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Troubled Frontier Suspends Shareholder Dividend, Loses $1.01 Billion in the Last Quarter

Phillip Dampier February 27, 2018 Consumer News, Frontier, Rural Broadband 2 Comments

Despite the massive amount of extra money from the Trump Administration’s corporate tax cuts generating huge revenue spikes for America’s telecom companies, Frontier Communications disappointed investors with today’s news it was suspending its quarterly cash dividend to shareholders after reporting a net loss of $1.03 billion on revenue of $2.2 billion during the fourth quarter of 2017, despite a $830 million tax benefit resulting from the reduction in federal tax rates.

Frontier saw revenue declines across almost every product category: Data and Internet services, $939 million (down 7.3%); Voice services, $687 million (down 11.2%); Video services, $310 million (down 15.1%), but the company slightly improved its churn rate (customers coming and going) to 1.83% for Frontier Legacy service areas (areas not acquired from Verizon or AT&T) and 2.22% for customers in California, Texas, and Florida acquired from Verizon (compared with 1.92% and 2.33% respectively in the third quarter of 2017).

The losses are attributable to:

  • Frontier DSL is not competitive with cable broadband in most Frontier Legacy service areas. Cable companies continue to steal customers away with better value broadband packages at much faster speeds;
  • Frontier FiOS delivers much better internet speeds, but customers in former Verizon service areas are upset about poor customer service and on-time repair visits and billing errors;
  • Frontier landline customers have been disconnecting for years, especially in copper-only service areas.
  • Frontier FiOS TV customers are getting better pricing and promotional deals from competing cable and satellite providers, or are cutting the cord entirely.

The average Frontier Legacy customer pays $65.11 a month. Customers with Frontier FiOS in California, Texas, and Florida pay an average of $107.35 a month.

Despite the anemic results, Frontier CEO Daniel McCarthy was optimistic.

“Our fourth quarter results highlight the ongoing progress on our key initiatives to improve customer retention, enhance the customer experience, and align our cost structure,” McCarthy said in a press release. “We are pleased with continued improvement in subscriber trends and churn in our California, Texas and Florida (CTF) markets, and the continued operating efficiencies achieved in the fourth quarter.”

But McCarthy rattled investors with news Frontier’s board of directors had voted to suspend the company’s dividend payout to shareholders, one of the key reasons investors buy Frontier common stock. Frontier intends to use the $250 million it would have handed shareholders to pay down the company’s massive debts.

In 2018, Frontier will pay more in interest on its outstanding debt ($1.5 billion) than it will spend on network upgrades and other capital expenditures ($1.0 billion to $1.15 billion). Most of the company’s debt comes from Frontier’s aggressive history of acquisitions, buying landline service areas from Verizon and AT&T.

Despite predictions by Frontier’s executives that its $10+ billion acquisition of Verizon service areas in California, Texas and Florida would deliver dramatically better results for Frontier and its shareholders, a botched transition and ongoing complaints about poor customer service and billing errors alienated Frontier’s adopted customers. Many canceled service and have no plans to return.

With Frontier’s financial condition concerning some financial analysts, Frontier is considering selling off its newest service areas to raise money.

Bloomberg: Frontier Preparing to Sell Its Florida, Texas, and California Service Areas

Phillip Dampier February 5, 2018 Consumer News, Frontier 3 Comments

Frontier Communications, mired in $18 billion in debt, is preparing to sell a package of landline assets in California, Texas, and Florida the company acquired just two years ago in a $10.5 billion deal.

A Bloomberg News report indicated the sale is part of an effort to boost available funds and repair a damaged business plan that has left the company with a massive debt load and an ongoing departure of customers unhappy with Frontier’s products and services.

Frontier has posted falling revenue for the last five consecutive quarters and the company has spent much of 2017 attempting to borrow more money and refinance the debt it already has, accumulated in part from its acquisitions of sold-off wireline assets owned by AT&T (Connecticut) and Verizon (multiple states).

Frontier has a poor record of successfully transferring customers to the company’s billing and backend systems, which has often caused service disruptions and billing errors. Bad publicity followed Frontier in Texas, Florida and California where the company acquired 3.7 million new voice lines, 2.2 million broadband customers, and 1.2 million FiOS accounts.

What makes Frontier’s properties in those three states valuable is the widespread availability of fiber-to-the-home service. Potential buyers, including private equity firms and other non-traditional bidders, see a future in providing valuable fiber backhaul connectivity to forthcoming 5G wireless networks, which require fiber connections deep into neighborhoods to connect small cell technology with the provider’s network.

Bloomberg reports the assets are likely to be split up and sold in parts, instead of a single package. That could mean Frontier will sell off each state independently or the split could be based on technology, with fiber assets sold separately from Frontier’s acquired copper wire networks in the three states. Frontier may have trouble finding buyers for legacy copper service areas that have never been upgraded with fiber optic service. Frontier is also increasingly unlikely to upgrade those areas itself.

Frontier’s Massive 911 Failure Across Florida’s West Coast; Admits It Had No Backup

Phillip Dampier February 1, 2018 Consumer News, Frontier, Public Policy & Gov't, Video 7 Comments

Several Bay Area counties in western Florida were without 911 service for several hours Wednesday after two failures at Frontier Communications left residents without any way to call for help.

There first outage began around midnight and the second started at around 10am Wednesday morning. Both outages took about two hours each to troubleshoot and repair.

Local officials criticized Frontier for service disruptions that had the potential for disaster for residents across the area.

“It’s definitely frustrating, yes,” said Jacob Saur, Manatee County Emergency Communications Center chief. “The main concern is if someone is needing help from first responders and they can’t get that help, then, we have a big problem.”

Frontier’s 911 system is supposed to run over two different networks to provide redundancy in case of an outage. But that didn’t happen. Instead, the company mistakenly connected its two networks together, with no backup workaround.

“For some reason, those two pieces were combined to one network,” said Frontier spokesperson Bob Elek. “So. when that one network was touched or impacted, it took both of them down. It took the service. The problem is a strange one. Honestly, I don’t think I’ve ever seen something like this before unless there was massive network damage. So, it should be an easy one to repair and fix so it doesn’t happen again and we will definitely do it.”

The first outage was traced to routine network maintenance of CenturyLink/Level 3-owned equipment affected by a Florida road project near Clewiston. The second outage occurred because of a fiber cable cut.

Tampa Police Chief Brian Dugan can’t believe Frontier did not have a proper contingency plan in place to deal with critical 911 service.

“There will still have to be some answers on why there was no redundancy, what type of disaster recovery program there was,” Dugan told WTVT in Tampa.

Frontier claims it is moving away from copper wire routing of 911 calls and claims it will route future 911 calls through the internet.

“Using that old technology of copper wire to route 911 calls is going to go away,” said Saur. “So, we are preparing for the future by routing 911 calls through the internet. However, it takes time to get that in place.”

WTVT in Tampa reports Frontier had no backup plan for Wednesday’s 911 outage that interrupted service in multiple counties. (2:55)

Erie County Executive Blasts Bad Internet Access for Harming Western N.Y. Economy

Western New York

In a recent survey of 2,000 residents living in Erie County (Buffalo), N.Y., it was clear almost nobody trusts their internet service provider, and 71% were dissatisfied with their internet service.

Seventeen years after many western New York residents heard the word “broadband” for the first time at a 2000 CNN town hall at the University of Buffalo, where then U.S. Senate candidate Hillary Rodham Clinton called for increased federal funding for high-speed internet, many upstate residents are still waiting for faster access.

The Buffalo News featured two stories about the current state of the internet in western New York and found it lacking.

Erie County Executive Mark C. Poloncarz blames internet service providers for serving up mediocre broadband, and no service at all in some parts of the county he represents.

“It’s been put in the hands of the private sector, and the private sector has, for whatever reason, elected to not expand into particular areas or not increase speeds in particular areas, putting those areas behind the eight ball,” he said.

Poloncarz effectively fingers the three dominant internet providers serving upstate New York – phone companies Verizon and Frontier and cable company Charter/Spectrum. He argues that companies will not even consider locating operations in areas lacking the most modern high-speed broadband. The digital economy is essential to help the recovery of western New York cities affected by the loss of manufacturing jobs and the ongoing departure of residents to other states.

Poloncarz

An important part of Gov. Andrew Cuomo’s statewide broadband improvement initiative is prodding Charter Communications and its predecessor Time Warner Cable to do a better job offering faster internet speeds and more rural broadband expansion. The New York Public Service Commission, as part of its approval of Charter’s acquisition of Time Warner Cable, extracted more concessions from the cable giant than any other state. Among them is a commitment to expand the cable company’s footprint into adjacent unserved areas by 2020 to reach at least 145,000 homes and businesses now outside of Charter’s service area.

Last week, the cable company told the PSC it was ahead of schedule on its expansion commitment, now reaching 42,889 additional households and businesses, which is above its goal of 36,771. It has two years left to add at least another 102,111 buildings.

Charter also recently increased broadband speeds to 100 Mbps for 99% of its customers in New York and has committed to boosting those speeds to 300 Mbps by the end of next year.

But where Charter does not provide service, broadband problems come courtesy of western New York’s biggest phone companies – Verizon and Frontier. In Erie County, a broadband census found a lack of service in parts of South Buffalo, the far West Side and East Side of Buffalo, as well as in parts of every town in the county except in the prosperous communities of West Seneca and Orchard Park. Verizon FiOS can be found in a handful of well-to-do Buffalo suburban towns, but not in the city itself or in rural parts of the region.

Verizon spokesman Chris McCann said the company had no further plans to expand FiOS service in upstate New York, and stopped announcing additional expansions in 2010. In the rest of its service area, Verizon supplies DSL service as an afterthought, and has made no significant investments to improve or expand service. Frontier Communications, which is the dominant phone company in the greater Rochester region, also provides service in some other rural western New York communities, but its DSL service rarely meets the FCC’s minimum speed definition to qualify as  broadband.

Rep. Collins

Both phone companies have no plans for significant fiber optic upgrades that would boost internet speeds. There is little pressure on either company to begin costly upgrades. In rural communities, both companies lack cable competition and in more urban areas, both have written off their ongoing customer losses to their cable competitor. That leaves towns like North Collins in a real dilemma. Poloncarz told the newspaper residents frequently park in the town library parking lot at night to connect to the library’s Wi-Fi service, because they lack internet service at home.

A political divide has opened up between area Democrats and Republican officials on how to solve the rural broadband problem. Democrats like Poloncarz are exploring solving the rural internet problem with a county-owned fiber network that would be open to all private ISPs to assist them in expanding service. He is joined by Erie County legislator Patrick Burke, who thinks it is time to spend the estimated $16.3 million it will take to build an “open access network” across Erie County.

“There are literally geographic dead zones, and it’s unnecessary,” said Burke, a Buffalo Democrat. “There’s no excuse.”

Poloncarz is more cautious and told the newspaper he will only propose the idea if he is convinced it will solve the problem, but is willing to continue studying it.

Republicans from the western New York congressional delegation believe deregulation and other incentives may give private companies enough reasons to begin upgrades and expansion.

Rep. Chris Collins, a Clarence-area congressman with close ties to the Trump White House, defended FCC Chairman Ajit Pai’s recent decision to eliminate net neutrality. Pai was born in Buffalo.

Collins argues net neutrality only raised the cost of business for ISPs, and being rid of it would inspire cable and phone companies to boost investment in 105 exurban and rural towns in his district, which covers eight counties and extends from the Buffalo suburbs east to Canandaigua, 80 miles away. More than 65% of those areas are under-served because DSL is often the only choice, and at least 3.3% had no internet options at all.

Rep. Tom Reed (R-Corning) has just as many internet dead zones in his district, if not more. Reed represents the Southern Tier region of western New York in a district that runs along the Pennsylvania border from the westernmost part of New York east nearly to Binghamton. Much of recent broadband development in this part of New York comes as a result of Gov. Cuomo’s state-funded broadband expansion initiative, not private investment.

Reed has a record in Congress that is better at explaining the rural broadband dilemma than solving it.

“In a rural district, there are areas that are just physically difficult to serve,” Reed shrugged.

Collins’ hope that the banishment of net neutrality will inspire Frontier, Verizon, and Charter to use their own money to expand into the frontiers of western New York seems unlikely. Gov. Cuomo’s plan, which uses public funds to help subsidize mostly private companies to expand into areas where Return On Investment fails to meet their metrics has had more success.

But the rural broadband debate has been accompanied by a fierce pushback among upstate New Yorkers against the Republican-controlled FCC and elected officials like Collins who support the recent gutting of net neutrality. A backlash has developed in his district, and some have accused Collins of aiding and abetting a corporate takeover of the internet.

“The hysteria and narrative that this will kill the internet is blatantly false,” responded Collins. “Internet service providers have said they do not increase speeds for certain websites over others, and I have signed onto legislation that would make such a practice illegal.”

Frontier Communications’ Broken Promises to Mountain Counties of North Carolina

Frontier Communications customers in the mountainous western counties of North Carolina have run out of patience waiting for web pages to load and upgrades to arrive, despite repeated promises from the phone company that its aging copper-wire DSL service would improve over time.

Stop the Cap! readers in the region pointed us to a special investigative report by WLOS-TV, Asheville’s ABC affiliate, which reports Frontier service is so bad, speeds under 1 Mbps are common. The station saw examples of Frontier unable to supply even modest speeds of just 3 Mbps.

“I’d rather stab myself than rely on Frontier’s fake internet access,” says our reader Darrell, who lives near Brasstown. “The only thing high-speed at Frontier is how fast they hang up on you when you call to complain.”

Frontier sold him “up to 10 Mbps” speed and instead struggles to deliver 1 Mbps, despite repeated service calls and promises of improvements.

“They keep telling us the federal government has to come up with money to help upgrade the area, and I keep wondering why a private company needs our tax dollars to build a network they will profit from for years,” Dan said. “If they cannot do the job, maybe the town should because they at least answer to us.”

Aiden Davis, who lives near Asheville, said he’d rather have the government give money to the cable company to extend broadband to his home, which is located about 1/4th a mile away from the nearest cable connection.

“At least the cable company can give me speeds DSL never will,” he told us.

Reporters at WLOS visited Murphy, N.C., a community of 1,600 people in Cherokee — the westernmost county of the state.

Craig Marble escaped Washington, D.C. to live in the picturesque community nestled in the mountains. But his efforts to telecommute to his IT employer are frustrated by Frontier’s DSL service, which is supposed to provide up to 3 Mbps to Marble and his neighbors. But Frontier delivers far less than it advertises.

Western North Carolina

“It’s just a comedy of errors except that it’s not funny. It takes five minutes to load a single webpage,” Marble said. “This should be 3.0, not .3 [Mbps],” Marble said while showing reporters various speed tests for his service, resulting in .3 and .5, and .6 Mbps at various times throughout the morning and afternoon.

More than 50 similar complaints have been filed with the North Carolina Attorney General, some about internet speed, others about service, outages, and billing problems.

“If there are companies out there making representations to consumers that they can not back up and we hear from consumers, we will absolutely take action on their behalf,” Attorney General Josh Stein told the station. “If we determine that Frontier is not complying with the law, we’ll hold them accountable, but there’s a lot of work we still need to do.”

But residents contend Stein does not seem to be in a hurry to chase down Frontier, and may not have the resources to follow through even if he wanted. After the Democrat won the North Carolina Attorney General race and took office in 2017, the Republican-controlled legislature slashed $10 million from his budget, forcing layoffs of dozens of staff attorneys and limiting his office’s ability to act.

Stein told the TV station he wrote to Frontier about internet speed issues in North Carolina, but hasn’t received a response.

Frontier responded to WLOS with a statement, reading in part:

“Copper-based internet service is difficult to represent consistently as it is subject to distance limitations. That is why it is sold as offering ‘up to’ a specified speed. Not all customers will have the same DSL service.”

But some customers report speeds are consistently better at times when most people are unlikely to be online, suggesting Frontier may be overselling its DSL service — forcing too many customers to share a limited bandwidth connection.

“When it is 2:30 in the morning, we always have the best speeds,” Davis reported. “They always drop as soon as the kids get home from school and keep dropping into the evening. During recent winter storms, speeds dropped to the point where the internet was unusable.”

Attorney General Joel Stein

“It’s not a technical problem, it’s a ‘reluctance to spend money to fix it’ problem,” he added.

Frontier frequently responds to speed complaints with press releases touting recent internet service improvements made possible through the federal government’s Connect America Fund, without always disclosing many of these projects pay to extend internet access into areas where it did not exist before, not improve service for customers that already have it.

Frontier’s willingness to spend its own money on broadband improvements is often challenged by Wall Street’s demands for a dividend payout to shareholders, sending a significant portion of Frontier’s incoming revenue to investors. The company has reduced its dividend during difficult times to invest in limited upgrades. But critics claim Frontier’s devotion to a robust upgrade program comes second to shareholders and depends mostly on federal government handouts.

“The company struggles to spend $14.4 million on upgrades through 2020, but had no problem spending more than $10 billion to buyout Verizon in Florida, California, and Texas,” complained Darrell. “When you ask them specific questions, you learn that upgrade spending is window dressing that won’t address their speed problems across this part of the state.”

Marble tells WLOS that seems to be his impression as well, noting Frontier representatives didn’t give him much hope.

“They said — several of them said, ‘There are no plans for upgrades in your area, period’,” Marble said.

The TV station sent Frontier a detailed questionnaire, to which the company responded, taking care to disclaim some of the upgrade benefits many of Frontier’s own press releases seem to imply:

Question: How many customers does Frontier service in the following counties: Buncombe, Cherokee, Clay, Graham, Haywood, Henderson, Jackson, Macon, Madison, Mitchell, McDowell, Polk, Rutherford, Swain, Transylvania, Yancey? Answer: I’m not familiar enough with cities in counties etc. We have customers in the following towns: Andrews, Bryson City, Buncombe, Cashiers, Cherokee, Cullowhee, Fontana, Franklin, Garden City, Glenwood, Hayesville, Highlands, Madison, McDowell, Mitchell, Murphy, Robbinsville, Suit, Sylva, Weaverville and Yancey. Of those we serve, some are only telephone customers, some internet only customers and still others both phone and internet customers. While we do not provide market specific customer counts in any of our operating areas for competitive reasons, it is fair to say that our customer count in the areas I referenced is in the tens of thousands.

Question: How is Frontier using the Connect America Funds in western North Carolina? What’s being done to upgrade or add service? How is the money being spent? Answer: Frontier is installing fiber into network support buildings or units in western North Carolina to enable more capacity over our existing copper network.

Question: How many new customers has Frontier been able to provide service to, as a result of Connect America funds? Are the funds being used more for acquiring new customers or is it more upgrading service for existing customers and in that case, what have the service improvements been like? Answer: It starts with upgrading the network to provide a minimum of 10 Mbps service identified as CAF households to meet the requirements of the CAF Fund as established by the FCC. Customers along the path of these improvements, both existing and those who are currently not customers, can take advantage of new broadband upgrades though not necessarily at the 10 Mbps threshold. However, it is not designed to extend the network to different operating areas.

Question: How much funding has Frontier received in Connect America funds for upgrades to broadband service in those western North Carolina counties? Answer: As of 2016, Frontier began receiving approximately $3.6 million a year from the CAF to expand and upgrade the company’s network to more than 11,000 locations in North Carolina by the end of 2020, to include areas in western NC. In total, Frontier has accepted the FCC’s CAF II offer of over $330 million annually across 29 states during the six-year program, and must meet annual benchmarks for each state beginning in 2017 for passing a specified percentage of designated households.

Question: In which counties has Frontier received funds and is using them to improve or add service? Answer: We have previously used CAF II funds in Macon, Clay, Jackson and Swain counties.

Question: What projects/upgrades have been completed to date, since Frontier started receiving Connect America funds? Answer: In addition to the counties referenced above, representative counties in this latest round in 2017 included households in Cashiers, Cherokee, Franklin and Hayesville. By the of this phase of CAF II funding the intention is to have touched all of the counties we serve in Western NC, barring anything unexpected.

Question: Has Frontier over-promised service in areas in any of the above mentioned counties? If service has been over-promised, what problems is that creating and what is the remedy for solving that problem? Answer: I’m not sure what this question is asking. I would say that copper-based internet service is difficult to represent consistently as it is subject to distance limitations. That is why it is sold as offering “up to” a specified speed. However, CAF funding should have a positive impact on the end user experience.

Question: What is the best way customers who feel they’re being underserved or not getting the service that they’ve paid for can reach out to report a problem? Answer: They should call 1-800-921-8101.

Question: Has the state of North Carolina, through the state’s Attorney General office or Consumer Protection Division reached out to Frontier over service issues, failing to deliver on service promises made by the company and if so, what’s been the response back to the state? Answer: We receive individual customer complaints from these agencies, usually revolving around availability of service or insufficient internet speeds. Our marketing for internet service and our terms of service recognize that some customers may not have the same experience as others, largely because of the distance limitations of DSL service or congestion in the network. We are attempting to address both of these issues through a combination of normal capital budgets and the additional CAF II funding.

Question: What are some of the issues Frontier runs into in expanding or improving broadband service or internet access and speed issues in western North Carolina? Answer: Mostly there are geographic challenges. However, customer density is also a challenge, or lack thereof. Balancing the significant cost of expanding broadband availability in rural areas versus the potential return on that investment is always a challenge. However, we are grateful for the Connect America Fund to help spur some of that investment and know that those customers who have been impacted by the expanded capacity appreciate the service.

Question: Anything you would like to add about the Connect America funds? Answer: We are fortunate to be a participant in the CAF funding process and grateful to the FCC for making it possible. Our hope is that customers in Western NC will have better internet connectivity experiences as we move along toward the culmination of this funding in 2020.

If you live in North Carolina and want to file a complaint about your internet service with the Attorney General’s Office click here.

WLOS-TV in Asheville, N.C. aired this special investigative report about Frontier Communications’ performance problems in western North Carolina. (5:03)

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