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Trump Administration Can’t Stop States From Enacting Net Neutrality Protection, Court Rules

Phillip Dampier October 1, 2019 Net Neutrality, Public Policy & Gov't, Reuters 3 Comments

WASHINGTON (Reuters) – A U.S. appeals court on Tuesday rejected the decision of the Federal Communications Commission to declare that states cannot pass their own net neutrality laws and ordered the agency to review some key aspects of its 2017 repeal of rules set by the Obama administration.

The court, which upheld most of the FCC’s December 2017 order, said the agency “failed to examine the implications of its decisions for public safety” and must also review how its decision will impact a government subsidy program for low-income users.

The decision means the more than 10-year-old debate over net neutrality will continue to drag on for months or more likely years. The ruling is a setback to the Trump administration’s efforts to reverse rules adopted under former President Barack Obama in 2015 which barred internet service providers from blocking or throttling traffic, or offering paid fast lanes, also known as paid prioritization.

FCC Chairman Ajit Pai said the decision affirmed the FCC’s “decision to repeal 1930s utility-style regulation of the internet. A free and open internet is what we have today. A free and open internet is what we’ll continue to have going forward.”

Pai added that the FCC would address “the narrow issues that the court identified.”

Championed by large tech companies and consumer groups, net neutrality was formally adopted by the FCC in 2015. Major telecommunications companies argued it limited their ability to offer new services to content providers, and under the Trump administration, the FCC overturned the policy.

California passed sweeping state net neutrality protections but agreed not to enforce the measure pending the court challenge.

The court threw out the part of the order that barred all states from setting net neutrality rules and argued that states were preempted by federal law.

“The commission lacked the legal authority to categorically abolish all 50 states statutorily conferred authority to regulate intrastate communications,” the court said.

The FCC could still make “provision-specific arguments” to seek to block individual aspects of state net neutrality rules.

Judge Stephen Williams wrote in his dissenting opinion that “On my colleagues’ view, state policy trumps federal; or, more precisely, the most draconian state policy trumps all else.”

The Trump administration rules were a win for internet providers like AT&T Inc, Comcast Corp and Verizon Communications Inc but opposed by companies such as Facebook Inc, Amazon.com Inc and Alphabet Inc.

Reporting by David Shepardson; Editing by Paul Simao and Lisa Shumaker

Spectrum Raising Price & Speed Of Legacy ‘Everyday Low Price’ Internet

Time Warner Cable used to sell $14.99/mo slow speed internet. Spectrum agreed to grandfather the program for existing enrolled customers.

Charter Spectrum is raising both the speed and price of its legacy Everyday Low Price Internet package (ELP), formerly sold by Time Warner Cable.

Customers grandfathered on an existing Time Warner Cable ELP plan will see the following changes, reported by several of our readers, likely already in effect in some areas:

  • NY/NJ Customers: Speeds increased from 3/1 Mbps to 20/2 Mbps. Price increasing from $14.99/mo to $19.99/mo.
  • Other States: Speed increase to 20/2 Mbps. Customers will be notified of a $3 rate hike, bringing the new price to $27.99/mo.

A modem rental fee may also apply in most states, unless you use your own cable modem. Outside of New York and New Jersey, most legacy ELP customers have already experienced several gradual rate increases on this plan, which was originally sold nationwide for $14.99/mo. The first rate increase took most customers to $19.99/mo, followed by a rate increase last fall to $24.99/mo. Now Charter Spectrum has notified customers of another $3/mo rate hike, bringing the monthly rate to $27.99.

Stop the Cap! fought for and won a special concession for New York State residents as a consequence of the approval of the Time Warner Cable-Charter Communications merger. We requested the New York State Public Service Commission make the continued availability of price fixed ELP service a condition of the 2016 merger approval. The PSC agreed with us and made continued availability of the $14.99 service for at least three years part of the deal. That deal condition recently expired and Charter Spectrum is ready to raise the price of the service in New York and New Jersey, but also dramatically boost its download speed. New York and New Jersey residents will continue getting a substantial discount off the price Charter Spectrum charges elsewhere, at least for now.

FCC’s Deregulatory Arguments ‘So Insubstantial, They Would Fail an Introductory Statistics Class’

Phillip Dampier September 24, 2019 Competition, Public Policy & Gov't Comments Off on FCC’s Deregulatory Arguments ‘So Insubstantial, They Would Fail an Introductory Statistics Class’

United States Circuit Judge Thomas L. Ambro has sat on the United States Court of Appeals for the Third Circuit hearing countless legal challenges of federal government rules, regulations, and laws since 2000. In fact, he has heard so many cases it might have worried petitioners when he opened his majority-held ruling with the words “Here we are again.”

Ambro (from the court’s decision):

“Here we are again. After our last encounter with the periodic review by the Federal Communications Commission (the “FCC” or the “Commission”) of its broadcast ownership rules and diversity initiatives, the Commission has taken a series of actions that, cumulatively, have substantially changed its approach to regulation of broadcast media ownership. First, it issued an order that retained almost all of its existing rules in their current form, effectively abandoning its long-running efforts to change those rules going back to the first round of this litigation. Then it changed course, granting petitions for rehearing and repealing or otherwise scaling back most of those same rules. It also created a new “incubator” program designed to help new entrants into the broadcast industry. The Commission, in short, has been busy. Its actions unsurprisingly aroused opposition from many of the same groups that have battled it over the past fifteen years, and that opposition has brought the parties back to us.”

FCC Chairman Ajit Pai is presiding over a sweeping deregulatory agenda that critics fear will further consolidate an already corporate dominated media landscape that has given a handful of companies approval to own and operate hundreds of radio and television stations, many in the same profitable media markets. One corporate owner can already own several local radio and TV stations and the FCC is working to further ease already relaxed ownership limits that could allow companies like Sinclair, Nexstar, and iHeartMedia to buy even more radio and TV stations.

The History of Broadcast Deregulation (1996-2019)

Judge Ambro

Deregulators targeting media ownership limits have been on a tear since the mid-1990s, with the first major changes in decades ushered in by the Clinton Administration’s 1996 Telecommunications Act, which required the FCC to conduct a review of media ownership rules every two years. The 1996 law required the FCC to determine “whether any of such rules are necessary in the public interest as the result of competition.” If not, the Commission is required by law to “repeal or modify any regulation it determines to be no longer in the public interest.”

What is in the “public interest” has historically been in the eye of the beholder. Democrats on the FCC have been wary of media consolidation and take a skeptical view of arguments that consolidation enhances competition and improves the efficiency of radio and television stations that can share resources. Democrats worry about the loss of diversity, cost-cutting, and consolidated control over news gathering operations. Republicans have been traditionally friendly to the argument that consolidation has allowed marginal stations to sell operations to a better funded corporate owner, with healthier broadcast competition the result. Republicans also argue regulation is unnecessary in a diverse media market where consumers have a choice of traditional broadcasters, satellite radio, cable television, internet streaming, etc. That makes strict ownership limits no longer necessary.

Neither side can argue with the fact that as a result of the 1996 Telecommunications Act, over 4,000 local radio stations were purchased from independent and small corporate owners and merged under the umbrella of a handful of giant corporate media companies. Although proponents of the 1996 Act claimed it would increase competition, in fact it did the exact opposite. With many stations now under the ownership of a handful of companies, corporate owners frequently programmed each station with a different format specifically to avoid head-to-head competition. While some listeners felt this increased the diversity of music formats heard on the air, many also noticed local voices began disappearing from those stations, replaced with automation or voices that originated in other cities. Some corporate owners cut costs by hiring a small team of announcers to program dozens of radio stations around the country. Local news coverage was also often among the first things to be cut.

Another consequence of the 1996 Act was a steep decline in minority ownership of stations. In particular, minority ownership of TV stations dropped to an all-time low since the federal government began tracking such data in 1990.

The consolidation wave did some corporate owners no favors either. Clear Channel Communications (now iHeartMedia), became a ripe target for a leveraged buyout after successfully acquiring hundreds of local stations. In 2008, Bain Capital and Thomas H. Lee Partners launched a successful takeover of Clear Channel for $24 billion, largely financed with debt that Bain and THL Partners put on Clear Channel’s books. Over 2,440 employee layoffs and cost cutting quickly followed, while the new owners leveraged the stations it now owned to maintain adequate financing to cover interest payments on its enormous debts. As The Great Recession took hold, advertising revenue diminished and credit markets became stingy and unforgiving. By 2010, the company faced bankruptcy and debt holders were growing impatient. Over the next several years, several debt restructuring efforts were undertaken to help the company pay down its debts, but debt holders finally had enough in 2018, forcing what is now known as iHeartMedia into bankruptcy reorganization.

The FCC itself later admitted that the consolidation frenzy caused negative effects that should be addressed. But the incoming George W. Bush Administration initially had other ideas and under the leadership of FCC Chairman Michael Powell, the majority of Republicans on the Commission supported further relaxation of ownership rules. In early 2003, the FCC held a single public hearing on the matter, which sparked outrage among many Americans concerned about the impact media consolidation had already had on their local stations. By June of that year, nearly two million letters from the public opposing further media consolidation had arrived at the FCC. The Commission, despite the public outcry, ultimately voted 3-2 to repeal a long-standing ban prohibiting a local newspaper from also owning a local television station (or vice versa) and also relaxed other ownership rules, claiming they were no longer necessary to protect competition, localism, or ownership diversity.

Among the changes:

  • Any one company could now own up to 45% of local stations in a market (it was 25% in 1985, relaxed to 35% in the 1990s).
  • The newspaper/TV station cross-ownership ban was eliminated.
  • Alternative forms of media and their popularity would now be considered when determining whether a company owned or controlled too much of a local media market. The FCC would now also consider magazines, cable channels, and internet services to decide if one owner had become too dominant.
  • License renewals no longer considered whether a station was adequately serving in the “public interest.”

Community Activists Strike Back at Corporate Consolidation and Media Homogenization

The FCC’s ability to ram through the rules changes, despite public opposition, was immediately met with a formidable 2003 court challenge by the Prometheus Radio Project, a non-profit advocacy and community organizing group that opposed corporate consolidation of radio stations and supported the low-power (LPFM) radio movement, which sought low-cost licensing of community radio stations to preserve localism and provide diverse radio programming.

Prometheus Radio Project v. FCC garnered support from several independent broadcasters and community groups like the Consumer Federation of America, the National Council of Churches of Christ, and the Media Alliance. In 2004, the same U.S. Third Circuit Court of Appeals that heard the most recent case against the FCC’s deregulation efforts ruled 2-1 in favor of Prometheus. The decision was written by the same Judge Ambro that remarked ‘here we are again’ this week. The ruling required the FCC to re-examine its media ownership rules and found the FCC’s justifications for the changes to be inadequate and in one case relied on “irrational assumptions and inconsistencies.” The Supreme Court later affirmed the Court of Appeals’ decision, frustrating the efforts of deregulators.

Media consolidation was once again a priority item on the FCC’s agenda after the election of President Donald Trump. Republican FCC Chairman Ajit Pai once again took aim at the already-relaxed media ownership rules to relax them even further. In a Republican-dominated 3-2 decision in November, 2017, the FCC once again eliminated the newspaper/TV station cross-ownership ban and would now permit one company to own two of the four largest television stations in a market, instead of just one.

Those changes were the ones struck down this week by the Court of Appeals.

FCC and Its Allies: Since You Don’t Stand to Make Millions from Consolidation, You Should Have No Say

An exasperated Judge Ambro repeatedly took the FCC (and indirectly Ajit Pai, the current chairman) to task for ignoring the Court’s instructions on formulating media ownership policies that would survive court challenges.

But first, Ambro’s decision eviscerated attempts by the FCC and interest groups allied with its deregulation policies to undercut public and opposition participation in the debate. First, both argued that the opposition lacked standing to sue the FCC in court over its new deregulation policy because they do not have any business interests at risk and cannot be harmed directly by the decision to deregulate. When the opposition filed legal briefs to prove standing, the FCC and its allies argued it was too late to submit proof and it should not be considered by the court.

Ambro’s decision rejected those arguments, noting “the same parties have been litigating before us for a decade and a half. It was not unreasonable […] to assume that their qualification to continue in the case was readily apparent.”

Ambro also took issue with the FCC’s argument that those in opposition to its new rules were only speculating it would lead to consolidation.

“The problem is that encouraging consolidation is a primary purpose of the new rules. This is made clear throughout the Reconsideration Order, see, e.g., 32 F.C.C.R. at 9811, 9836,” Ambro wrote. “The Government cannot adopt a policy expressly designed to have a certain effect and then, when the policy is challenged in court by those who would be harmed by that effect, respond that the policy’s consequences are entirely speculative.”

But it did not stop the FCC from trying.

The FCC also argued that opponents were worrying too much about the impact of the new rules. FCC lawyers reminded the court the agency would still carefully consider any new merger proposals put before it. Judge Ambro found that argument “immaterial.”

“The point is that, under the new rules, it will approve mergers that it would have rejected previously, with the rule changes in the Reconsideration Order the key factor causing those grants of approval,” Ambro wrote.

“We emerge from the bramble to hold that Regulatory Petitioners have standing,” Ambro concluded, signaling his irritation with attempts to stymie the lawsuit against the FCC.

Why the Top-Four Station Limit Matters

One of the groups allied with the FCC attempted to argue that the “top-four rule” that forbids any one company from owning or controlling more than one of the top-four television stations in a major local market is arbitrary, irrational, and indefensible.

But the court ruling explained why the rule exists and why it matters.

“The basic logic of the top-four rule, as we recognized in 2004, is that while consolidation may offer efficiency gains in general, mergers between the largest stations in a market pose a unique threat to competition. Although there might be other more tailored, and more complex, ways to identify those problematic mergers, the simplest is to declare, as the Commission has done, that mergers between two or more of the largest X stations in a market are not permitted. The choice of X must be somewhat arbitrary: each market’s contours will be slightly different, and no single bright-line rule can capture all this complexity. But the television industry does generally feature a distinct top-four, corresponding to the four major national networks, and four is therefore a sensible number to pick. And this is exactly the kind of line-drawing, where any line drawn may not be perfect, to which courts are the most deferential.

“[…]The Commission has the discretion to adopt a blunt instrument such as the top-four rule if it chooses. Indeed we confronted, and rejected, this exact argument—that treating all top-four stations the same wrongly ignored the variation in market structures—in Prometheus I. Id. at 417–18.

“Nor is it improper that the FCC’s justification for this rule is the same as it was in the 2002 review cycle. Section 202(h) requires only that the Commission think about whether its rules remain necessary every four years. It does not imply that the policy justifications for each regulation have a shelf-life of only four years, after which they expire and must be replaced.”

The fear is that if one company owns the local NBC and CBS affiliate in a large city, that company automatically will control a much larger percentage of the TV audience than any other station in the market. That can directly impact advertising rates charged by those stations, force other stations to consider similar mergers to maintain their market share, and leave many cities with two owners controlling the ABC, CBS, FOX, and NBC stations in a market. That would also put independent stations at a marked disadvantage, unable to attract advertisers that will expect the audience numbers combined stations would get.

The group opposed to this rule also claimed that the FCC must reaffirm and defend the very existence of this rule during each regulatory review period, an argument that was also rejected by the court decision. A FCC hostile to the rule would likely not mount much of a defense to justify it.

The FCC’s Newest Loophole: Alleged Diversity

One FCC proposal that partly escaped criticism from the court was a new radio “incubator” program that would relax ownership limits for radio station owners participating in the project. The incubator program is designed to “support new and diverse entrants in the radio broadcasting industry by encouraging larger, experienced broadcasters to assist small, aspiring or struggling broadcasters that otherwise lack the financing or operational expertise necessary to own and operate a full-service radio station.”

Critics contend the incubator program is a giant ownership limit loophole waiting to be exploited by large corporate station owners. Although initially protecting the new station’s independence for at least two years, the large corporate owner “helping” the new station become established can later buy the station, or manage the station’s programming and advertising inventory as soon as two years after the station gets on the air. Further, the corporate owner that will receive a waiver on station ownership limits for participating can ‘cash in’ that voucher in any market of “a similar proportion” to the one where the new station is launching. Most assumed that meant a market similar in size to population. But in fact it was defined as a market with a similar number of licensed radio stations.

The “market size” epic loophole would allow a corporate entity to set up a station in a relatively small sized city with a lot of licensed radio stations, such as Wilkes-Barre, Pa., which has 45, and take the resulting ownership waiver and “cash it in” by buying up a sixth extraordinarily valuable FM station in New York City, which has around 40 licensed stations on a very crowded radio dial.

The FCC attempted to place some limits on obvious loophole exploitation, like finding a front person to participate in the incubation program but allow the corporate “helper” to silently and secretly operate the station. But there are no obvious limits on allowing family members of corporate entities to participate. A similar loophole allowed Sinclair Broadcasting to acquire a significant number of additional TV stations above ownership caps by claiming they were in fact run independently by a family member of the CEO. There are multiple ways to abuse or exploit the program, but the court found the FCC gave adequate notice of the scope and rules of the project. The program’s impact on minority ownership was another matter, and the incubation program was put on hold as well because the FCC did not provide enough evidence of how the program would impact minority station ownership.

Judge Calls FCC’s Analysis Skills Insubstantial

“Problems abound with the FCC’s analysis,” Ambro wrote regarding the impact the FCC’s rules changes would have on minority ownership. “Most glaring is that, although we instructed it to consider the effect of any rule changes on female as well as minority ownership, the Commission cited no evidence whatsoever regarding gender diversity. It does not contest this. Instead it notes that ‘no data on female ownership was available’ and argues that it ‘reasonably relied on the data that was available and was not required to fund new studies.'”

Judge Ambro warned courts have frequently found certain FCC rules that were introduced without careful consideration of their impact are “arbitrary and capricious” and subject to be overturned at any time.

Ambro told the FCC it must do better.

“The only ‘consideration’ the FCC gave to the question of how its rules would affect female ownership was the conclusion there would be no effect. That was not sufficient, and this alone is enough to justify remand,” Ambro wrote. “Even just focusing on the evidence with regard to ownership by racial minorities, however, the FCC’s analysis is so insubstantial that it would receive a failing grade in any introductory statistics class.”

Ambro called the FCC’s analysis “woefully simplistic” because it attempted to use disparate data from two different federal agencies to measure minority ownership of broadcast stations, but the two entities asked different questions and used different methodologies.

“Attempting to draw a trendline between the [one agency’s data with another’s] is plainly an exercise in comparing apples to oranges, and the Commission does not seem to have recognized that problem or taken any effort to fix it,” Ambro complained.

Ambro also noted the FCC did not bother to estimate the number of minority-owned stations that would theoretically exist if the agency never changed its ownership rules.

Come Back to the Court With Your Homework… Finished

Judge Scirica

Ambro predicted an inevitable appeal of the court decision and additional litigation surrounding this week’s ruling. He warned the FCC that using the current majority to ram new rules through is not adequate and the FCC must prove the merits of its arguments if it wants to survive a court challenge. Ambro “remanded” or sent the proposed new rules back to the FCC to review and revise.

“On remand the Commission must ascertain on record evidence the likely effect of any rule changes it proposes and whatever ‘eligible entity’ definition it adopts on ownership by women and minorities, whether through new empirical research or an in depth theoretical analysis. If it finds that a proposed rule change would likely have an adverse effect on ownership diversity but nonetheless believes that rule in the public interest all things considered, it must say so and explain its reasoning,” Ambro wrote. “If it finds that its proposed definition for eligible entities will not meaningfully advance ownership diversity, it must explain why it could not adopt an alternate definition that would do so. Once again we do not prejudge the outcome of any of this, but the Commission must provide a substantial basis and justification for its actions whatever it ultimately decides.”

FCC Chairman Ajit Pai blasted the court decision and vowed an appeal, citing the partial dissent of Judge Anthony Joseph Scirica, who has consistently supported a number of the FCC’s deregulation efforts.

“For more than twenty years, Congress has instructed the Federal Communications Commission to review its media ownership regulations and revise or repeal those rules that are no longer necessary,” Pai said. “But for the last 15 years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace. It’s become quite clear that there is no evidence or reasoning — newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever — that will persuade them to change their minds. We intend to seek further review of today’s decision and are optimistic that the views set forth today in Judge Scirica’s well-reasoned opinion ultimately will carry the day.”

U.S. Federal Appeals Court Deals Setback to FCC Push to Deregulate Media Ownership Rules

Phillip Dampier September 24, 2019 Competition, Public Policy & Gov't, Reuters Comments Off on U.S. Federal Appeals Court Deals Setback to FCC Push to Deregulate Media Ownership Rules

WASHINGTON (Reuters) – The Federal Communications Commission suffered a setback on Monday in a long-running legal battle when a federal appeals court struck down its latest effort to loosen U.S. media ownership rules.

The Republican-led FCC in 2017 voted to eliminate the 42-year-old ban on cross-ownership of a newspaper and TV station in a major market. It also voted to make it easier for media companies to buy additional TV stations in the same market, and for local stations to jointly sell advertising time and for companies to buy additional radio stations in some markets.

The court in a 2-1 decision Monday told the FCC to take up the issue again, saying the regulator “did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities.”

FCC Chairman Ajit Pai said in a statement that despite instructions from Congress to review media ownership regulations a majority of federal appeals court judges for 15 years “has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace.”

Pai added that “there is no evidence or reasoning — newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever — that will persuade them to change their minds.”

The FCC plans to challenge the decision, he added.

Pai

FCC Commissioner Jessica Rosenworcel, a Democrat, said “over my objection, the FCC has been busy dismantling the values embedded in its ownership policies.” She said the “court rightly sent the FCC’s handiwork back to the agency because the FCC’s analysis was so ‘insubstantial.’”

Judge Anthony Scirica, who dissented from the opinion, said “Rapid technological change had left the framework regulating media ownership ill-suited to the marketplace’s needs. The public interest analysis at the heart of the FCC’s ownership rules is as dynamic as the media landscape.”

Big media companies including Tegna Inc, CBS Corp and Nexstar Media Group Inc cited the 2017 rule change as motivation for considering expansion opportunities.

The FCC is weighing other changes to U.S. media ownership rules. In December, it sought comments on a rule that bars one company from owning two TV stations in the same market except under certain circumstances. The FCC asked if those rules continue “to serve the public interest and remains necessary.”

The FCC is also considering if existing rules that limit the number of local radio stations in a single market should be rescinded, asking if the rule “remains necessary to promote competition, localism, or viewpoint diversity.”

Free Press, an advocacy, group, said the ruling “marks the fourth time this court has rejected the relentless attempts from the FCC and the broadcast industry to weaken media-ownership limits.”

Reporting by David Shepardson; Editing by Tom Brown

Frontier Urgently Trying to Restructure $17 Billion Debt as Chapter 11 Looms

Frontier Communications is preparing a detailed plan for bondholders explaining how the company hopes to cut its $17 billion in debt before it faces the possibility of bankruptcy.

The Wall Street Journal reports Frontier is ready to begin formal negotiations with those holding its debt to create a new payback plan before it faces the first of several repayment deadlines for bonds running into the billions, starting in 2022. But the strategy is risky because if any of the company’s major bondholders disagree, it could put Frontier on a fast track to Chapter 11 bankruptcy reorganization.

Frontier’s debt problems are a consequence of its decision to expand its wireline footprint through acquisitions of castoff copper landline networks being sold primarily by Verizon Communications and AT&T. Critics have repeatedly called out Frontier for bungling network transitions with extended service outages, billing problems, and other customer service-related failures that left customers and some state regulators frustrated and alienated. The company is still facing regulatory review in states like Connecticut, where it failed to properly manage a customer cutover from AT&T’s systems to its own, and in Utah, West Virginia, California, and Florida where similar cutovers from Verizon Communications left more than a few customers without service and months of billing problems.

As a result, Frontier lost many of the customers it acquired, with many unwilling to consider doing business with the phone company ever again.

Although Frontier’s latest acquisitions of Verizon landline customers in California, Texas, and Florida included large Verizon FiOS fiber to the home territories, Frontier customers continue to disconnect service at a greater pace than the phone company’s chief cable competitors — Comcast and Charter Spectrum. Customer defections are even worse in large sections of Frontier’s stagnant “legacy” markets — service areas that have been managed by Frontier or its predecessor Citizens Communications for decades. That is because almost all of those legacy markets are still serviced by decades-old copper wire networks, many capable only of providing low speed DSL internet access.

Frontier’s large debt load is cited as the principal reason the company cannot embark on upgrade efforts to replace existing copper wiring with optical fiber. In fact, virtually all of Frontier’s fiber service areas have been acquired from AT&T or Verizon. Frontier executives have attempted to placate shareholders by promising to aggressively manage costs. But promises of dramatic savings have proved elusive and frequent media reports have emerged covering extensive service outages, poor network maintenance, ongoing billing and customer service issues, and inadequate staffing to address a growing number of service outages and problems. In several states, repeated 911 outages have triggered regulator investigations with the prospect of stiff fines.

Three Frontier insiders have privately shared their insights with Stop the Cap! about ongoing frustrations with the company and the most recent developments.

“Upper management has no comprehension that in many of our markets, customers have choices and they abandon us when all we can sell is DSL service at speeds often less than 12 Mbps,” one senior regional executive told us. “Our retention efforts are so poor these days, representatives are not really expected to rescue accounts because in most cases there is no legitimate reason to do business with us. In some states where there are high mandated surcharges, we cost more than our cable competitors.”

Another mid-level executive in one of Frontier’s largest legacy markets — Rochester, N.Y., said morale is low and a growing number of colleagues believe the days to bankruptcy are short.

Frontier Communications debt load.

“Our loyal customers are literally dying off, as their adult children disconnect decades-old landline accounts,” said an executive who wished to remain anonymous because they were not authorized to speak with the media. “The customer numbers have been ugly for a long time and are getting worse. Our recently retired customers who have had DSL and voice service with us since the 1990s are disconnecting because some have gone with Spectrum and others are moving out of the area. Some of these customers hate Spectrum and won’t do business with them no matter the price, but we are losing their business anyway when they move out of state.”

The Rochester executive noted Frontier has an impossible job trying to sell its internet and voice products against Charter Spectrum.

“Their offers are $40 a month for 100 Mbps internet and $10 for unlimited local and long-distance calls,” the executive noted. “Ours costs nearly $30 just for the phone line after taxes and fees, and how can you sell someone DSL that delivers less than 6 Mbps to many parts of a market still served by copper trunk lines to a central office several miles away? They also find out they have to lease our modem at an additional fee and there are other fees in the contract many customers have learned to look for. Answer: you can’t.”

A Frontier executive in Ohio shared a similar story.

“We hold our own in our rural markets where we can offer a customer better than dial-up internet, and our service is very good if you live in an area where we expanded broadband thanks to FCC subsidies. Some of these new areas are even served by fiber,” the executive explained. “The problem with this is fewer people live in rural areas and these places cost a lot more to maintain when we dispatch service crews or have to run new cable. For Frontier to be truly successful, we have to get better internet service into our larger older markets, but that means pulling copper off poles and putting up fiber and there is just no interest from the higher ups to spend the money to do this. So instead the company bought new territories to keep revenue numbers up, but we are also quickly losing many of those customers to cable too. I really don’t know what we will do when wireless companies offer 5G internet.”

Some Frontier bondholders recognize Frontier must reduce its debt to have the financial resources to expand fiber service. Others want the company to shed its legacy copper service areas (while keeping FiOS/U-verse enabled markets) either to regional companies willing to invest in upgrades or to hedge funds that would likely ring whatever remaining value still exists out of these abandoned service areas. Some suspect these hedge funds would also load up the spinoff companies with even greater debt to facilitate dividend payouts and other investor-friendly rewards.

It will be up to state and federal regulators to protect Frontier’s customers as the two emerging groups of conflicting bondholders angle to protect their investments, perhaps at the risk of reliable phone and internet service.

The Wall Street Journal:

One, including Elliott Management and Franklin Resources, pushed for an exchange of their bonds at a discount to their face value for new secured debt that would be paid before unsecured debt in a potential bankruptcy.

Still, bondholders including GoldenTree Asset Management have warned the company against doing such a swap since 2018, arguing it violated the terms of their bonds.

The company this week reached out to Houlihan Lokey, which represents a group of bondholders that includes GoldenTree—as well as JPMorgan Chase & Co., Oaktree Capital Management and Brigade Capital Management—to sign up to view a confidential restructuring proposal, a person familiar with the matter said. That group has yet to gather enough holders to form a majority, people familiar with the matter said.

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