size overnight by buying the bigger company’s assets in fourteen states. This transaction — which was cooked up more than a year ago — is being allowed to proceed because we at the FCC are easily persuaded to believe that for-profit companies will put the public interest first if we let them do what they want.
(Also, we simply don’t know how to say NO.)
The Commission issued the Order after carefully reviewing what Verizon and Frontier’s executives had to say, requesting a lot of documents so we could say we did our homework, and allowing the applicants to proceed after getting them to agree to a set of wimpy conditions which we hope will prevent affected customers from being screwed.
At the conclusion of the post, I noted that Frontier was not likely to continue Verizon’s fiber build-out, despite its promises, and that the Pacific Northwest was getting shafted as a result of the sale to Frontier:
Those who should be really unhappy with this deal are the folks who don’t have FTTP (fiber to the premises), because it’s unlikely that Frontier will have the resources to bring FiOS service to additional neighborhoods in the Pacific Northwest. They’re going into debt in order to pay Verizon for all those landlines.
Emphasis is mine.
Subsequent events have proved our assessment to be spot-on.
Verizon never should have been allowed to unload its Pacific Northwest infrastructure onto Frontier (which was at the time a much smaller telecommunications provider) without the resources to do right by its customers.
But because the FCC and its state counterparts have absolutely no idea how to exercise proper regulatory oversight, the sale was allowed, and Verizon bailed out of the Pacific Northwest, leaving Frontier to muddle along for about a decade.
The Washington State Utilities & Transportation Commission was sadly just as deluded as the FCC when it made its decision. Consider what the Commission had to say in its final order allowing the sale to Frontier:
We are convinced that Frontier has the managerial and financial capability to operate the acquired property.
Frontier has extensive experience operating telecommunications systems in rural, suburban, and small urban areas; areas comparable to those being acquired in this transaction. Frontier’s experience acquiring telecommunications properties included incorporating such systems into its operations. Its managerial and financial capability, combined with the technical expertise in operating the replicated systems possessed by current Verizon NW employees, should ensure that service quality remains at, or exceeds, its current level.
Moreover, as a result of this transaction, Frontier should emerge a financially stronger company with greater access to financial markets and the resulting ability to obtain capital at lower rates.
Emphasis is mine.
Wrong, wrong, wrong, wrong!
I hope UTC staff and commissioners end up reading this blog post. I hope they realize that they (or their predecessors) were dead wrong about the Verizon-Frontier deal, and that they failed the public. I hope they’ll acknowledge their error, and I hope they’ll learn from their mistakes. I don’t hold out any hope for the FCC, at least not while it is under the control of Ajit Pai and his minions.
Last year, Frontier began looking for a way out of the Pacific Northwest, just as Verizon had ten years prior. Frontier’s C‑Suite struck a deal to sell its Cascadia assets to a new company, Northwest Fiber, which subsequently picked Ziply as its doing-business-as name. The deal has since received the necessary regulatory approvals (of course…) and the handoff is set for Friday, May 1st.
Though we’re normally suspicious of deals, this transaction does make a lot more sense than the one engineered by Verizon and Frontier a decade ago.
At least this time, Pacific Northwesterners are going to end up with a service provider that appears to be in good fiscal health instead of the other way around.
Ziply’s investors seem to have realistic plans for the company and they will be headquartered here, with local leadership. That will make a big difference.
As of the beginning of next month, Frontier customers in the Pacific Northwest will become Ziply customers, and will cease to have a connection with the Norwalk-based company, whose prospects don’t look very good at all.
Frontier Communications Corp.‘s senior lenders say the telecommunications company’s prearranged bankruptcy plan is a “fragile house of cards” that won’t stand up in court.
[…]
On Thursday, lawyers for lenders owed $5.7 billion took aim at Frontier’s proposal to borrow $460 million, a new loan that would be paid off before the lenders’ claims.
Brian Hermann, lawyer for a group of senior lenders, said his clients think Frontier doesn’t need the money, given the more than $725 million in free cash available now and a sale of Pacific Northwest assets that will bring in about $1.3 billion.
“That’s $2 billion which, by any measure, is a lot of cash,” Mr. Hermann said at the bankruptcy court hearing.
While it has backing from unsecured bondholders for its bankruptcy plan, Frontier failed to reach agreements with its senior and junior lenders, both of whom rank ahead of bondholders in the order of payment under bankruptcy law.
Frontier executives had tried their best to orchestrate the bankruptcy filing to avoid a big mess. But it looks like their efforts were in vain and the bankruptcy will be somewhat messy. As The Wall Street Journal reported, lenders are challenging the company’s plans and arguing that the company should not be borrowing more money right now (which seems like a reasonable position).
If you are reading this post and wondering what to expect from Ziply, they’ve set up a website you can check out to get more information.
“The best internet possible starts with fiber optic speeds and reliable connections on a modern network — built by a local company with the capital and drive to see it through,” Ziply’s site says. “It also means making things simple and easy for you, with super service and pricing that skips the gimmicks.”
“We’re dedicated to bringing fiber to more than one million Northwest homes and businesses, many of which have been underserved for decades. We will accomplish this in your community and throughout the entire region — efficiently and capably, responsibly and enthusiastically. After all, we’re your neighbors, too.”
“If this sounds like a refreshingly great experience, you’ve come to the right place. We’re Ziply, and we’re here to connect you to the things that matter most to you,” the company’s pitch adds.
Time will tell if Ziply actually delivers on its promises, but we’re pleased that the company isn’t making a lot of pie in the sky claims. They’re not saying everything will magically get better in a day, a week, or a month.
Instead, they’re pledging stability. Customers of Ziply will even get to keep their @frontier.net email addresses, if they have any, at least for now.
Ziply plans to resume the fiber build-out that Frontier gave up on, and connect more Pacific Northwesterners to high speed Internet as soon as is feasible.
Sounds good to us.
Frontier is advising that after May 1st, 2020, customers who are going to Ziply (meaning any Frontier customer in Washington, Oregon, Idaho, and Montana) should call 1–866-947‑5995 for billing and technical support questions instead of the customer support telephone numbers on its website.
This is presumably a number that Frontier established, but which will be given to Ziply once the handover date arrives along with Frontier’s Northwest assets.
Pacific Northwesterners would have nothing to gain from staying with Frontier, so we’re looking forward to a new era with Ziply Fiber. We will check in with their leadership later this year to find out how everything is going post-handover.
Very prescient insights about the Verizon-Frontier deal! I’m impressed.