Phone companies can beat their cable competitors, but only if they invest in fiber upgrades that can deliver as-advertised broadband service and speed.

TDS Telecom, an independent phone company based in Chicago, has reported good results from the $60 million in fiber upgrades it has committed to complete in 2018.

TDS has been overbuilding beyond its existing telephone service areas to deliver broadband, phone, and television service to communities evaluated as:

• Having a good demographic mix of upper middle class residents;
• Experiencing population growth;
• Underserved by incumbent phone/cable companies;
• Offers good population density where homes and business are close enough to each other to warrant the expense of wiring each for fiber service.

TDS chief financial officer Vicki Villacrez made her case with investors to think positively about investments in fiber, reporting one TDS market garnered a 54% market share in broadband and took 33% of the market share for video after fiber service arrived.

TDS, unlike many other independent phone companies, is not avoiding investments in delivering faster broadband speed to customers. TDS typically reinvests 75% of its revenue in network upgrades and returns the other 25% to shareholders. Outside of its landline service areas, TDS has also acquired cable companies to provide service to customers, offering gigabit speeds in many areas.

In rural areas, the company is combining federal Connect America Funds with its own money to deploy bonded DSL service in areas too unprofitable to serve with fiber. This typically delivers faster internet service than rural broadband rollouts from other phone companies like Windstream and Frontier.

TDS is often the third provider in its overbuilt markets, a fact that is usually not well-received by investors because it can constrain market share and potential profits. TDS chooses its overbuild markets where incumbents have chronically underinvested in their networks, and the result is “pent-up demand” by customers, according to Villacrez. TDS’ market share is typically higher in their markets than other overbuilders.

Villacrez routinely tells investors the company’s success largely depends on fiber upgrades. About 24 percent of TDS Telecom’s local landline service area now has fiber to the home service, and the company is aggressively cutting the number of customers still served by slow traditional ADSL service.

Tribune Media walked away from its $3.9 billion dollar merger agreement with Sinclair Broadcast Group this morning, and announced it would sue Sinclair for $1 billion for its conduct trying to get the deal approved, including withholding information and deceiving regulators.

The merger deal was controversial from the moment it was announced, pairing up Sinclair’s 192 stations with Tribune’s 42 TV stations in 33 markets, including well-known stations like WGN in Chicago and WPIX in New York. Sinclair was already the nation’s top TV station owner, and to acquire more stations, Sinclair would have to get TV ownership limits eased, something coincidentally provided by FCC Chairman Ajit Pai, who suddenly announced an interest in bringing back a “discount” on ownership caps for stations broadcasting on the UHF band. That policy was dropped after the country moved to digital over-the-air broadcasting, which negated the perception that UHF channels were less desirable and held lower value than lower VHF channels because of reception quality.

Sinclair’s Long History of Partisan Politics

Sinclair, unlike other TV station owners, also has a long history of being active in partisan politics, airing programming in favor of conservatives and openly advocating for the agendas of the Bush and Trump Administrations. Its long-standing policy to require its stations to air corporate-produced news segments and commentaries during local newscasts has irritated local newsrooms for years, but as the number of Sinclair-owned stations has grown, the practice was eventually exposed with a viral video depicting an uncomfortable collection of anchors from dozens of Sinclair stations decrying “fake news.”

In 2016, Sinclair aired 1,723 stories about the Huntsman Cancer Institute in Utah on 64 of its stations. Most were designed to look like one or two minute news stories, although Sinclair also produced a 30-minute show about the facility. What viewers were never told is that the stories were paid for by the Huntsman Cancer Foundation. In December, the FCC fined Sinclair a record-breaking $13.3 million for failing to disclose the story’s sponsor. The Democratic minority on the Commission called that a slap on the wrist and wanted the maximum fine of $82 million levied on Sinclair for its egregious and flagrant violation of FCC rules.

Sinclair’s past run-ins and controversies guaranteed its merger deal with Tribune would receive special scrutiny. The documents attached to the lawsuit filed this morning reveal Tribune got quickly upset with Sinclair’s hardball lobbying, accusing Sinclair of brazenly flouting the FCC’s rules and setting up the merger for failure.

In the end, even Sinclair’s apparent ally Ajit Pai distanced himself from the TV station owner in July, suddenly advocating the merger deal be forwarded to an administrative law judge for review, a sure sign the merger was in serious trouble with regulators.

How America’s largest local TV owner turned its news anchors into soldiers in Trump’s war on the media: https://t.co/iLVtKRQycL pic.twitter.com/dMdSGellH3

— Deadspin (@Deadspin) March 31, 2018

Tribune Takes Sinclair to Court

This morning, Tribune officially pulled the plug on the merger.

“Our merger cannot be completed within an acceptable time frame, if ever,” Tribune Media chief executive Peter Kern said in a statement. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the merger agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”

That accountability will come in the form of its lawsuit that includes revealing documents about Sinclair’s behavior during the merger process, which includes allegations Sinclair recklessly withheld information and deceived the FCC and Justice Department about the transaction. If true, that could threaten Sinclair’s fitness to hold FCC licenses for its TV stations.

“From virtually the moment the Merger Agreement was signed, Sinclair repeatedly and willfully breached its contractual obligations in spectacular fashion,” Tribune said in its lawsuit. “In an effort to maintain control over stations it was obligated to sell if advisable to obtain regulatory clearance, Sinclair engaged in belligerent and unnecessarily protracted negotiations with DOJ and the FCC over regulatory requirements, refused to sell stations in the ten specified markets required to obtain approval, and proposed aggressive divestment structures and related-party sales that were either rejected outright or posed a high risk of rejection and delay – all in the service of Sinclair’s self-interest and in derogation of its contractual obligations.”

Tribune claims Sinclair only favored its own financial interests, not the obligations it had to Tribune to get the merger deal approved as quickly as possible. Tribune also accused Sinclair of threatening, insulting, and misleading regulators to keep control over stations it was obligated to sell.

The Sinclair Broadcast Group has come under fire following the spread of a video showing anchors at its stations across the United States reading a script criticizing “fake” news stories. (8:03)

“Sue me.”

Tribune’s executives gradually became more alarmed the more Sinclair negotiated with regulators, claiming Sinclair antagonized officials at the Justice Department. Tribune notes the assistant attorney general of the antitrust division got an earful from Sinclair, lecturing the official that he “completely misunderstand[ood]” the broadcast industry and was “more regulatory” than any recent predecessor.

When Sinclair was cornered by the Department of Justice over demands for station divestitures, the company summarized its position in two words: “sue me.”

Tribune pointed out the Justice Department was prepared to accept the merger with the appropriate stations being sold to new owners, but Sinclair balked. After a series of schemes were suggested to partly divest the stations, Tribune saw the protracted negotiations as unnecessary and imprudent. The agendas of both companies were radically different. Tribune wanted Sinclair to do whatever the FCC and Justice Department insisted be done, to get the deal done quickly. Sinclair wanted the deal and a way to maintain control, even indirectly, over almost every station involved in the deal. Tribune began threatening to sue Sinclair if it did not agree to the Justice Department’s terms.

Tribune’s growing unease with Sinclair’s behavior culminated in this email exchange between Tribune and Sinclair executives in late December, 2017.

Sinclair finally relented in February, 2018, but only partially. Exasperated Tribune executives were stunned as Sinclair now proposed to sell stations to third parties that maintained “significant ties to Sinclair’s executive chairman,” David Smith, or his family.

“Sinclair would effectively control all aspects of station operations, including advertising sales and negotiation of retransmission agreements with cable and satellite operators,” Tribune said in its lawsuit. “Under these proposed arrangements, Sinclair would continue to reap the lion’s share of the economic benefits of the stations it was purportedly ‘divesting’ and would have an option to repurchase the stations in the future.”

“Sinclair fought, threatened, insulted, and misled regulators in a misguided and ultimately unsuccessful attempt to retain control over stations that it was obligated to sell,” the lawsuit concludes.

The country’s largest owner of local TV stations, the Sinclair Broadcast Group, which reaches over a third of homes across the nation, wanted to get even bigger by merging with the Tribune Media Company. Sinclair is raising concerns among media watchers because of its practice of combining news with partisan political opinion. William Brangham reports for PBS Newshour. (8:58)

While celebrating its success at cutting $350 million in expenses, Frontier’s newest plan to keep the company from drifting towards bankruptcy is a $500 million increase in revenue (and hopefully profits) with a series of “revenue enhancements” and cost cutting.

Significant broadband upgrades in legacy DSL service areas are not on the table, as Frontier continues to spend most of its capital on matching Connect America Funds (CAF) and state grants to expand broadband into unserved and underserved rural areas.

“Approximately 80% of our capital program continues to focus on revenue generating and productivity enhancing projects,” said R. Perley McBride, Frontier’s outgoing chief financial officer. “The focus of our capital spending remains consistent. We continue to focus on our CAF builds, using both wired and wireless technologies.”

Frontier has been criticized by some for spending too much on its network and acquisitions and not enough on shareholder return. The company suspended its dividend in February, and the share price has remained below $6 a share since July. After announcing its latest quarterly results and a new $500 million EBITDA initiative on July 31, the average share price posted only modest gains of around $0.25 a share.

Frontier’s business remains troubled, with looming debt repayments in its future. The date to remember is Sept. 15, 2022 — the day Frontier needs to repay $2 billion in unsecured bonds to maintain its credibility in the credit markets. If it fails to pay, the company could find future financing difficult, which is often what triggers a trip to bankruptcy court.

The year 2022 is also very important to Californians. Frontier disclosed it planned to expand rural broadband service to 847,000 unserved/underserved rural residents by the end of 2022, with specific commitments in the next few years to upgrade 77,402 locations, in part with CAF funding, increase broadband speed for 250,000 households, and deploy newly available service to 100,000 homes.

Frontier’s own deployment goals in California — goals the company may not be honoring. (Image courtesy of: Steve Blum’s blog)

According to the California Emerging Technology Fund (CETF), Frontier has no intention of meeting its rural broadband commitments. In effect, similar to Charter Communications, it merely made the commitments to win approval of its acquisition of Verizon’s wireline and FiOS business in California.

A day of reckoning for the company’s alleged failure to meet its obligations is likely forthcoming. Steve Blum’s blog notes Frontier isn’t saying much:

In its formal response to CETF’s allegations, Frontier never actually says that it kept to that timetable. All it says is that “Frontier sent a letter to the Communication Division dated March 8, 2018 on its commitments that includes a confidential attachment reflecting completed locations through December 31, 2017”. It sent a letter, but doesn’t say what’s in the letter or even claim that the letter documents fulfillment of its obligations.

CETF told California regulators a disturbing story about Frontier’s failure to perform and other allegations in its filing with the California Public Utilities Commission, alleging Frontier is reneging on the deal it made with the state and various stakeholders in return for getting its acquisition approved. The group also accused Frontier of failing to deliver on its affordable broadband offering, because the company made signing up difficult and bundled extra fees and surcharges onto the bill.

“Frontier launched its existing affordable broadband offer in late August 2016 and to date only 9,173 adoptions have been achieved, a mere 4.5% of the 200,000 household adoption goal,” the CETF wrote. “Due to the initial Frontier eligibility requirement that Frontier customers be a telephone landline Lifeline subscriber and the total bundled cost, the affordable broadband offer has only attracted 7,452 low-income subscribers, which is 190,827 households short of the agreed-upon goal.”

Frontier has a employer turnover problem in California, evident from this filing by the CETF. (Courtesy: CETF)

The CETF said Frontier was “shirking” and should face the maximum fine of $50,000 a day retroactive to July 1, 2016 for failure to comply with its obligations. As of the end of July, 2018 that fine would amount to over $39 million.

To comply with existing obligations to California, Frontier could have to spend in excess of $1 billion in the next two years. But Frontier has told investors it planned to spend no more than $1.15 billion on capex in fiscal year 2018 across its entire national service area. This could explain why Frontier may be stalling on upgrades in California.

Also raining on Frontier’s parade is the muted reaction to Frontier’s latest money-raising scheme. Shareholders appear lukewarm, with some openly skeptical that Frontier can deliver what it promises.

The plan’s success depends on:

• Frontier’s ability to raise rates and find other “revenue enhancements” of $150-200 million. Rate increases drive customers to competitors, reducing revenue.
• Vague “operational improvements” are expected to bring $150-200 million.
• Customer care and support savings are anticipated to generate $125-175 million in EBITDA benefit.

Outgoing CFO McBride relies heavily on opaque corporate-speak like this, with few specifics:

“In addition to the dedicated resources, we are utilizing a new approach that will significantly accelerate the benefits of both revenue and expense initiatives. This new approach involves utilization of external expertise to significantly reduce the time to successfully realize our objectives. This will allow us to execute more initiatives in parallel while still managing day to day requirements of the business.”

In short, this suggests Frontier will outsource a lot of initiatives they used to manage in-house. The company also plans to start limiting truck rolls to customer homes if the company determines the problem is likely elsewhere in their network. It also claims it is cutting customer hold times at their call centers, which are still frequently outsourced.

What Frontier has made clear, again, is their determination to keep a cap on spending, which means much of the money Frontier will spend each year will go towards network maintenance, not service upgrades. Therefore, customers can expect incremental upgrades, usually when a construction project requires Frontier to replace existing copper wire infrastructure with fiber optics or at a building site for a new housing development. Most customers in existing neighborhoods served by legacy copper wiring on the poles since the 1960s will continue to be serviced by those lines until they are torn down in a storm or stolen. Frontier has consistently shown no interest in wholesale network upgrades in its legacy service areas.

After raising rates last month for its cable TV streaming alternative, AT&T’s DirecTV Now today announced it was adding NFL Network to all packages except the budget-priced “Live a Little” tier.

Coming soon, customers will also have access to stream NFL Network through Watch NFL Network, available on NFL.com and the NFL app across connected TV and mobile devices.

NFL Network will provide extensive coverage of the NFL’s 2018 Preseason, airing the entire slate of 65 preseason games, highlighted by 15 live games. NFL Network’s live preseason schedule kicks off Thursday, August 9 with the New York Giants hosting the Cleveland Browns at 7:00 p.m. EDT. Also featured as part of NFL Network’s package of live preseason games are top picks Sam Darnold (Falcons-Jets, August 10 at 7:30 p.m. EDT) and Josh Allen (Bills-Browns, August 17 at 7:30 p.m. EDT), as well as eight playoff teams from 2017. Claiming a sports betting bonus can provide extra value and excitement for punters looking to enhance their wagering experience.

In addition to 13 Thursday Night Football games, NFL Network will televise a Week 8 International Series matchup from London (Philadelphia Eagles vs. Jacksonville Jaguars), a Week 15 Saturday doubleheader (Houston Texans vs. New York Jets and Cleveland Browns vs. Denver Broncos), and a Week 16 Saturday doubleheader with matchups to be determined.

Sports programming remains the most expensive component of TV packages. The addition of NFL Network will not raise the price of DirecTV Now at this time, but its cost will be a factor in future rate increases.