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Windstream Sues Charter Over Lookalike Mailers Questioning Phone Company’s Future

Windstream Holdings filed a suit against Charter Communications (d/b/a Spectrum) on Friday, claiming the cable company is trying to poach its customers with a “despicable” false advertising campaigned designed to make people believe the phone company’s days are numbered.

“Shortly after Windstream filed for Chapter 11 protection, Charter commenced a false and misleading advertising campaign designed to cause irreparable injury and damage to Windstream’s reputation and business,” the lawsuit filed with the U.S. Bankruptcy Court for the Southern District of New York states. “Charter targeted Windstream customers in Alabama, Georgia, Kentucky, Ohio, Nebraska, and North Carolina, which are several of Windstream’s top performing states.”

“On the envelopes for the advertisement, Charter intentionally utilized Windstream’s trademark and signature color pattern to mislead Windstream customers into believing that the advertisement came directly from Windstream. Indeed, Charter’s advertisement stated that it was ‘Important Information Enclosed for Windstream Customers.’”

Inside the envelope was an ad for Charter Spectrum:

Windstream Customers,

Don’t Risk Losing Your Internet and TV Services.

Windstream has filed for Chapter 11 bankruptcy, which means uncertainty. Will they be able to provide the Internet and TV services you rely on in the future? To ensure you are not left without vital Internet and TV services, switch to Spectrum.

With a network built for the future, Spectrum is here for the long haul.

Goodbye, Windstream.
Hello, Spectrum.

Windstream’s future is unknown, but Spectrum is here to stay—delivering internet and TV services you can count on. . . .

Windstream told the Bankruptcy Court the ads were evidently effective, based on call transcripts and messages sent from customers to Windstream’s customer service department. Windstream’s attorneys attached multiple examples:

“I got a letter in the mail saying that ya’ll were going bankrupt and for me to go with Spectrum so I have gone to Spectrum and I have just called to have the services of Windstream disconnected.”

“I’ve got Spectrum over here so they go everything hooked up and so they told me not to call you until they got everything going like it’s supposed to be but I got that letter in the mail from Windstream and told me to get with you guys – to get with Spectrum so that’s what I did.”

“Oh, well I was just going there because it says hello I mean goodbye Windstream and uh..to got to Spectrum.”

“Oh lord, well I’ve been [Inaudible] on ‘em honey. I thought the letter was from you cause it said Windstream Corporation.”

The lawsuit complains Windstream had to take 160 calls regarding the Charter mailers over a 10-day period.

The phone company is demanding compensation for a number of reasons, but in part because it was forced to offer inquiring customers a better deal in order to convince them to stay with Windstream.

“As a direct result of Charter’s advertising campaign, Windstream has been forced to expend substantial time, money, and resources to combat these false claims. When distressed customers have called in, Windstream has offered upgrades, which many customers have taken,” the lawsuit states. “Windstream has also incurred costs and resources to educate its customer care associates on how to provide a comprehensive response to Charter’s false claims, which includes an explanation of the true effects of the Chapter 11 proceedings. In addition, as a direct result of Charter’s advertising campaign, Windstream has undertaken an extensive mailing and advertising campaign, at significant cost and expense, to counter Charter’s false and misleading advertising campaign. Windstream’s Legal department has also expended extensive time and effort in researching and responding to this matter.”

Windstream also complained Charter somehow disconnected service to approximately 350 Windstream customers on March 14, 2019, without notice to the phone company. The phone company also alleges Charter has told customers that Spectrum is buying out Windstream.

“When Windstream customers contacted Charter to have their services reinstated, they were told by Charter that service was not being reinstated because of Windstream’s failure to pay certain amounts due to Charter,” the lawsuit claimed. “Windstream, however, is not currently authorized to make any payments to Charter on account of prepetition debt as a result of the Chapter 11 filing.”

Keith

Windstream sent two angry letters to Charter complaining about the mailers.

“This misconduct is unacceptable and will not be tolerated,” Windstream’s deputy general counsel Carol Keith wrote. “This goes beyond a mere marketing decision made in bad taste and is clearly an illegal targeting of Windstream’s services and/or business in the marketplace using ‘false and misleading’ representations. Furthermore, when given the opportunity, Spectrum employees have been directed to double down and outright lie to Windstream customers that Spectrum has a contract to buy Windstream out.”

When Windstream took their complaints straight to Charter, their claims were rebuffed.

“On March 26, 2019, Charter responded to Windstream’s letters, contending that its advertisements were not false or misleading, and that it was proper to describe Windstream’s bankruptcy as creating an ‘uncertainty.’ According to Charter, a Chapter 11 bankruptcy filing ‘creates ‘uncertainty’ regarding Windstream’s future until the bankruptcy is resolved.’”

Charter also told Windstream it believed the confusion over a “buyout” has to do with the cable company’s long-standing offer to pay up to $500 in contract termination fees for new customers switching to Spectrum.

Windstream Declares Bankruptcy; Another Legacy Telco Falters

Phillip Dampier February 25, 2019 Consumer News, Public Policy & Gov't, Windstream 3 Comments

Windstream Holdings, Inc. filed bankruptcy this afternoon, citing its inability to cover $5.8 billion in outstanding debt.

The independent phone company, which provides legacy landline and broadband service to around 1.4 million customers in 18 states, filed voluntary to reorganize under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York, citing a judge’s decision almost two weeks ago that the company defaulted on its obligations.

“Following a comprehensive review of our options, including an appeal, the Board of Directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman’s decision and the impact it would have on consumers and businesses across the states in which we operate,” said Tony Thomas, president and chief executive officer of Windstream. “Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization.”

Windstream received a commitment from Citigroup Global Markets Inc. for $1 billion in debtor-in-possession (“DIP”) financing. Assuming a bankruptcy judge approves of the arrangement, Windstream claims this stop-gap financing will allow it to run its current business as usual.

Windstream provides residential service in 18 states including: Alabama, Arkansas, Florida, Georgia, Iowa, Kentucky, Minnesota, Mississippi, Missouri, Nebraska, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina and Texas.

The company claims it was forced into bankruptcy after a judge found Windstream’s attempt in 2015 to shift its valuable fiber optic network assets off its own books into a sheltered real estate investment trust (REIT) named Uniti Group violated the rights of bondholders which hold some of Windstream’s debt. Those debts are backed, in part, by the valuable fiber optic assets Windstream had  spun them off to a new entity. In fact, Uniti’s fiber optic assets are essential to Windstream’s viability. The phone company has the exclusive right to use Uniti’s fiber assets and two-thirds of Uniti’s revenue comes from Windstream, making the two companies inseparable.

Windstream’s bankruptcy is a concern to investors of both companies because it will allow Windstream to renegotiate the terms of its contract with its fiber partner. Windstream customers are equally concerned because the phone company needs Uniti’s network to manage its broadband service.

The judge’s decision on Feb. 15 to declare the arrangement inappropriate was reportedly a shock to the investor community, which has made money buying repackaged corporate debt in the form of bonds for years. Corporations have issued bonds to retire older debt, while giving investors a piece of the action. Since investors are making money, they typically do not complain too loudly about the persistence of corporate debt, frequently repackaged in new bonds. As a result, companies can hold onto more cash used to pay shareholder dividends and executive compensation instead of permanently retiring debt.

Aurelius, a hedge fund, is making some of its money scrutinizing these arrangements looking for contract violations such as the Uniti spinoff. When it finds one, it takes a stake in the company and then threatens to sue as a harmed investor. Based on the judge’s decision, Aurelius won a judgment that will effectively empty the pockets of many of the bondholders and investors that could lose a lot of their investments because of the bankruptcy. If the hedge fund is going to actively seek other questionable arrangements or violations of bondholders’ rights at other companies, it could cause an earthquake in an investment community that has quietly conspired with companies to generate transactions that enrich investors while allowing companies to carry more debt.

Customers could end up covering some of the costs of today’s bankruptcy filing if Windstream files a plan with the Bankruptcy Court promising to raise prices to help it demonstrate ongoing viability.

Windstream’s Thomas complained the phone company is little more than a victim of a predatory hedge fund out to enrich itself at the expense of others.

“The company believes that Aurelius engaged in predatory market manipulation to advance its own financial position through credit default swaps at the expense of many thousands of shareholders, lenders, employees, customers, vendors and business partners,” Thomas said. “Windstream stands by its decision to defend itself and try to block Aurelius’ tactics in court. The time is well-past for regulators to carefully examine the ramifications of an unregulated credit default swap marketplace.”

Windstream Relying on Government Funding to Double 100 Mbps Availability in 2019

Windstream is relying on the Federal Communications Commission’s Connect America Fund to double the areas where it will offer 100 Mbps broadband service, expected to reach 30% of the company’s 18-state local service area by the end of the first quarter of 2019.

“Windstream understands that premium internet speeds are critical to families and businesses in rural America, and we are systematically enhancing our network to meet that urgent demand,” said Jeff Small, president of consumer and small and medium-sized business services. “Network upgrades are expensive, especially in rural areas where there are relatively few customers, so Windstream is using a combination of its own capital and crucial support from the FCC’s Connect America Fund to make faster speeds more widely available. Without support from the Connect America Fund, many of these projects simply would not be economically feasible.”

Thomas told attendees at the Citi 2019 TMT West Conference Windstream’s legacy copper wire telephone network is not up to the job of handling the kinds of internet speeds more modern technologies can manage.

In urban and larger service areas, Windstream is most likely to deploy fiber to the home service in new housing developments and select gentrified neighborhoods where a business case exists to invest in fiber upgrades. The company also typically replaces its copper wireline infrastructure with fiber where road construction projects or damage forces the company to replace or relocate its lines. Suburban and more densely populated rural areas are likely to receive an upgraded version of Windstream’s DSL service that can manage up to 50 or 100 Mbps. In Windstream’s significant rural service area, the phone company is increasingly turning to fixed wireless technology, especially in flat midwestern states like Nebraska and Iowa where it plans to offer a combination of 3.5 GHz “CBRS” and 5G millimeter wave fixed wireless broadband capable of delivering up to 1,000 Mbps.

Windstream’s service area

“[We are deploying wireless internet] probably at a larger scale than a lot of the larger wireless companies,” Thomas said, especially in flatter areas where wireless signals go a long way.

Because most current broadband expansion fund programs require companies to commit to at least 25/3 Mbps service, simply expanding basic ADSL technology has proven inadequate to meet the government’s speed requirements. But wiring fiber to the home service to get faster speeds in rural areas does not meet the Return On Investment requirements Windstream’s shareholders demand. Windstream claims fixed wireless can solve both problems.

“You can get 100 Mbps out there very cost-effectively,” Thomas claimed. “You are really blowing away copper infrastructure and making it irrelevant because you’re embracing this 100 Mbps technology.”

As of early 2019, Windstream claims that 60% of its customers can get at least 25 Mbps service, 40% can receive at least 50 Mbps service. By the end of March, 30% will be able to receive 100 Mbps service.

 

A satisfied Windstream customer talks about his upgrade to 50/8 Mbps, which replaces his old 6 Mbps DSL service. (6:03)

Windstream’s “Aspirational” Broadband: DSL Customers Not Getting Advertised Speed

An unhappy customer in Georgia.

Victor Brown, like many residential customers in rural northeastern Ohio, has one option for internet access — Windstream, an independent phone company that typically serves areas larger companies like AT&T, Verizon, and CenturyLink forgot. For 17 years, his internet speed has been absolutely consistent, and slow.

“It’s 1.2 Mbps day or night, no more and no less, and for that they are charging me $58 a month,” Brown told Stop the Cap! “In that time, there has never been an upgrade, a real commitment to improve service, or anything except repetitive sales calls and mailers offering to upgrade me to a faster speed level Windstream cannot actually deliver.”

Windsteam has told its investors that it expects to offer 60% of its customers at least 25 Mbps service by the end of 2018. In fact, Brown has already been offered that for nearly a year, but the service is not actually available.

“They will switch you to 25 Mbps today, with the higher bill to boot, but you won’t actually get any better speed than you have right now,” Brown said. “I know because we tried.”

Brown and several of his neighbors all attempted to upgrade to the higher-speed service advertised. Windstream accepted their orders, charged them more, and delivered exactly the same 1.2 Mbps service they have always had.

“It took a service technician coming out to make it clear to us there was no way we would ever get faster speed because there was too much copper wiring between their office and our homes,” Brown said. “The technician felt for us, and about half of his service calls were disappointing customers like us.”

Brown explained the Windstream technician candidly told him that the company’s head office is behind the speed upgrades, but does not actually have a clear understanding of the state of the local network. Marketing then sells customers on better service Windstream’s network is not capable of providing.

“They need to spend money to replace some copper with fiber but there is no money for that,” Brown said. “The most the technician could suggest was installing a bonded DSL connection that would use two different phone lines and deliver 2.4 Mbps. That would come at a price, however.”

Ruth in Cochranton, Penn., is in exactly the same position.

“We are paying for internet speed that we aren’t receiving,” Ruth complained. “It is so slow that we have a hard time getting a short 50 second video to load. Forget watching a YouTube video, it’s not going to happen.”

Over in Lilitz, Penn., Eileen and her neighbors were also dealing with temporary phone lines Windstream installed by dropping both on their lawns and then leaving them unburied for nine months. She cannot get anyone from the company to bury the lines despite seven separate phone calls. Down the street, internet and phone outages can last a week after a strong rainstorm hits the area, and since the weather has turned much colder, hum and crackle on the neighborhood’s phone lines have disrupted phone calls and DSL service. Nobody from Windstream has come to fix the problem.

Windstream tells a very different story to its investors in the form of ‘upgrades by press release’ and cheerful investor conference calls that claim dramatic improvements in service and growth. While cable operators are touting increasing availability of gigabit service, phone companies like Windstream are promising to give a little more than half their customers the minimum definition of broadband service — 25/3 Mbps, by the end of this year. Many of Windstream’s other half get nothing close to those speeds, with 1-3 Mbps common in rural areas.

Wall Street balks at the dollar amounts it would take for Windstream to fully update its network to offer broadband speeds that were common for cable subscribers a decade ago. That kind of network investment would likely drive down the share price, impact shareholder dividends or stock buyback plans, and increase debt. Instead, many phone companies are hoping the federal government will come to the rescue and subsidize rural network improvements through the FCC’s Connect America Fund or government grants. But many of those grants won’t deliver service improvements to existing customers. Instead it will allow rural phone companies to bring broadband to customers who never had it before.

Even the threat of new competition has not inspired many investor-owned phone companies to embark on a spending spree. That competition may eventually come from new wireless broadband services like 5G, but most observers predict that will be years away in the rural communities Windstream traditionally serves. Where Windstream does face competition, it often still loses market share, usually to the local cable company.

“My sister has Comcast and although they are evil as can be, at least their internet speed matches what they sell, and it is shockingly fast in comparison to what DSL has given me for nearly 20 years,” Brown said. “Unfortunately, no cable company is going to wire us up. There are only a few houses on my street.”

Brown believes it is time for the federal government to start insisting that investor-owned phone companies do better.

“We have universal service laws for landlines but not for internet? That does not make sense to me,” Brown tells us. “Isn’t it time for the government to insist that all providers deliver at least 25 Mbps service to their customers? They are not going to do it without someone ordering them to.”

Despite Net Neutrality, Providers Launch Fiber Spending Spree

Despite claims from some industry-backed researchers and former members of Congress that Net Neutrality has reduced investment in telecommunications, a new research note from Deutsche Bank shows America’s top telephone and cable companies are spending billions on fiber upgrades to power wireless, business, and consumer broadband.

“Telecoms have become much more public signaling their intent to increase fiber investment, with AT&T and Verizon leading the spending ramp,” reports Deutsche Bank Markets Research.

Verizon has been on a fiber spending spree in the northeastern United States, signing contracts with Corning and Prysmian worth $1.3 billion to guarantee a steady supply of 2.5 million miles of fiber optic cable Verizon plans to buy over the next three years. Much of that spending allows Verizon to lay a foundation for its future 5G wireless services, which will require fiber to the neighborhood networks. But in cities like Boston, Verizon is also once again expanding its FiOS fiber to the home service to consumers.

AT&T is committed to connecting 12.5 million homes to gigabit-ready fiber broadband by 2019 — part of a deal it made with the FCC to win approval of its acquisition of DirecTV. AT&T claims it has already connected 5.5 million homes to its gigabit AT&T Fiber network, expected to reach 7 million by the end of this year.

Deutsche Bank thinks providers’ future drive towards 5G service will also simultaneously benefit fiber to the home expansion, because the same fiber network can power both services.

“To support the upcoming innovations such as autonomous driving, IoT, smart cities, the US needs to densify its fiber network,” Deutsche Bank said. “The U.S. fiber penetration rate is 20% vs. 75% for leading OECD countries, which suggests a large gap needs to be closed.”

Altice founder Patrick Drahi (second from left) and Altice USA CEO Dexter Goei (center) visit a Cablevision fiber deployment on Long Island, N.Y.

The bank predicts companies will spend around $175 billion over the next 10 years building out their fiber networks, with most of the spending coming from the phone companies, who may see fiber buildouts as their best attempt to level the playing field with cable operators’ hybrid fiber-coaxial cable networks. As cable operators expand their networks to reach more business parks, they have been gradually stealing market share for phone and data services from phone companies. Consumer broadband is also increasingly dominated by cable operators in areas where phone companies still rely on selling DSL services.

FierceCable notes Comcast and Altice have stepped up aggressive spending on fiber networks for their consumer and business customers. Altice is planning to decommission Cablevision’s existing coaxial cable network and move customers to fiber-to-the-home service. Comcast is deploying fiber services while still selling traditional cable broadband upgraded to DOCSIS 3.1, which supports substantially faster broadband speeds. The two networks co-exist side-by-side. Customer need dictates which network Comcast will use to supply service.

Customers benefit differently in each state, depending on what type of service is available. Comcast’s large footprint in Pennsylvania, outside of Philadelphia, is usually served by traditional coaxial cable. Verizon still sells DSL in much of the state. In Massachusetts, Verizon is building out its FiOS network to serve metro Boston while Comcast will depend on DOCSIS 3.1 upgrades to speed up its internet service. In New Jersey, long a battleground for Verizon’s FiOS service the company stopped aggressively expanding several years ago, Comcast has announced DOCSIS 3.1 upgrades for the entire state.

Independent phone companies are also seeing a bleak future without fiber upgrades. Both CenturyLink and Windstream are planning moderately aggressive fiber expansion, particularly in urban service areas and where they face fierce cable competition. Frontier continues its more modest approach to fiber expansion, usually placing fiber in new housing developments and in places where its copper facilities have been severely damaged or have to be relocated because of infrastructure projects.

None of the companies have cited Net Neutrality as a factor in their future broadband expansion plans. In fact, fiber networks have opened the door to new business opportunities to the companies installing them, and the high-capacity networks are likely to further reduce traffic/transit costs, while boosting speeds. That undercuts the business model of selling digital slow and fast lanes.

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  • Ed: On the money that was just bragging rights. Later this year when 5G home equipment is released and in Q1 2020 when they roll out dynamic spectrum sha...
  • TJ: I called on 4/22/19 to cancel services because my bill was too high. They sent me to the cancellation department and the guy just said ok the service ...
  • Michelle D Loewy: No internet service at the home all day Tuesday and still none today. No reason given just that the Western North Carolina area is down. Has anything ...
  • william carter: got my spectrum bill yesterday. It went up $16 per month. I called CS and they said my 1 yr promotion is gone on my internet and i have to pay full ...
  • New Yorker: Sold a penny puppet-show to appease us (We The People) and then sold out for millions/billions. F**k this country already....
  • Dorairaj Isaac: I would like to return the products for a refund...
  • EJ: I hope they are ready to do this all over again when Charter does basically nothing again. Hopefully they will use this extension to come up with a Pl...
  • Phillip Dampier: Public Comments: http://documents.dps.ny.gov/public/Comments/PublicComments.aspx?MatterCaseNo=15-M-0388...
  • Phillip Dampier: The reason they are lumping the two together at this point is because there are not a lot of attractive territories left to bid on. Even when the stat...
  • Paul Houle: For me the $60,000 question is this: how do I submit comments to NYS about this plan? I went looking on the PSC web site and it wasn't clear at all....
  • Phillip Dampier: ELP is still being left intact by Spectrum, but they keep raising the price to discourage people from using it. Unfortunately, since the violations pe...
  • Wayne Martin: From the beginning I have disagreed with the lumping together the "underserved" with those of us who have nothing. The underserved already have speeds...

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