Frontier Communications is interested in buying landlines bigger phone companies like AT&T and Verizon might want to sell.

CEO Maggie Wilderotter sat down with The Wall Street Journal to answer questions about her leadership of the independent telephone company.

Despite ongoing landline disconnects and a challenging business environment that led to a second quarter loss of $38.5 million, Wilderotter says Frontier is “well positioned for success” and is willing to acquire new customers castaway by larger phone companies like AT&T and Verizon.

“I would do acquisitions only if they’re smart,” Wilderotter said. “We would buy assets that drive more scale. We would look at another carve out like the Verizon acquisition or acquiring stand-alone rural telephone companies.”

Frontier’s last acquisition in 2010 nearly tripled its size after picking up landlines sold off by Verizon Communications.

Independent telephone companies like Frontier are not just buyers, however. Wilderotter hinted Frontier has received offers encouraging a sale of the company, perhaps even one from a satellite provider like Dish Network or DirecTV.

“Other players [like] CenturyLink have similar assets,” Wilderotter said. “Some unconventional folks might look. The satellite category [for instance]. We have had conversations in the past. They weren’t the right offers.”

Many shareholders stay loyal to Frontier because the company pays a significant dividend to those holding stock. Anything that threatens the dividend typically drives Frontier’s stock price lower, so Wilderotter was quick to note any other acquisitions will not come at the expense of that dividend.

Wilderotter

“We would do acquisitions in a way that preserves the dividend,” Wilderotter said. “We might take on more debt instead.”

Frontier’s business plan relies heavily on selling service in less competitive rural areas often bypassed by large cable operators. Because of inherent network limitations created by copper telephone lines, Frontier maintains market dominance mostly in communities where cable service is not widely available or is provided over antiquated infrastructure unsuitable for significant broadband upgrades.

In the last two years, Frontier has spent several billion dollars to upgrade its own infrastructure to offer faster and more reliable Internet access, but the upgraded service is still out of reach for many Frontier customers who need it the most. In central West Virginia, Frontier customers in Gilmer (pop. 8693) and Braxton (pop. 14,523) Counties can’t wait to drop satellite Internet access for Frontier DSL. The infrastructure has been reportedly in place for several months, but the service has not yet been switched on.

Additional Frontier broadband expansion depends on company investment and federal broadband improvement funds.

In September, West Virginia’s congressional delegation announced an award of roughly $24.1 million in leftover federal funds to continue construction of broadband infrastructure in rural areas of the state.

“With help from the FCC, so many more of our families and businesses will soon have the transformative and necessary power of high-speed Internet at their fingertips, opening the doors to many new educational and economic opportunities,” said Democratic Sen. Jay Rockefeller.

Frontier also recently applied for an extra $28.9 million from the Connect America Fund to target broadband for another 47,000 homes and business in West Virginia.

Gilmer County, W.V.

If Frontier receives 100% of the requested amount, the Obama Administration’s broadband funding programs will have contributed $63 million towards service improvement in West Virginia.

Frontier Communications manager Daniel Page said the next target areas for broadband improvement are in Pleasants (pop. 7,605) and Ritchie (pop. 10,236) Counties, both in northwest West Virginia.

Wilderotter says 85% of Frontier customers now have broadband access available to them, up from 60% in 2011.

“Our goal is to be able to reach over 90%, probably by the end of this year or first part of next year,” Wilderotter said.

The biggest challenges facing Frontier over the next year?

“Technology disruption—and [industry players’] business models being challenged,” Wilderotter told the newspaper. “Customer expectations on how they utilize the Internet continue to morph as rich applications are made available.”

To manage increased traffic, Frontier can invest in capacity upgrades or start network management measures to limit subscribers’ Internet usage.

Frontier has run a usage limit trial in Kingman, Ariz., Elk Grove and Palo Cedro, Calif., Mound, Minn. as well as Cookeville and Crossville, Tenn. for over a year to measure bandwidth consumption by application type. In those areas, Frontier DSL is usage capped at 100 or 250GB per month. Customers exceeding their allowance are advised to either limit usage or convert to a “high user” service plan starting at $99.99 a month.

[flv width=”640″ height=”332″]http://www.phillipdampier.com/video/Fox Business News Frontier Broadband 8-8-13.flv[/flv]

Frontier CEO Maggie Wilderotter told Fox Business News in August the company was “laser focused” on broadband.  (5 minutes)

LightSquared, the ill-fated venture to bring nationwide 4G wireless broadband to the masses may be all but gone and forgotten in bankruptcy reorganization proceedings, but the wireless spectrum it controls and the drama surrounding it is not.

A battle between billionaires and the hedge funds they support has broken out over who will ultimately control the failed venture — a hedge fund manager deep in LightSquared debt or the richest man in Colorado that often finds a way to get his way.

Harbinger Capital Partners’ Phil Falcone

Falcone

Phil Falcone earned his first fortune trading junk bonds in the 1980s. In 2001, he launched Harbinger Capital Partners and by 2007, Falcone and his investors were well-positioned for a blizzard of cash betting against sub-prime mortgages just before the housing collapse and credit crisis that followed. Falcone took home $1.7 billion in compensation that year while an epidemic of foreclosures and upside down mortgages was just getting started.

In late 2008, when the economy was in free-fall, Falcone suspended or limited withdrawals from his largest funds, upsetting investors who couldn’t get their money out. But Falcone reportedly gave special treatment to certain large investors (sources say Goldman Sachs is among them) who were able to clear out their exposed accounts before the losses piled up.

By 2009, Falcone was again making money — so much he vastly underestimated his federal and state tax bills. What’s a cash-strapped billionaire to do? Quietly loan himself $113.2 million from one of his investment funds at a favorable interest rate and keep it a secret from investors for five months. When they eventually found out, they were understandably disturbed. Falcone had barred those same investors from cashing out of the fund he borrowed from.

The Securities and Exchange Commission was not happy either and filed charges against Falcone.

“Today’s charges read like the final exam in a graduate school course in how to operate a hedge fund unlawfully,” Robert Khuzami, director of the S.E.C.’s division of enforcement, said in a statement. “Clients and market participants alike were victimized as Falcone unscrupulously used fund assets to pay his personal taxes, manipulated the market for certain bonds, favored some clients at the expense of others, and violated trading rules intended to prohibit manipulative short sales.”

Despite the publicity generated by the SEC, investors who appreciated Falcone’s ability to earn them money allowed them turn a blind eye to the ethics questions and pour money into Falcone’s latest venture — a wireless network known as LightSquared.

LightSquared was preparing to launch a unique nationwide 4G LTE mobile broadband network powered by satellites and ground-based cell towers, selling wholesale access to third-party wireless companies able to market the service under their own brand. Falcone’s funds poured nearly $3 billion dollars into the venture while getting a waiver from the government to operate high-powered transmitters on the “L” band — 1525-1559 MHz. LightSquared’s plans alarmed the next door neighbors — GPS satellites facing interference issues that would hurt the accuracy of precise location information provided to millions of tracking devices on the “L1” band — 1559 to 1610 MHz.

Initial testing showed that significant interference from the prototype ground-based transmitters would occur and potentially could cripple aviation and public safety GPS users. The FCC eventually withdrew permission for LightSquared to run its network as planned, a potential death-blow to the venture.

Creditors grew anxious wondering how LightSquared would be in a position to repay its loans when it was unable to launch its wireless network.

In May 2012, creditors forced the issue and LightSquared filed for bankruptcy protection, listing assets of $4.48 billion and debts of $2.29 billion. Falcone claimed the bankruptcy filing would give the company more time to overcome the FCC’s objections to its network operations plan. Falcone estimated it would take two years to secure a resolution. Analysts familiar with the FCC suggested Falcone might die of old age before the agency gave way.

Falcone’s subsequent efforts to win back control of the venture have been made more difficult because one man has been quietly buying up large amounts of LightSquared’s debt with designs on the venture’s spectrum.

Dish Networks’ Charles Ergen

With LightSquared’s debt trading at around 50 cents on the dollar, Charlie Ergen went shopping.

Ergen has been involved in the satellite business for decades. Today, he controls and runs Dish Network, a satellite television provider that has seen the back of high customer growth. Dish and DirecTV are both locked out of the “triple play” business most cable and phone companies offer customers. Neither company can offer broadband or telephone service without partnering with another provider. As cord-cutting continues to take hold, customers willing to pay for increasingly expensive television packages are in decline. That likely explains Ergen’s interest in acquiring wireless spectrum — to build Dish into a broadband, television, and telephone service provider.

In May, Dish publicly bid $2.2 billion for certain spectrum assets from LightSquared. But for more than a year earlier, Ergen was quietly buying up LightSquared’s debt through holding companies and hedge funds.

Ergen created an opaque investment entity named “SP Special Opportunites, LLC” a/k/a “Sound Point” to buy LightSquared debt. Separately, Ergen asked Stephen Ketchum, a former investment banker with close ties to Ergen, to buy over $1 billion in LightSquared debt securities through Ketchum’s hedge fund. From April 2012 until May 2013, Sound Point allegedly spent $1,013,082,326.30 to purchase secured debt for Ergen’s personal benefit and without the knowledge of Dish or its board of directors. Secured debt held by creditors is paid first in a bankruptcy proceeding, and Ergen quietly because LightSquared’s largest single secured creditor.

That puts Charlie Ergen in a major ethical dilemma.

The more Dish offers to pay for LightSquared, the more money Ergen will be paid to cover the shares of LightSquared’s secure debt. Ergen has a controlling interest in Dish, which means he can order Dish to overpay for LightSquared, personally pocketing the proceeds.

Bloomberg’s Matt Levine explains the shady deal:

“An executive going around and buying up an asset for cheap, then convincing his company to buy all of that asset for a higher price – doesn’t come up a lot because it’s so obviously shady,” Levine wrote. “If you’re supposed to be devoting your time and energy to finding opportunities for your company, it looks pretty bad to steal those opportunities for yourself.”

Falcone was outraged when he learned of Ergen’s stealthy acquisitions.

Ergen

In July, Harbinger accused Ergen of “fraudulently” becoming a creditor to block efforts by LightSquared to reorganize and emerge intact from bankruptcy. Instead, Harbinger accused Ergen of seeking to acquire the company’s assets “on the cheap.” Harbinger also points to provisions in a LightSquared debt agreement that forbids certain competitors from buying the company’s debt.

Also upset are several major Dish Network shareholders who are not pleased Ergen’s private deal could make him a lot of money while costing shareholders plenty should Dish overpay for LightSquard’s assets or worse, end up with everything but the spectrum Dish covets.

At least five lawsuits have been filed since August, accusing Ergen and other board members of casting their fiduciary duties to the wind and wasting money along the way. They are also upset Ergen and his connections purchased $1 billion in LightSquared debt at a substantial discount and will likely be repaid the full face value of those debts with Dish Network’s money. That means nearly $300 million in personal profits for Ergen.

The latest shareholder lawsuit was filed by the Louisiana Municipal Police Employees’ Retirement System. It along with the suit filed by the City of Daytona Beach Police Officers’ and Firefighters’ Retirement System claim Ergen’s near-total control of Dish’s board of directors makes it impossible for the board to meet its obligation of representing shareholder interests first.

“Ergen’s control over the company and the board is highlighted by the numerous transactions he has caused Dish to enter into with members of his family,” the lawsuit states.

Ergen and Dish’s efforts to insulate themselves from charges of conflict of interest didn’t fly with many investors.

One lawsuit noted Tom Ortolf, one of the directors on the supposedly independent committee reviewing Dish’s bid, has a daughter that works at Dish; the other, George Brokaw, chose Mr. Ergen’s wife, Cantey Ergen—a Dish director named in the shareholder suit—to be the godmother of his son.

The discomfort level at Dish reached high enough to prompt one board member, Gary Howard, to suddenly resign in early September. Howard was also on the committee formed to vet the LightSquared deal because of the potential conflict of interest on Ergen’s part.

Before Falcone could claim the high road at Ergen’s expense, this week New York’s top financial regulator banned Falcone from managing Fidelity & Guaranty Life Insurance Company of New York for seven years. Harbinger Group bought Fidelity & Guaranty, the U.S. life and annuity unit of London-based Old Mutual Plc, for $350 million in 2011.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/Bloomberg LightSquared 9-5-13.flv[/flv]

Bloomberg News discusses the high drama between LightSquared and Dish Network. (4 minutes)

Media General today issued a statement saying they have failed to reach a retransmission consent agreement with DISH Network and 18 local stations in the eastern half of the country are off the satellite provider’s lineup as a result.

The stations:

• Alabama: WVTM-NBC in Birmingham, and WKRG-TV in Mobile
• Florida: WFLA-NBC in Tampa
• Georgia: WJBF-ABC in Augusta, WRBL-CBS in Columbus and WSAV-NBC in Savannah
• Mississippi: WHLT-CBS in Hattiesburg and WJTV-CBS in Jackson
• North Carolina: WNCT-CBS in Greenville, WNCN-NBC in Raleigh-Durham and WYCW-CW in Asheville
• Ohio: WCNH-NBC in Columbus
• Rhode Island: WJAR-NBC in Providence
• South Carolina: WCBD-NBC in Charleston, WBTW-CBS in Florence-Myrtle Beach and WSPA-CBS in Greenville-Spartanburg
• Tennessee: WJHL-CBS in Tri-Cities
• Virginia: WSLS-NBC in Roanoke-Lynchburg

“Our highly rated television station is an important asset to our local community and it is unfortunate that DISH does not recognize our fair market value,” said WNCN general manager Douglas Hamilton. “Although we have successfully completed agreements with other cable and satellite operators, DISH has refused to reach a similar agreement.”

Media General has been approving extensions of DISH’s retransmission contract since it expired in June, but the broadcast station group owner denied an extra extension of the contract that expired Sept. 30.

Media General is in the process of merging with Young Broadcasting — a deal that was also originally announced in June. DISH already has a retransmission agreement with Young and hoped to bundle the extension into that agreement, but Media General refused.

“The only reason for Media General to reject that offer is to try to squeeze consumers for more money, to the tune of five times what DISH currently pays,” said Sruta Vootukuru, DISH’s director of programming. “We’re working on behalf of our customers to keep the programming at a fair price.”

Affected Media General-owned TV stations are telling viewers to use a traditional antenna or switch to one of DISH’s competitors.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/WNCN Raleigh WNCN Agreement With DISH Expires 10-1-13.mp4[/flv]

WNCN’s general manager Doug Hamilton explained to viewers why the station was no longer on DISH Network’s service in Raleigh, N.C. (1 minute)

Verizon’s moratorium on further expansion of its fiber to the home service will continue for “the next couple of years.”

Verizon FiOS won’t be coming soon to a home near you, unless that home is inside a community with a standing agreement with the phone company.

Verizon CEO Lowell McAdam made it clear to attendees at Tuesday’s Goldman Sachs 22^nd Annual Communacopia Conference his priority continues to be investing in the company’s highly profitable wireless business, while the company’s wired infrastructure is being targeted for more cost cutting, especially in areas designated to see existing copper infrastructure decommissioned. As for expanding FiOS into new communities, McAdam said he instead preferred to concentrate on improving market share and profits for the next few years in areas already getting the fiber optic service.

McAdam noted John Stratton, president of Verizon Enterprise Solutions, has been hard at work pruning Verizon’s wireline products and services targeted to business and government customers.

“I think [he] killed about 2,000 products this year, and we have taken 350 systems offline last year,” McAdam noted. “I think we are already at 250 this year. That sort of discipline gives you the ability to streamline your infrastructure.”

For residential customers, Verizon has two sets of offerings: one for customers served by FiOS fiber optics, the other for customers unlikely to see fiber upgrades indefinitely.

Inside Existing FiOS Service Areas

“We are doing some major technology shifts within FiOS to make it more efficient,” McAdam said. “We’re going to concentrate there for the next couple of years.”

McAdam’s signals to Wall Street were loud and clear: no more FiOS expansion into new communities for now.

McAdam

Instead, Verizon will focus on improving existing service in several key areas:

• Verizon has almost two million optical terminals that McAdam says were active at one point and are now sitting idle, suggesting FiOS has won and lost nearly two million customers since launching, either because the customer switched providers or moved away. McAdam said he wants to improve Verizon FiOS’ product set enough to attract those customers back. He noted with the terminals and cables already in place, the capital costs to win back a former customer are near zero;
• Verizon is introducing a new terminal this fall. Verizon’s FiOS Media Server “eliminates the requirement for coax, once you get into the optical terminal in the basement or wherever in the house,” McAdam said. “That slashes the installation time, and therefore makes the product a lot more profitable for us going forward. It eliminates set-top boxes, it is all IP-based going forward.”
• Verizon will continue to expand Verizon FiOS, particularly in New York City where it has a commitment to offer service.

Verizon FiOS has managed to build a much larger market share than its nearest neighbor, AT&T U-verse. McAdam claimed Verizon FiOS has achieved a 39 percent market share in broadband and around 34 percent on its television service so far. McAdam’s goal is to boost that to 45 percent. In areas of Texas where Verizon first introduced its FiOS fiber optic service, the company already has a penetration rate above 50 percent for broadband and 50 percent for television, demonstrating room to grow market share. AT&T’s U-verse TV penetration rate is 20.1 percent.

For Those Unserved by FiOS

Verizon’s 4G LTE Broadband Router with Voice

Except for Fire Island, N.Y., there are no significant announcements of FiOS expansion. Instead, Verizon has focused on investing to improve its wireless 4G LTE cell networks with the hope existing landline customers will consider switching to higher-profit wireless service. An attempted trial of Verizon Voice Link, intended to be an entry-level wireless replacement of landline service, failed badly on Fire Island due to an avalanche of complaints about poor quality reception, dropped and incomplete calls, and lack of support for data.

Now Verizon is back with a new offering, its 4G LTE Broadband Router with Voice ($49.99 2-yr contract with $175 early termination fee/$199.99 month-to-month).

“Securely connect wired and wireless devices to the 4G LTE network, and connect your landline phone to make calls,” Verizon’s website says. “Combine voice and data on a Share Everything Plan for added savings.”

The device can function as both a wireless landline replacement and router for data. The unit includes three Ethernet ports and Wi-Fi to share your connection. A landline phone or cordless phone base station can be plugged in as well.

Verizon charges an extra $20 a month for Home Service Monthly Line Access on Share Everything Plans, which covers your telephone service. Customers get unlimited local, long distance, call forwarding, call waiting, three-way calling, and voice mail. 911 is available, but Verizon disclaims any responsibility if you cannot reach an operator. The device also supports TTY-TTD calling.

Verizon claims users can expect 5-12Mbps downloading and 2-5Mbps uploading on Verizon’s 4G network, assuming there is solid coverage where you use the device. Usage caps apply. A backup battery keeps the service running for up to four hours of voice calling in the event of a power outage.

McAdam admitted the thing that keeps him up most at night are regulatory issues. He particularly called out Europe, which he believes is hostile for investment. But Europeans pay considerably less for wireless service than North Americans pay, and often have more choices due to competition and regulatory oversight.

“I think the beauty of the ’96 Telecom Act was that it was such a light touch on broadband and mobile,” said McAdam. “And that is — and I sit in Europe talking to investors all the time — that is the biggest difference between the U.S. and Europe.”

To head the FCC off from pursuing any additional regulatory oversight, McAdam claims he reluctantly approved Verizon’s lawsuit against the government on Net Neutrality.

“We have had to take some positions, frankly, that we didn’t want to take,” McAdam said of the lawsuit. “It opened the door for them to get into price regulation of broadband. And I think that is not their charter, and I think it would be a mistake for the U.S. economy and certainly the telecommunications ecosystem.”

[flv width=”488″ height=”300″]http://www.phillipdampier.com/video/Verizon 4G LTE Broadband Router with Voice 9-25-13.flv[/flv]

Verizon Wireless’ latest 4G LTE router supports wireless landline service and 4G data.  (1 minute)

C Spire, a wireless phone company serving the southeastern United States today announced ambitious plans to deploy a gigabit fiber to the home network in the state of Mississippi, now considered to be one of the worst states for broadband speed and availability.

C Spire Fiber to the Home was introduced by company executives at a news conference this morning attended by community leaders. C-Spire intends to build a fiber network offering 1,000/1,000Mbps broadband, telephone and television service at a competitive price starting in 2014 in select communities in the state.

“As a brand that’s been pushing the envelope of innovation our entire existence, it’s only natural for us to want to provide the ‘what’s next’ to the customers we serve,” said Hu Meena, president and CEO of C Spire Wireless. “The ‘what’s next’ is now here and we’re ready to release the power of 1 Gig fiber to communities that want to experience the immediate and lasting benefits of 100 times the speed and 100 times the opportunities.”

C Spire will use its existing 4,000 miles of fiber optic infrastructure now providing backhaul connectivity to the company’s cell tower network and its commercial customers. An additional 1,500 miles of fiber is scheduled for installation next year.

The cell phone company will follow the lead of Google Fiber, giving Mississippi communities a chance to compete with one another for C Spire’s fiber network. C Spire will be accepting applications from neighborhoods, towns and cities in the state presenting their best case why they should be the first to get fiber to the home service. The communities that want it most, and move quickest, will get it first, promised company officials.

C Spire claimed its proposed fiber to the home network will expand faster and deeper into Mississippi than Google Fiber’s limited network in Kansas City and nearby suburbs.

“While we know some of the tangible benefits that fiber offers to individuals, families, businesses and entire communities, we’ve only scratched the surface of what’s possible with 100-times-faster Internet,” Meena said. “Similar to the transition from dial-up to broadband, no one could fathom that people would one day be able to shop online, download software and watch endless hours of video on YouTube. The undiscovered potential of fiber is what’s most exciting and compelling about our plans.”

Competing communities will be expected to explain how they intend to cut as much bureaucratic red tape as possible to win consideration. The company’s “Request for Information” (RFI) document prominently mentions “streamlined construction,” “advantageous access to public rights-of-way,” and “an attractive local franchise agreement” as the types of help most needed from local governments.

C Spire will likely not entertain franchise proposals that require the company to serve every possible resident. C Spire’s fiber business plan depends on rolling out the service only to neighborhoods where enough demand exists.

Other conditions:

• C Spire will not give away free service to schools or government buildings;
• Sizable local participation in the pre-registration process is required;
• The RFI hints that communities might be in a better position to win if they waive permit fees, issue permits within five business days, offer tax waivers, don’t require a local office for customer interaction, waive any “unacceptable ordinance provision or regulation as requested by C Spire,” and aid in rallying sign-ups for the fiber service.

Competitors, including AT&T, CableONE, Suddenlink, and Comcast may raise questions about local governments committing to rally for sign-ups. Some of those competing providers may also complain about their own franchise agreements, which often require widespread service deployment whether there is established demand for service or not.

C Spire is among a handful of companies that have recognized their existing fiber-to-cell-tower and institutional fiber broadband networks are underutilized and have the capacity to support both commercial and residential broadband applications.

C Spire is expected to announce the winning communities later this year or in early 2014.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/C Spire Fiber to the Home 9-24-13.mp4[/flv]

C Spire introduces Fiber to the Home service and explains the transformational benefits fiber broadband can deliver users. (2 minutes)