Frontier Communications is quickly becoming the Sears and Kmart of phone companies, on a slow march to bankruptcy or outright oblivion.

What started as a small independent phone company in Connecticut has grown through acquiring overpriced or decrepit landline cast-offs, mostly from Verizon, leaving itself with massive amounts of debt and infrastructure it is not willing to upgrade.

Despite rosy prognostications given to customers and shareholders, few are willing to take Frontier’s word that life is good with a company that still relies heavily on copper wire phone and DSL service.

Don’t take out word for it. Just watch the line of customers heading for the exits, canceling service and never looking back. As Frontier continues to lose customers fed up with its bad DSL service, rated even poorer than satellite-delivered broadband by Consumer Reports, its only chance to grow is to acquire more customers through more acquisitions. Unfortunately, after another disastrous transition for former Verizon customers in Florida, California, and Texas, Frontier’s bad reputation is likely to leave regulators and shareholders concerned about Frontier’s ability to manage yet more acquisitions in the future.

The Wall Street Journal reports Frontier bet on making it big with rural and suburban landlines, and lost.

Frontier’s mess has infuriated shareholders who invest in the stock mostly for its dividend payouts. The Norwalk, Conn. company recently announced it slashed its dividend, causing investors to flee the stock. Shares are down 69% so far this year. In a desperate bid to keep its Nasdaq listing, the company announced an unprecedented 1-for-15 reverse stock split just to prop up its share price.

Frontier’s slow hemorrhage of landline customers turned into a flash flood in the spring of 2016 after botching yet another “flash cutover” of customers acquired from Verizon. Verizon’s decision to sell off its landline networks in Florida, California, and Texas (mostly acquired from GTE by Verizon predecessor Bell Atlantic) was good news for Verizon, bad news for Frontier’s newest customers. Frontier hates to spend money to overhaul its copper-based facilities with fiber. It prefers to buy service areas from companies that undertook fiber upgrades on their own dime. Verizon had already upgraded large sections of those three states with its FiOS fiber to the home network. Frontier’s interest was primarily about acquiring that fiber, Frontier finance chief Perley McBride told the Wall Street Journal. Even McBride admitted Frontier failed to do a good job integrating those customers.

Consumer Reports rates Frontier DSL lower than one satellite broadband provider.

That should not be news to McBride or anyone else. Frontier has repeatedly failed every flash cutover it has attempted. The worst recent examples were Frontier’s botched 2010 transition in West Virginia, where the company inherited copper landlines neglected by Verizon for decades. Customers were infuriated by Frontier’s inability to maintain service and billing, and the company was investigated by state officials after many customers lost service, sometimes for weeks. In Connecticut, Frontier messed up a transition of its acquisition of AT&T’s U-verse system, having learned nothing from its mistakes in West Virginia or elsewhere. The company was forced to pay substantial service credits to residential and business customers that were offline for days. Thus it was no surprise yet another hurried transition would lead to disaster last spring. Regulators received thousands of complaints and a significant percentage of longtime Verizon customers left for good.

Frontier CEO Dan McCarthy appears to be even less credible with investors and customers than his predecessor Maggie Wilderotter, who may have retired with an understanding the long term future of Frontier looks pretty bleak. McCarthy has repeatedly put an optimistic face on Frontier’s increasingly poor performance.

John Jureller, Frontier’s last chief financial officer, routinely joined McCarthy in putting a brave face on Frontier’s stark numbers. He repeatedly tried to fuel optimism by telling investors the Verizon landline acquisition would make revenue trends “very positive.”

Jureller is no longer with Frontier. His replacement is the aforementioned McBride, who has a reputation as a “turnaround” expert, usually at the expense of employees. McBride has already helped oversee the permanent departure of at least 1,000 employees, laid off as part of what Frontier is calling “a customer-focused reorganization.” McCarthy prefers to tell Wall Street the layoffs are about reining in costs, despite the company’s profligate spending on acquisitions.

McBride told the Journal he doesn’t expect much revenue growth at Frontier anytime soon in California, Texas, and Florida. McCarthy’s grand turnaround plan isn’t working either. In fact, customer ratings of Frontier are falling about as fast as a rock thrown off a cliff.

There is little evidence Frontier will improve its dismal American Customer Satisfaction Index score in 2017. It finished dead last among internet service providers last year, falling 8% despite taking on new customers and allegedly upgrading others. Frontier’s overall grade was second to last across all categories in the telecom sector. Frontier managed to achieve bottom of the barrel scores despite broad upticks in customer satisfaction among other similar providers last year. Verizon FiOS achieved a 7% improvement to a best-ever customer satisfaction rating. In areas acquired by Frontier, as soon as the service was renamed Frontier FiOS, ratings plunged.

So has Frontier’s revenue, which continues a downward spiral. The company posted a loss of $373 million last year compared to $196 million in losses a year earlier. It has committed to spending $1 billion on its network this year, but customers uniformly report few substantial service improvements, and many wonder where the money is going.

Frontier is also upset that Verizon, in its zeal to make its landline properties in California, Texas, and Florida look as good as possible, stopped collection activity on overdue accounts just before the sale, saddling Frontier with thousands of deadbeat customers Verizon should have written off as uncollectable long ago, but never did.

Yesterday, the western New York office of the Better Business Bureau reported Frontier had achieved an “F” rating, amassed nearly 9,000 complaints, and out of 718 customer reviews, just six were positive:

We find a high volume and pattern of complaints exists concerning prior Verizon consumers who have not had a smooth transition to Frontier Communication since Frontier Communications took over various Verizon customers on April 1, 2016. Consumers have reported that services did not transition properly: many do not have services or are having spotty service with outages; many internet issues, from slow speeds to complete outages, consumers advise they are paying for certain levels of internet speeds but are not receiving those levels. Cable issues including missing networks, movie on demand concerns, issues with purchased subscriptions not carrying over, titles consumers have paid for (purchased licensed for) not being uploaded to their libraries and no solutions are being offered; and inability to access items like DVR boxes at the same time (multiple boxes in households not functioning); the Frontier App is not functioning for consumers; not fulfilling the rewards advertised with new service signups; charging consumers unauthorized third party charges on their telephone bill and not properly applying credits to consumer’s bills or consumers not being able to login to pay their bills.

When consumers call to receive assistance many report to BBB that they are hung up on or calls are disconnected and [are not followed up] by Frontier representatives. Consumers are transferred from representative to representative without receiving any assistance to their concerns many times resulting in a disconnection.

We have also identified a pattern in [Frontier’s] responses to complaints stating:

• Per Tariff, in no event shall Frontier be liable in tort, contract, or otherwise for errors, omissions, interruptions, or delays to any person for personal injury, property damage, death, or economic losses. Frontier shall in no event exceed an amount equivalent to the proportionate charge to the customer for the period of service during which such mistake, omission, interruption, delay, error or defect occurs. Frontier will apply a credit based on the customer’s daily service rate.
• We trust that this information will assist you in closing this complaint.  We regret any inconvenience that ‘consumer name’ may have experienced as a result of the above matter.

The business did not respond to the pattern of complaint correspondence BBB sent.

“Cable companies are beating the pants off Frontier,” Jonathan Chaplin, an analyst for New Street Research, told the newspaper. Heavy targeted marketing of Frontier’s customers, especially those served by Charter Communications in states like New York, Texas, Florida, and California are only accelerating Frontier’s customer cancellations.

Frontier’s cost consciousness and deferred upgrades as a result of its financial condition are only allowing cable companies to steal away more customers than ever, as the value for money gap continues to widen. While Frontier has failed to significantly upgrade many of their DSL customers still stuck with less than 10Mbps service, Charter Communications is gradually boosting their entry-level broadband speed to 100Mbps across its footprint and selling it at an introductory price of $44.99 a month.

Even Verizon sees the writing on the wall for the revenue prospects of landline service, especially in areas where it has not undertaken FiOS upgrades. Verizon DSL is still very common across its northeastern footprint, particularly in states like New York, Pennsylvania, Virginia, and Maryland. Upstate New York is almost entirely DSL territory for Verizon, except for a few suburbs in Buffalo, Syracuse, and the state’s Capitol region. Verizon soured on upgrading its copper facilities in these areas years ago, and has contemplated selling them or moving customers to wireless service instead.

Verizon spokesman Bob Varettoni admitted Verizon’s strategy was to “sharpen our strategic focus on wireless,” which makes Verizon considerably more money than its wireline networks.

“If Verizon’s selling assets, they’re selling them for a reason,” Chaplin said. “Verizon had taken those markets [in California, Florida, and Texas] pretty close to saturation before they sold. That’s the point at which they punted the assets to Frontier.”

Frontier cannot continue to do business this way and expect to survive. Investors have circled 2020 on their calendar — the year $2.4 billion in debt payments are due. Another $2.5 billion is due in 2021 and $2.6 billion in 2022, not including interest charges and other obligations. Refinancing is expected to get tougher at struggling companies and interest rates are rising. The pattern is a familiar one in the telecom industry, where acquirers like FairPoint Communications and Hawaiian Telcom spent heavily on acquiring landline cast-offs from Verizon. Customer departures, a financial inability to upgrade facilities quickly enough, and heavy debts forced both companies into bankruptcy, precisely where Frontier Communications will end up if it does not change its management and business practices.

Frontier is the dominant phone company in West Virginia.

Frontier Communications terminated the employment of West Virginia Senate president Mitch Carmichael just weeks after he refused to kill a pro-competitive state broadband expansion bill the company fiercely opposed.

Carmichael (R-Jackson), worked for Frontier for six years, most recently as a sales executive. Shortly after voting in favor of a bill making it easier for public broadband co-ops to deliver better broadband service in West Virginia, he was suddenly given two weeks notice his employment was being terminated.

Frontier refused to comment about its sudden decision to eliminate Carmichael’s job, but there is speculation the company was unhappy with Carmichael’s unwillingness to act on their behalf in the state legislature. Carmichael told the Charleston Gazette his dismissal came as a complete surprise, and he was not aware of any other layoffs in recent weeks.

“This was not something I wanted at all,” Carmichael told the newspaper. “They had a bad year, from a legislative perspective. They severed ties from me. 

Carmichael also noted Frontier was insistent on getting him to sign a nondisclosure agreement that would forbid him from talking about his job being terminated. He claims he refused to sign it.

The newspaper calls Carmichael Frontier’s most powerful ally in the state legislature. As Senate president, Carmichael was instrumental in killing a 2016 bill that would have launched a statewide municipal broadband network that Frontier never wanted to see get off the ground. Carmichael argued the competing network would have discouraged Frontier from investing in or expanding its own network, largely acquired from Verizon Communications in 2010. The bill died in the House of Delegates.

Carmichael

But as West Virginians continue to endure poor quality DSL service from Frontier and the company continues to experience financial pressures from its declining stock price and increasing investor discontent, it seemed unlikely Frontier would embark on dramatic new spending to boost internet speeds. This year, legislators proposed allowing up to 20 families or businesses to form nonprofit co-ops to offer internet service where Frontier and other providers have failed to expand service. The bill also permits up to three cities or counties to join forces and jointly construct new public broadband networks.

Frontier’s lobbyists loathed the bill, worrying about the prospects of facing new competition. The company devoted significant attention to block the bill in the legislature, but was apparently surprised when Carmichael refused to repeat his 2016 objections and recused himself from debate on the bill, and later voted for it. A short time later, his job was gone.

Whether Frontier assumed Carmichael’s primary loyalty should lay with the company and not the public that elected him to office isn’t known. Ironically, Carmichael tried to leave Frontier last summer after accepting a job with Frontier rival Citynet. Frontier offered a lucrative pay increase to convince Carmichael to change his mind. Ultimately, Carmichael returned to Frontier days later last August after he said the company begged him to stay.

Carmichael makes it clear he wasn’t in office just to represent Frontier’s political and corporate interests.

“The one thing I’m not going to do here as Senate president is advance special interests,” Carmichael told the newspaper. “It was obvious the body [Legislature] wanted that bill, and I wasn’t going to stand in the way of it.”

Delivering 21st century broadband speeds to rural Californians just doesn’t interest incumbent phone companies like AT&T and Frontier Communications, so the California legislature has been hard at work trying to entice upgrades on the taxpayer’s dime while reassuring ISPs they won’t have to break a sweat doing it.

Steve Blum from Telus Venture Associates reports the California Advanced Services Fund (CASF), California’s equivalent of the FCC’s Connect America Fund (CAF) – is about to get a makeover sure to delight the two phone companies while throwing some cash at cable operators like Comcast, Cox and Charter to keep them happy as well.

The changes are encompassed in Assembly Bill 1665, sponsored by Assemblyman Eduardo Garcia (D–Riverside County), who counts AT&T as his sixth biggest contributor. The phone company has cut checks to the former mayor of Coachella not less than a dozen times amounting to $16,700. Garcia has also received special attention from AT&T’s lobbyists, who invited him to appear side-by-side with AT&T officials at press-friendly events where the phone company donated $10,000 to an abused women’s shelter and $25,000 to the Court Appointed Special Advocates of Imperial County.

Blum reports that the bill has been largely a placeholder until now as negotiations and dealmaking happened behind the scenes. The result is a corporate welfare bonanza that will raise $330 million for the CASF by reinstating a telephone tax on consumers and businesses than ended last year. Of that, $300 million will end up in the pockets of phone and cable companies, $10 million will go to regional broadband efforts, and the remaining $20 million will be designated for schools, libraries, and non-profit groups to promote broadband use, but only where providers already offer service or will shortly. In effect, that $20 million will turn public institutions into sales agents for ISPs.

The corporate giveaway bill will also sell Californian consumers down the river:

• The bill effectively replaces the FCC’s minimum definition of broadband (25/3Mbps) with California’s own minimum: 6/1Mbps — conveniently about the same speed telephone company DSL provides. As Blum writes, the language “makes 1990s legacy DSL technology the new 21st century standard.”
• AT&T and Frontier Communications get monopoly protection with exclusive CASF rights in areas where they currently receive federal CAF funding. This means both companies will get to double-dip federal and state money to expand inferior DSL or fixed wireless service and never have to worry about taxpayer funding going to their competitors or communities that might choose to build their own superior broadband networks. It virtually guarantees rural California will be stuck with sub-standard internet access indefinitely, and at the taxpayer’s expense.
• CASF funding has always been exclusively for infrastructure construction — building out the last mile to deliver internet access to consumers and businesses. But the new bill now allows the money to also be spent on “operating costs,” a rat hole where millions can quickly disappear with little improvement in broadband expansion or service.
• The new bill suggests that provider contributions — where providers agree to kick in a percentage (usually 30-40%) of their own money on expansion projects in return for getting taxpayer subsidies, is just too hard on struggling phone companies like AT&T and Frontier. Under the new proposal, this requirement should be eliminated.
• Individual homeowners would be able to apply for grants to get broadband connections, a direct nod to the state’s cable companies that routinely ask would-be customers just out of reach of the nearest cable line to pay tens of thousands of dollars to build a line extension. If approved, cable companies could set the installation price as high as the sky and get taxpayers to foot the bill, enriching themselves while avoiding any regulatory scrutiny.

Cable companies also get another wish granted — keeping subsidized broadband out the hands of many poor Californians that need connections for education, job-seeking, and training. The bill proposes to ban funding for broadband facilities in public housing. Cable companies have been irritated spending capital on broadband expansion to public housing only to find many of its customers would likely to qualify for their “internet for the poor” programs that cost as little as $10 a month.

Blum reports the language isn’t final and is likely to be amended as negotiations continue. A hearing of the Communications and Conveyance Committee at the State Capitol, Room 437 is scheduled for 1:30pm PDT today on the bill. You can listen to the hearing when in session here.

A suspicious line item labeled “Mille Lacs Indian Res Tel Lcl Sales Tax” amounting to $0.21 that appeared on the Wahkon City Council’s latest Frontier phone bill was all it took to become a significant topic at the April 10 city council meeting.

City officials and some residents in and around the Mille Lacs County, Minn. were concerned Frontier appeared to be taxing their phone bills and giving the proceeds to a Native American tribe’s nearby reservation that surrounds the southern part of Mille Lacs Lake.

“I can appreciate that some citizens are concerned about what they’re paying. We don’t know anything, it might be a mistake,” said county administrator Pat Oman. “The county is certainly taking this seriously and wants an answer.”

Reviewing prior bills, city clerk Karrie Roeschlein told the council the “new tax” replaced one previously labeled as “Wahkon Telecom Local Sales Tax.” That tax presumably covered the county’s new 0.5% “transit sales and use tax” which took effect Jan. 1, 2017, but nobody, including Frontier Communications, appears to know for sure.

The Minnesota Department of Revenue has no idea what Frontier is doing either, telling the Mille Lacs Messenger, “the wording provided from the billing statement (Mille Lacs Indian Res Tel Lcl Sales Tax) does not correspond to any state or local tax administered by the department.”

County officials and residents are opposed to any part of their Frontier bill being paid to the Mille Lacs Band of Ojibwe, which maintain the Mille Lacs Indian Reservation. The county paid the $0.21, under protest.

The conflict may lie with Frontier’s billing department, not the Band, however. In a written statement to the newspaper, Band officials made it clear they are not imposing any tax or collecting any revenue received from it. The money stops at Frontier’s bank account:

“The Band is not imposing additional sales tax, or any tax for that matter, on Frontier Communications’ customer accounts, nor is the Band receiving sales tax revenue related to those activities. The recent reporting of an assessment by the Band is the result of an internal bill coding issue by Frontier Communications. We understand the company is taking the appropriate steps to rectify the situation. The Band is not aware of any changes to the rules regarding sales taxes on fee or trust lands.”

Unfortunately for both sides, Frontier could not quickly determine exactly what was behind the “new tax” appearing on Frontier customers’ phone bills, but the county’s attorney, Joe Walsh, received an informal answer from Frontier claiming it was probably a mistake.

“Frontier believes this is a mis-coding caused by a third-party service provider called Core Logic,” Walsh told the newspaper. “At this time, it appears that this may have been a simple mistake of nomenclature – a misnamed tax. If that changes and there is any indication that your tax dollars are being distributed to the Mille Lacs Band, that will be taken very seriously and an appropriate joint response will be formulated.”

The second half of 2016 shows losses in broadband and television customers.

Frontier Communications CEO is blaming employees for the company’s deteriorating financial condition and operating performance and has allegedly dropped bonuses and merit pay increases for lower-level employees.

Sources inside Frontier Communications tell Stop the Cap! Frontier CEO Dan McCarthy notified employees in email on March 2 — one week before employees were expecting to receive their annual bonus — the company would no longer be providing bonus compensation for “lower banded management employees.” They hired redundancy representation for employers for this case.

“He implied that he too was affected but I highly doubt that is the case,” one source tells us. “We weren’t notified via a ‘Town Hall’, no conference call, no face to face with our managers, only a cowardly e-mail sent from behind a desk thousands of miles away. Keep in mind that people use that to pay house taxes, medical bills, pay off other bills, pay college tuition, etc, and a week before we were slated to get it we’re told that it isn’t coming.”

McCarthy has been on the hot seat with Wall Street for weeks after reporting yet another quarter where many of Frontier’s most profitable customers are fleeing faster than the company can replace them with new ones. McCarthy also told investors that many of Frontier’s losses in the last quarter were due to the company finally disconnecting service and writing off customers who haven’t paid their Frontier phone bills for as long as a year in acquired former Verizon territories in Florida, Texas, and California.

McCarthy

“There was certainly no suggestion that the big acquisition would pay off in the company’s Q4 earning report when subscriber counts, average revenue per residential user, and quarter-over-quarter revenue all fell,” wrote Daniel B. Kline of TMFDankline. “That has been the pattern in all three quarters since the Verizon deal closed, and while McCarthy has done an excellent job controlling expenses, his excuses for the drop in subscribers have started to sound a bit hollow.”

That effort to “control expenses” may be coming at the expense of customers that Frontier is depending on to stay in business.

New York Attorney General Eric Schneiderman last month announced the state was reviewing Frontier’s performance in western New York. A Rochester television station has aired more than a half-dozen stories about deteriorating service quality at Frontier since last summer. After airing the first few stories, the station was inundated with hundreds of complaints about Frontier’s spotty broadband and phone service.

News10NBC (WHEC-TV) reported it can take weeks for a Frontier technician to show up on a service call. Customer service is no help and customers are not getting the services they paid to receive.

Frontier was also implicated last month in knocking a Rochester area radio station off the air. After the company first blamed the radio station’s equipment for the problem, Frontier eventually admitted its own “old infrastructure” was responsible for outages that interrupted broadcasts for hours at a time.

Frontier’s stock continues its descent.

Schneiderman has been focused on keeping New York’s ISPs honest about their speed claims and performance, but service reliability is also increasingly an issue, especially after high winds in a recent storm in western New York left nearly half of the Rochester metro area without essential utilities for several days. Infrastructure upkeep, particularly aging utility poles, is now under investigation by the state’s Public Service Commission. Early evidence revealed local utilities may have underinvested in pole maintenance for years due to cost cutting. Some utility poles in western New York are well over 50 years old, originally placed in the 1950s and 1960s. Hundreds failed in the high winds.

Frontier’s track record of blaming others for their own problems has not been well-received by employees.

“Maggie Wilderotter [former CEO of Frontier Communications] was bad but McCarthy’s leadership is erratic and catastrophic,” shares another Frontier middle management employee wishing to stay anonymous. “McCarthy was defending the regional management autonomy approach as a unique strength for Frontier last summer, now he’s declared that is inefficient and is centralizing management decisions at corporate headquarters. He was selling Wall Street on Frontier’s IPTV project in 2016 by promoting expanded service territories. Now that project is on hold and there are signs Frontier is pulling back on meaningful and long overdue broadband speed upgrades. He recently announced he was reorganizing residential and commercial sales units, something our competitors did long ago and will only disrupt things at Frontier even more. Poor customer service was the result of “on-shoring” our call centers? Not exactly. Poor training and inadequate support have left our call center employees unable to properly handle customer concerns. Employees can reach out to an employment law attorney when facing unjust treatment in the workplace. He also consistently downplayed how nightmarish the Verizon conversion was for our new customers in Florida, Texas, and California. It was bad planning, bad vision, and poor execution and the buck stops with our CEO.”

Another source tells us:

“We worked 60-80 weeks, late nights, weekends, countless hours away from our families to push forward with projects that were horrible for our customers and senior leadership was told to get the job done regardless any way they could. We worked through the AT&T and Verizon conversions. We performed as employees of Frontier. Who did not perform? Those making these horrible financial and planning decisions that caused major outages to former Verizon customers when they finally cut over. Some problems were so severe that many customers decided to leave.”

Frontier insiders tell us the company is on a mission to slash expenses across the board to turn in better financial results that can protect the company’s dividend payout to shareholders and, in turn, executive pay and bonuses. The company is reportedly considering allowing more employees to work from home to cut facilities costs, utilities, and maintenance expenses.

“There have been numerous resignations over this and morale is at an all-time low within the company,” a source tells us.

One of the employees sharing the latest developments reports he has turned in his resignation this month and hired an employment lawyer at HKM.com to get the compensation he deserves.

“I figure I should follow so many of our customers to a company that isn’t great, but at least makes an effort delivering what it promises.”

Frontier’s Problems Afflict Hundreds of Customers in Western N.Y.

WHEC-TV Rochester has been following problems with Frontier Communications since last summer. Until the acquisition of former Verizon customers in Texas, Florida, and California, the Rochester, N.Y. metropolitan area was considered Frontier’s largest legacy city service area. But just like in smaller rural communities, service problems have plagued Frontier, with complaints rolling in about slow or non-existent broadband, landline outages, poor billing and customer service practices, and service calls that take weeks before anyone shows up.

WHEC-TV Rochester began covering problems with Frontier on Aug. 22, 2016 with an investigation into internet woes at a Geneseo insurance agency. (2:21)

One day later (Aug. 23, 2016) complaints from other Frontier customers poured into WHEC-TV’s newsroom because of outages and bad service. (2:54)

In September, 2016 WHEC-TV was back with another story from frustrated and angry customers who can’t get suitable service from Frontier Communications, but found a $200 early termination fee on their bills when they tried to cancel. Now the Attorney General is getting involved. (3:18)

In late December, WHEC reported it had asked the N.Y. Public Service Commission to start an investigation into Frontier Communications over its broadband service. (2:20)

In February, when N.Y. Attorney General Eric Schneiderman came to town to discuss the honesty of ISP speed claims, WHEC reporter Jennifer Lewke instead questioned him about the hundreds of complaints the station had received about Frontier Communications. (3:03)

About one week after the Attorney General visited Rochester, WHEC reported Frontier Communications’ “old and outdated” equipment was directly responsible for taking a local radio station off the air for hours at a time. (1:10)

Several days after a windstorm in the Rochester area took away power to nearly half the metropolitan area, WHEC reports residents are frustrated waiting for cable and phone service to be restored. An investigation into utility infrastructure is now underway. (3:17)