NPI's Cascadia Advocate

Offering commentary and analysis from Washington, Oregon, and Idaho, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Thursday, April 16th, 2020

Frontier Communications files for bankruptcy as it prepares to shed its Northwest assets

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.

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One Comment

  1. Very pre­scient insights about the Ver­i­zon-Fron­tier deal! I’m impressed.

    # by Mary Sue Peters :: May 6th, 2020 at 11:08 PM