Frontier Communications is selling its wireline and fiber assets in Idaho, Montana, Oregon and Washington in a $1.35 billion all-cash deal with two private investment firms.

Frontier will continue operating its FiOS and traditional landline networks in the four states until the transaction closes with regulator approval.

The buyers are WaveDivision Capital, a private investment firm run by the founder of Wave Broadband, an independent broadband provider serving the Pacific Northwest and Searchlight Capital Partners, a Wall Street investment firm seeking to “accelerate value creation” for its investors. The new owners plan to launch a new company to service existing Frontier customers and will honor existing contracts and service commitments.

“The sale of these properties reduces Frontier’s debt and strengthens liquidity,” said Dan McCarthy, Frontier’s president and CEO, in a statement. “We are pleased to have a buyer with extensive experience building and operating advanced fiber-based communications assets in these regions. We will be working very closely with the new owners to ensure a smooth, successful transition for our customers and the communities we serve.”

About 150,000 fiber, 150,000 copper and 35,000 fiber video customers are impacted by the sale in the four affected states. Frontier’s service area in the region is made up of large former Verizon service areas, many upgraded to fiber-to-the-home service, and a significant number of rural telephone exchanges operating with traditional copper wire networks. WaveDivision Capital claims it wants to invest in Frontier’s existing network to upgrade service and potentially retire additional copper infrastructure in favor of fiber.

Frontier service areas in Oregon, Washington, and Idaho.

“We are excited to transition these operations to a local ownership team and to invest in building out the network of next generation fiber throughout our region,” said Steve Weed, CEO of WaveDivision Capital, and founder and former CEO of Wave Broadband. “We are big believers in the Northwest’s future growth opportunities and that future runs on broadband. As the former leaders of another successful Northwest internet provider, Wave Broadband, we know what it takes to bring fiber and other advanced services to residential and business customers, give them choices, and keep them happy.”

Frontier, which has been struggling with a tremendous debt load and underinvestment in its network, sees the sale as a way to improve its balance sheet and cut both debt and expenses. The Pacific Northwest is a difficult region to serve because it is sparsely populated and can be a high cost area because of difficult terrain or long distances between customers. Although Frontier had committed to spending on upgrading its fiber customers, it promised little for its copper wireline customers still relying on low-speed DSL. Weed says his company hopes to change that.

“Our plan is to invest further in our markets, specifically by extending fiber to more homes and businesses, to bring them the high speeds they want,” Weed said in a statement.

Frontier’s Montana operations are in the northwest corner of the state, near the Kootenai National Forest.

The transaction is subject to regulatory approvals by the Federal Communications Commission, the U.S. Department of Justice, the Committee on Foreign Investment in the United States (CFIUS), applicable state regulatory agencies, and certain local video franchise authorities where Frontier FiOS operates. Frontier expects little opposition to the deal.

Weed’s involvement in Wave Broadband is no more, but at the time he left the company, Wave had reached 140 cities and towns in Washington, Oregon, and California. Wave was formed in 2003 with a series of strategic acquisitions of “distressed” independent cable systems and those owned by pre-bankruptcy Charter Communications, Northland Communications, and Cedar Communications. In May 2017, Wave Broadband was sold to TPG Capital for $2.36 billion, and today operates under TPG’s leadership with its close cousins RCN and Grande Communications.

Weed has a reputation for successfully deploying fiber networks in a region where capital can be difficult to find and easy returns on investment are rare, so there is considerable good will he will successfully upgrade Frontier service areas that have been neglected for years.

Although the transaction could deliver temporary fiscal relief for Frontier, shareholders remain displeased with the current leadership team at the company, and there are still significant signs Frontier remains in serious financial and operational distress, especially because of its ongoing customer losses. Frontier is likely to be pressured to find other sales opportunities, assuming it can find willing buyers.

The top 10 service providers in the United States collectively lost over 1.25 million paid television customers in the first three months of 2019, providing further evidence that cord-cutting is accelerating.

Multiscreen Index estimates if that trend continues, an average of 14,000 Americans cancel their paid cable or satellite television service daily.

AT&T suffered the greatest losses, primarily from its satellite television service DirecTV. More than a half-million satellite customers canceled service in the first quarter of the year. AT&T lost another 89,000 streaming customers as news spread that the service was increasing prices and restricting generous promotions to attract new subscribers. DISH Network, DirecTV’s satellite competitor, also lost more than 250,000 customers.

Many cable television providers announced this quarter they would no longer fret about the loss of cable TV customers, and many have dropped retention efforts that included deeply discounted service. As a result, customers are finding it easier than ever to cancel service. Comcast lost 107,000 TV customers, while Charter Spectrum lost 152,000. Spectrum recently increased the price of its Broadcast TV Fee to $11.99 a month and has pulled back on promotions discounting television service.

“There were losses across the top 10 television services in the United States, with even the DirecTV Now online service losing customers following previous heavy promotion. Between them, they lost over one-and-a-quarter million subscribers in three months. They still command a significant number of customers but the rate of attrition has increased,” said Dr. William Cooper, the editor of the informitv Multiscreen Index.

The total figures for the quarter show roughly 81.90 million Americans are still paying one of the top-10 providers for cable or satellite television service, amounting to less than 70% of television homes — a significant drop. Privately held Cox Communications is excluded because it does not report subscriber numbers or trends.

Frontier Communications has no plans to upgrade most of their legacy copper DSL internet customers this year, leaving customers in many markets stuck at speeds as low as 1-3 Mbps.

Frontier CEO Dan McCarthy told analysts in a late afternoon conference call Tuesday that around one million homes have access to Frontier’s 100 Mbps DSL service, and six million can sign up for DSL at or above 25 Mbps. McCarthy considers those customers valuable targets for marketing campaigns because most are not Frontier customers. For the rest of Frontier’s legacy copper areas that cannot access those speeds, Frontier will have little to offer in 2019.

“I don’t think you’re going to see us do a lot of significant copper upgrades this year,” McCarthy admitted. “Our big focus is really future proofing kind of the [California, Texas, and Florida] fiber markets. So, we’re spending the money to upgrade th[ose markets] to 10 Gbps capability.”

Frontier reported another quarter of poor results late yesterday, widely missing analyst expectations. Frontier’s share price lost 26.8% of its value overnight in heavy trading. Over the last 12 months, Frontier’s share price has dropped by 77%.

Analysts remain deeply concerned about Frontier’s customer defections, which have persisted for several years and show no signs of ending. Even more daunting, Frontier’s high debt levels are still a problem. A major tranche of Frontier’s debt comes due for repayment in 2022, and there are concerns Frontier may not be able to cover it, which could force the company into bankruptcy. In February, Bloomberg News ranked Frontier No. 1 on the list of deeply distressed debt issuers in North America.

While cable companies can count on quarterly boosts in the number of customers signing up for broadband, Frontier shareholders have become accustomed to reading about subscriber losses. The company lost 38,000 broadband subscribers in the last quarter, including in its fiber to the home markets. Most of Frontier’s losses are Charter Spectrum and Comcast’s gains. Frontier also reported landline and video customer losses.

One of Frontier Communication’s largest legacy service areas is suffering from some of the same bad service reported by rural communities in states like California, Minnesota, and Florida.

News10NBC reports that some customers in Rochester, N.Y. have spent “weeks without reliable telephone service and very few answers.”

Frontier landline customer Andy Melnyk says the problems with his phone service began six weeks ago. The line frequently goes dead with no dial tone, and customers calling the Rochester family get nothing but a busy signal.

“I thought okay, they fixed it, let it go and then it happened again,” Melnyk reports. Despite the service problems, Frontier has not offered any bill credits, or a satisfactory explanation for the problem.

“[It’s] just like a black hole, you can’t find anything out,” Melnyk’s wife Kay told the station. “They’re not being very transparent about what the problem is, [and] what they’re doing to solve it.”

The Melnyk family is not alone. Other Frontier customers in the neighborhood are dealing with the same issue.

It took News10NBC to get involved to get a statement from Frontier, claiming the problem is a wet copper cable.

“Frontier technicians are working to repair a large-diameter copper cable damaged when recent rainstorms flooded an underground vault,” Frontier said in a statement. “Services were restored for affected customers by March 7, however, the permanent repair process needed to splice new cable is complex and takes time. We expect to finish the work this weekend. We thank our customers and the communities we serve for their patience as Frontier crews work safely and diligently to maintain our network and keep communities connected.”

Maintaining deteriorating copper wire infrastructure that other phone companies discarded years ago in favor of fiber optics can be complex and time-consuming. But other companies have found upgrading to fiber has given their networks more reliability and happier customers. But Frontier has shown no signs of launching fiber upgrades for customers in their legacy copper wire service areas.

Meanwhile, when asked if Frontier customers will receive bill credits for the problems, a Frontier spokesperson told the station they will consider that on a “case by case basis.”

WHEC in Rochester reports Frontier customers in parts of Rochester, N.Y. have experienced weeks of bad service and are not getting any answers why. (2:36)

In the last three months of 2018, Frontier Communications reported it said goodbye to 67,000 broadband customers, lost $643 million in revenue year-over-year, and had to write down the value of its assets and business by $241 million, as the company struggles with a deteriorating copper wire network in many states where it operates.

But Wall Street was pleased the company’s latest quarterly results were not worse, and helped lift Frontier’s stock from $2.42 to $2.96 this afternoon, still down considerably from the $125 a share price the company commanded just four years ago.

Frontier’s fourth quarter 2018 financial results arrived the same week Windstream, another independent telephone company, declared Chapter 11 bankruptcy reorganization. Life is rough for the nation’s legacy telephone companies, especially those that have continued to depend on copper wire infrastructure that, in some cases, was attached to poles during the Johnson or Nixon Administrations.

Frontier Communications CEO Dan McCarthy is the telephone company’s version of Sears’ former CEO Edward Lampert. Perpetually optimistic, McCarthy has been embarked on a long-term ‘transformation’ strategy at Frontier, to wring additional profit out of the business that provides service to customers in 29 states. Much of that effort has been focused on cost-cutting measures, including layoffs of 1,560 workers last year, a sale of wireless towers, and various plans to make business operations more efficient, delivering mixed results.

McCarthy

Frontier’s efforts to improve customer service have been hampered by the quality and pricing of its services, which can bring complaints from customers, many who eventually depart. Frontier’s overall health continues to decline, financially gaining mostly through rate increases and new hidden fees and surcharges. In fact, much of Frontier’s latest revenue improvements come almost entirely from charging customers more for the same service.

McCarthy calls it ‘cost recovery’ and ‘steady-state pricing.’

“One of the things that we’ve been focused on really for the better part of two years is …. taking advantage of pricing opportunities [and] recovering content costs — really dealing with customers moving from promotional pricing to steady-state pricing, and then offering different opportunities for customers both from a speed and package perspective,” McCarthy said Tuesday. “The quarter really was about us targeting customers very selectively and really trying to improve customer lifetime value.”

By “selectively,” McCarthy means being willing to let promotion-seeking customers go and being less amenable to customers trying to negotiate for a lower bill. The result, so far, is 103,000 service disconnects over the past three months and 379,000 fewer customers over the past year. A good number of those customers were subscribed to Frontier FiOS fiber to the home service, but still left for a cable company or competing fiber provider, often because Frontier kept raising their bill.