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Frontier’s Follies: Company Blames Marketing, On-Shoring Call Centers for Customer Flight

Phillip Dampier November 3, 2016 Broadband Speed, Competition, Editorial & Site News, Frontier, Rural Broadband 10 Comments
Road to nowhere?

Road to nowhere?

Frontier Communications has lost more than 150,000 customers in the last six months as company executives blamed bad marketing and the on-shoring of call centers that formerly supported Verizon customers in Texas, California, and Florida.

Some 99,000 customers dropped Frontier service in the last three months, and another 77,000 departed during the three months before that. In addition to losing customers, Frontier saw a net loss of $80 million in its third quarter, up from a the $14 million the company lost during the same quarter a year ago.

A clearly distraught Dan McCarthy, Frontier’s CEO, knew he was in for a pummeling from Wall Street analysts on a conference call with investors on Tuesday.

“I wanted to assure you, that I’m focused on addressing and resolving the issues hindering our performance,” McCarthy said. “I’m fully aware that the third quarter results underscore the urgent need for our expanded business to perform at the higher level, where I know it can and should. And you have my personal commitment that we will do so.”

Frontier lost $52 million in revenue in the last three months in part because of its disastrous transition of former Verizon customers in California, Texas, and Florida and because a growing number of broadband users have realized Frontier’s endless promises of better service have rarely come to fruition and those customers chose other providers.

“This decline is unacceptable and reflects a level of performance, [and] I’m committed to change it,” McCarthy promised.

Unfortunately for customers and investors, that “change” is primarily rearranging the deck chairs with a haphazard, and likely soon-to-be-an-afterthought “reorganization,” and the usual treatment prescribed when executives fail to deliver Wall Street the results they expect: big layoffs of employees that had nothing to do with Frontier’s problems and have in fact been warning the company about some of their more boneheaded moves. The idea for quick layoffs may have come from Frontier’s newest chief financial officer R. Perley McBride, a pick McCarthy said will be “laser focused” on cost management. That’s code for cost-cutting, not exactly the best idea for a company that has shown a near-constant aversion to investing adequately in its network and on necessary broadband upgrades.

Analysts didn’t seem to be terribly interested in Mr. McCarthy’s grand reorganization plan either, detailed in this veritable word salad:

Let me also highlight that today, we announced a new customer-focused organizational structure, and the creation of commercial and consumer business units. This change is designed to improve our execution and operational effectiveness, increases spans of control in the organization and makes us more nimble, while at the same time eliminating duplicative costs associated with our former structure. In the first month of operating our new properties, it became apparent that this change was necessary.

McCarthy

McCarthy

Some investors pondered if these operational problems were all so readily identifiable and apparent, why didn’t Mr. McCarthy carry out changes after assuming leadership of the company more than a year ago.

McCarthy’s realization that big changes were needed is not what he was telling investors in May, when he was downplaying the impact of the Verizon customer cutover as affecting less than 1% of customers and wasn’t material. That level of happy talk puts McCarthy dangerously close to Wells Fargo territory, where a few million fake bank accounts weren’t material either.

McCarthy loves to use catchphrases to minimize the problems experienced at Frontier, as well as countering any negative developments with aspirational talk about the future.

For example, Frontier’s decision not to carefully scrutinize customer data provided by Verizon before cutting over customers to Frontier’s systems, leaving many without service for days to weeks was the result of “imperfect data extracts and network complexities” according to McCarthy. That cost Frontier plenty as the company issued bill credits to potentially tens of thousands of customers left without service because of ‘imperfections.’ Many just decided to leave and never looked back.

In May, McCarthy told investors “After a month of operating these properties, we are very pleased with the progress we have made, and we want to thank customers for their patience during the transition period. The entire Frontier team remains focused on cultivating growth by retaining and attracting new customers. We will continue to drive Frontier’s performance to maintain free cash flow that provides an attractive and sustainable dividend payout ratio.”

Not so much anymore. This week, McCarthy hit the red alert button and suddenly declared an urgent need for a major reorganization, oddly pegging Frontier’s problems partly on organizational inefficiencies:

“Historically, Frontier was organized around a regional structure, each one of the regions had its own resources that included marketing, finance, engineering, human resources. And in doing that, we – when we were a much smaller entity, it really did serve us well at that point in time. The more we looked at it today, the less differences there are in a lot of the markets and the way we’re going to market whether it’s around a Vantage product or it’s around FiOS or it’s around next-generation broadband products. So, when we looked at it, we did a really a trade-off on it, so we’ve essentially eliminated all of that redundancy in the organization.”

The unemployment line is in the future for 1,000 Frontier employees.

The unemployment line is in the future for 1,000 Frontier employees.

So what is the “redundancy” Frontier claims it has essentially eliminated? The forthcoming layoffs of 1,000 employees nationwide which Frontier management believes will make things much better for customers, at least according to McCarthy:

The impact is approximately 1,000 individuals that will be leaving the organization, and that translates directly into cost savings. And the nice part about it too is that the enhanced focus on commercial as well as consumer and Frontier has historically been a very consumer-focused organization. We’ve done well on the commercial side, but I really believe we can do much better with more focus, more attention and really putting the resources on those opportunities and making it, that’s what they do every day when they get up and they come to work, all they’re trying to do is grow the commercial revenue base.

So that’s really what we’ve done. It does change the focus on the field operations to really be engaged with the community as well as providing excellent service to customers and being that bridge, but really sales for both consumer and commercial are more centralized in a way that we can apply better resources and do it in a more efficient manner.

analysisSo Frontier plans to become more engaged with the community and deliver better service locally by… getting rid of 1,000 local employees and centralizing its resources somewhere else, probably in another state. The cherry on top? Frontier also implemented a rate hike for customers to enjoy.

McCarthy claimed Frontier has been a “very consumer-focused organization,” which seems hard to believe considering how many customers are saying goodbye to Frontier for good. He also implied customer sales are down because Frontier hasn’t effectively used their call center employees to sell service and Frontier alienated customers by moving those call centers from overseas back to the United States. Really?

The executive team at Frontier shrugs off further evidence of deepening customer dissatisfaction by ignoring customer losses in their “legacy” service areas — Frontier territories served by copper yesterday, today, and probably tomorrow. But ignoring problems is nothing new at Frontier:

  • It’s not a problem that customers cannot order Frontier products and services on its website because of managerial ineptitude.
  • It’s not a problem that customers are still stuck with 1-6Mbps copper-based DSL from Frontier while their cable competitor offers 200Mbps or more.
  • It’s not a problem that several years after assuming control over almost all landlines in West Virginia, Frontier has only accomplished broadband speed upgrades for 23% of customers stuck in Frontier’s broadband molasses, and only after the company settled with the West Virginia Attorney’s General office in December 2015. For the record, that amounts to 6,320 customers. Don’t break a sweat there. Frontier’s performance in West Virginia has been so abysmal, the settlement between the state and the company represents the largest, independently negotiated consumer protection settlement in West Virginia history, which extends back to June 20, 1863.
  • It’s not a problem that customers in Connecticut are still plagued by aftershocks from the tumultuous transfer from AT&T to Frontier in October 2014. On Oct. 19, 2016 countless DSL customers were reminded of that transition when they suffered another multi-hour outage and to add insult to injury, Frontier decided the time was also right to raise rates $4 a month for its Vantage TV service, which caused another round of customer cancellations.

McCarthy called the operational reorganization a “bridge” between field operations and providing excellent service to customers. We call it just another bridge to nowhere.

We’ve written for years that Frontier’s real problem isn’t cost management, organizational structure, or where it places employees and call centers. The real elephant in the room is that Frontier’s broadband service is terrible, especially where Frontier built the network all by itself or acquired it from another phone company decades earlier.

We are convinced Frontier’s management understands this, and so do many investors, but they just don’t care. One summed up the Frontier story this way:

So Frontier buys the whole wireline shooting match in one geographic area after another (labor force, wires, customers, DSL, even FIOS) paid for with billions in junk bond proceeds. Looking at an asset base that is disappearing before their eyes, the game is to squeeze as much out of it as possible before it crumbles completely. Minimum possible maintenance, minimum possible [investment], minimum possible headcount, and less every year.

From an investor’s standpoint, the key question is to figure out when the final collapse is going to take place.

Frontier's "High Speed" Fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

Frontier’s “High Speed” fantasies extend back to 2010 when former CEO Maggie Wilderotter was telling customers Frontier was loaded with fiber.

When Rochester Telephone rebranded itself Frontier Communications in the 1990s, it did so looking forward to the future. The Frontier Communications experience of today is like immersing oneself in the History Channel. Nearly everything about Frontier these days is about the past and a promised future that never seems to arrive. Everything surrounds a legacy network still almost entirely dependent on last-century DSL for residential customers and various acquired networks from Verizon and AT&T mismanaged at conversion, forcing customers to clean up after Frontier’s repeated mistakes.

In legacy service areas where little has changed over the last decade, the four words that come to mind are “too little, too late” as customers make one last call to permanently drop service despite promises faster speeds are coming soon.

Too little investment in suitable broadband: Frontier dwells on its dividend payout to shareholders while customers languish with internet speeds that do not come close to the FCC’s definition of broadband. Instead of spending billions acquiring Verizon’s throwaway service areas, invest that money in your network and offer truly competitive 21st century broadband service.

Too late to matter: Frontier’s commitments to broadband upgrades happen too slowly and for too few customers. Much of Frontier’s state-of-the-art networks were built by other companies and simply acquired by Frontier, which now provides sleepy caretaker service. When people think Frontier Communications, they sure don’t think of words like “modern” and “innovative” and “excellence.” They think “yesterday,” “out of service,” and “slow.” There is a good reason why cable operators eat Frontier’s market share. People don’t love the cable company more than Frontier, but at least they are no longer stuck with broadband speeds that were common during the latter half of the Clinton Administration.

You’re a communications company, not the Geek Squad: While Frontier fritters away their customer base, those remaining are literally assaulted with promotions for dubious value services like tech support, virus protection, and cloud storage backup. There is a reason other phone and cable companies have not followed Frontier’s lead on emphasizing these services. They don’t matter to most customers and many of those who do have them are surprised when they find them on their phone bill because they don’t remember signing up. Sell reliable and fast phone, broadband, and video service, not gimmicks.

It is unfortunate another 1,000 Frontier employees are about to pay for the mistakes made at the top. Until that changes, customers would do well to consider their options and act accordingly. If reporting by The Hour is any indication, customers shouldn’t hold their breath. Frontier is still looking out for their most important asset: their shareholders.

If Frontier’s customer relations remain a work in progress, so does McCarthy’s job convincing investors to see the promise of his plan and that of his CEO predecessor Maggie Wilderotter to create a national broadband company from territories AT&T and Verizon have been willing to cast aside. Since closing at $6.54 on Oct. 31, 2014, on the eve of the switch [in Connecticut], two years later Frontier shares have hovered for the most part just above the $4 threshold.

With a new chief financial officer in place in former Frontier executive Perley McBride, McCarthy promised to get Frontier on track from an investor perspective, even as the company works to get its customer relations on an even keel.

Currently there are 10 comments on this Article:

  1. Bob says:

    In my mail just like clockwork every two weeks I get home from work and get the mail from the mailbox and there is the latest Frontier solicitation for me to recycle. Are they kidding me when they advertise their “up to” 6/1 Mbps internet service as high speed broadband ? Seriously ? Frontier, please do yourself and many others a favor. You can save some money and just stop mailing all of us this junk that you continue to send us. We are not interested and never will be.

  2. LG says:

    It happens like this with any company that puts it’s shareholders and backers before the customer. If there are no customers, there are no backers, no backers mean no company. This seems like .. short term investment (leaving antiquated equipment and relying on buying other companies that are are a little better, but nearly as antiquated). Instead of having long term investors who take the long view, they got hedge fund managers instead. When they needed a Lee Iaccoca, they hire a Anthony Shkreli instead. It serves them right. And blame everyone else too.. sure, the decision to switch to American phone support that speak clear English ..was a terrible choice -and people are I’m sure, just outraged by it. Sure.

  3. Danny says:

    Yes Frontier screwed up during the transition. But cost cutting is not the answer and he knows it. McCarthy’s panic is going to make things worse. I’m a Frontier customer in California and I recently had an issue with my service. When I contacted Frontier I was expecting the worst, but to my surprise it was anything but. I got an immediate response on Saturday and my problem was corrected on Sunday. I loved the fact that it took less than two minutes to talk with someone on the phone and it wasn’t off shore. It was one of the best customer service I’ve experienced. I was shocked. Not at all what I’ve read about. I thought maybe Frontier’s really trying to make things right.

    What a boneheaded decision

    • Paul Houle says:

      @Danny,

      on a good day you can get excellent service from knowledgeable people from Frontier. On a bad day you don’t.

      My area is not that bad in terms of reliability today, but I am stuck at 2 Mbps. A tech did come out and say he was doing “loop shortening” at other places in the state and that might happen for me, which could raise speeds.

  4. Jon says:

    I guess their executives in CT suffer from the philosophy that customers in the older DSL territories somehow already know what FTR offers (so don’t need a website to browse offers) and have no competitive choice. It looks like their upper management draws from the energy/utility industry, and they’re trying to apply the traditional business model of rent extraction to a very dynamic industry where consumer choice can change drastically over a month or two. There are some innovative products they could make with the old copper lines if they could get a handle on which parts of their footprint can be sold into with a few upgrades, which parts are too congested or run down to even bother marketing to, and which parts are served by little more than a microwave remote CO. And now they’re about to get bogged down in an IPTV product (over DSL to wit) when the entire pay TV industry has moved away from physical set top boxes. They’re probably flushing away millions in direct mail bucks by sending offers to people that can’t get even 6 Mbps or have far better options from cablecos. Pretty sure that dividend is going away.

  5. Joe V says:

    More acquisitions coming in 2017. With the rest of Verizon’s last mile fixed wireline in MA & RI as well as NY, PA, DE, MD, VA, NJ (am I missing any other still Verizon controlled wireline territories?) up for sale and the possible merger of Fairpoint, Frontier is not done growing yet. 2017 will be the year of AT&T, CenturyLink, Frontier and Windstream as they are also looking for more M&A. Just have to see which one will implode under the massive incurring debt.

    And It will get worse before it gets better. We are going to roll over and accept this AT&T / Time Warner merger, the same goes for the Level 3 / CenturyLink merger, both with very little oversight or opposition. AT&T will become communications and media giant. CenturyLink will not only be a telecommunications provider both national and international, but they will also eventually become a telecom giant as they are going to acquire the wireline from AT&T. Let’s hope that neither one implodes under the new massive debt they are taking on. The remaining badly neglected copper DSL that Verizon and AT&T are determined to rid themselves of AGAIN will be turned over to the frankensteins Windstream, Frontier and CenturyLink. Guaranteed that we the taxpayers will be on the hook for these three companies trying to maintain that existing infrastructure. We will be lucky if any meaningful upgrades happen at all.

    THIS IS WHY WE NEED STRONG REGULATION. However for now we are certifiably screwed.

  6. David says:

    I’m also a frontier customer and the service is reliable, but the speed is terrible. We are still stuck at 768 KB and there are no upgrade plans for the foreseeable future. Frontier doesn’t really have any credible competition, so we’ll likely be stuck with frontier for the foreseeable future as well. I also think it is funny that I regularly get junk mail advertising their “high speed internet” when I’m already a customer. Marketing dollars are being wasted instead of being spent upgrading their network.

  7. Joe says:

    Frontier needs to stop buying properties and concentrate on fixing what they have. They are losing customers because they are pushing repair dates out 5+ days and doing new installations first. There is no way you are going to retain customers by leaving them out of service that long. People cannot live with no internet or phone for over 5 days they will leave. Take care of the existing customers first before adding new ones. There are other useless processes they use that do nothing but waste time and money like the way they dispatch technicians who constantly cross one another in travels or two technicians on the same street due to the “system” running automatically and they will not allow a human touch to stop it. They wasted big bucks on a new mascot that could of went to fixing issues and upgrading their system instead. Their employees care about the customers but hands are tied by management who have little or no Telephony experience.

  8. good article that holds nothing back. sometimes the truth hurts.

  9. Disgruntled Employee says:

    I work for this company and this is the most spot-on article I’ve read about what’s truly going on in this company. The guys at the top only care about share-holders and their own salaries. Maggie, the ex-CEO took a 10 million bonus and then what do you know? The next year or two she decides she wants to retire (but not really retire… go to the board of directors) Yeah, I’d love to take a 10 million bonus just so I could go to board meetings once a week, if even that. But yeah, instead of taking that 10 million and investing it in training, or upgrading facilities. Maggie thought she needed to add a couple 0’s to her bank account. Then hands the reigns to Dan McCarthy whom has been a complete mess. One, he lies and makes things seem like things are going great when they most definitely are not. We’ll get a company wide email saying how well the transition went and “while there were bumps in the road” it went ok. Then a month or two later we are hit with an email saying they’re laying off 1000 employee’s. Instead of cutting off the head of the snake and getting rid of Dan. Our center, and many others have been on REQUIRED overtime of 10 hours a week for about a year now and they refuse to hire any full time employees because of a pay-freeze. So what is their compromise? They put us on overtime indefinitely and hire contractors/temps who know they are going to be let go in 3 years or less, and then on top of it hardly give them any training. A lot of us employees think that Dan already knows of a loophole through bankruptcy that he plans on using to 1) (as this article even points out) Take as much money as he can off this sinking ship then run for the hills and live comfortably off his own mistake of a company while thousands of his employees suffer like my mother who has worked for this “company” (used to be GTE, then Verizon, then Frontier) for nearly 20 years and doesn’t have a college degree. Not too many choices for her if we were to get laid off. and 2) he plans on taking whatever money he can get out of the bankruptcy and use it to join another major phone and internet company and keep still making the big bucks. It’s only a matter of time before this company goes under. But what really matters is if all of us are going to be out of a job when that happens. As long as another company scoops us up and takes over, I’ll be fine. Hell… I’d be happy at this point if that happened. Seriously I can’t get over how well this piece is written. It’s almost like the writer works here also!







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  • Josh: Good grief. If they still have money, they HAVE to spend...I mean it's probably too late, but...what on Earth is wrong with these executives? I mean...
  • Paul Houle: The scary thing is that Frontier has a huge cash flow. There are still enough customers that use Frontier because they don't have a choice. "Cable" ...
  • Robert: Cox sucks...
  • Dan: The high dividends aren't a problem anymore, but there's probably not enough money to do more than pay off the interest. If they were smart, they'd st...
  • BobInIllinois: Reminder---July 1 2010, Frontier took over Verizon properties in 13 states, including my DSL account in Illinois. Took them 3 months to send me a bi...
  • LG: Same as Christopher's post above. Great work. The longer this goes on, the more I believe regulation and laws alone will not be enough. I'm thinkin...
  • Paul Sheehan Jr.: Why doesn't WGBH move to ch. 44 and WGBX go off air and what is the future for wbts-lp in boston...
  • Josh: What the frak are they doing? For the past couple of years I've been assuming the top executives are just trying to get payouts, then jump from the c...
  • Dan: Don't you mean "a small independent phone company in Rochester?" Frontier didn't begin as SNET....
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