Even with the threat of COVID-19 and a virtual nationwide work-from-home initiative, the new owners of Frontier Communications’ network in Washington, Oregon, Montana and Idaho are moving rapidly to repair persistent network issues, create a backup network, and lay the foundation to bring fiber to the home service to 85% of its customers over the next three years.

Ziply Fiber of Kirkland, Wash., formerly known as Northwest Fiber, acquired the Frontier Communications service areas in the Pacific Northwest just as Frontier itself was on the verge of declaring bankruptcy. It will waste little time upgrading Frontier’s copper wire network to get fiber service to customers fast.

“After Frontier bought Verizon’s landlines and FiOS networks in Washington and Oregon in 2010, it felt like the last decade was a phone company driving in neutral,” said Dale Prescott, a FiOS customer in Washington State. “You could feel Frontier never wanted to spend any money out here. It was like they were a caretaker of Verizon’s network, and while we got some service improvements here and there, Frontier also took away a lot too.”

Service reliability suffered, especially in areas that remained served by copper over the last decade. Customers reported lengthy outages and waiting times for repairs, and DSL speeds were actually reduced in some areas because deteriorating network infrastructure could no longer support earlier, faster speeds. In a decade of service, Frontier only managed to provide fiber connections to about 33% of its customers, the vast majority of it acquired from Verizon.

“Frontier never invested much in its network, and what it did invest seemed mostly to keep the lines from falling off the poles,” Prescott said. “Businesses got slightly better service when Frontier boosted its fiber capacity, primarily to serve commercial customers. But if you lived in the sticks, your service got worse over time, not better.”

Ziply Fiber plans to change that experience with a promise to regulators to spend about $500 million overhauling Frontier’s network in the region. Most of that spending will be devoted to upgrading customers to fiber optics. Just a few weeks after closing on its acquisition of Frontier landlines, Ziply told residents in 13 communities to expect fiber upgrades that began this spring. The majority long suffered with Frontier DSL, often at speeds as low as 3 Mbps.

Among the first towns to get fiber service are Kellogg, Moscow, and Coeur d’Alene — all in Idaho. Work has already commenced and is expected to be finished by fall. Ziply wants to keep construction costs as low as possible, so it intends to do aerial deployment of fiber by wrapping the optical cable around existing copper wire telephone cables already on the pole. This process, known as “overlashing” will simplify installation by not requiring additional space to place fiber cables next to existing telephone wiring or going to the effort of removing the existing copper wiring, which raises costs.

Overlashing has met with some controversy, however. Telephone companies are strongly in favor of allowing the process for optical fiber installation because they rarely need permission or costly permits from utility pole owners, often electric utilities. Opposition comes primarily from some electric companies, which claim overlashing can make existing installations “unsafe” by placing too much weight on existing wiring, which may have been installed decades earlier. Those electric utilities also stand to make money from forcing companies to seek new permits for placing fiber on poles, and that permission does not come free of charge.

Fiber customers will be able to select internet plans up to 1,000 Mbps. Enhanced DSL service in some areas is available at speeds up to 115 Mbps, but most of these service areas will probably be served by fiber to the home service, eventually.

Ziply Fiber Upgrade Projects (May, 2020)

• Washington—Anacortes, Kennewick, Pullman, Richland and Snohomish
• Oregon—Coquille, Coos Bay, La Grande, North Bend
• Idaho—Coeur d’Alene, Kellogg, Moscow
• Montana—Libby

To further speed fiber upgrades, Ziply acquired Wholesail Networks, already contracted to manage fiber network design for Ziply. Company officials quickly identified multiple weak spots in Frontier’s network, particularly relating to its resiliency when fiber cables were cut or copper wiring was stolen. Ziply is building in network redundancy, with each portion of its network served by at least two sets of fiber cabling and identical equipment in each of more than 130 central switching offices. In many markets, Ziply will maintain at least three redundant fiber connections to make certain if one (or two) networks go down, customers can still be served by a third with no interruption in service.

Ziply is also avoiding the usual nightmares customers experience when switching between one company’s systems to another. Frontier’s customers suffered significantly from a cutover from Verizon’s operations and billing systems, which often left them disconnected or mis-billed. To prevent that from happening again, Ziply literally cloned Frontier’s existing back office systems, so customers won’t experience any “cutover” problems.

Ziply executives have been candid about the network they are acquiring. They told regulators the network was in reasonably good condition in some places, but not all. Ziply promised to fix the network weak spots, resolve customer repair orders at least two-thirds faster than Frontier did, and make comparatively broader investments in network operations. Analysts predict Ziply has a better chance of success than Frontier did, primarily because Frontier’s operations were mired in debt, making new investment in network upkeep and upgrades difficult.

Sen. Nelson

Idaho internet access is inadequate to support tele-learning services, hurting the state’s ability to move towards online education as a result of the COVID-19 pandemic.

State Sen. David Nelson (D-Boise) told his constituents that “now, more than ever, Idahoans need reliable broadband.”

At the moment, they are not getting it.

Nelson:

“The Moscow School District is providing instruction online for middle and high school students but about 20% of students don’t have strong enough Wi-Fi or can’t afford the internet access needed for classes at home. To make online learning available to all students, Moscow School District has turned school parking lots into Wi-Fi hot spots and is providing wireless hot spots to some students. In the Potlatch School District, they have distributed 300 laptops and Chromebooks, but 20% of kids don’t have internet access. Potlatch is also creating Wi-Fi hot spots for some families.

“In mountainous Benewah County, St. Maries School District has a harder job. Cell service is spotty and line-of-sight internet connections are hard to come by. More than 70% of St. Maries students and teachers do not have access to reliable internet. The school district found they must send home weekly packets because they cannot do online instruction. St. Maries teachers work in their classrooms daily because neither they nor their students have reliable internet for online teaching. Instead, the teachers spend their time creating the paper worksheets for families to pick up.

“St. Maries students only get packets, while other schools teach online. Does that live up to Idaho’s constitutional requirement of a general, uniform, and thorough system of public, free common schools? Idaho needs more investment in broadband infrastructure, but we aren’t going to be able to fix this in the midst of a crisis. According to Kamau Bobb Google, educators must address the needs of diverse learners. I wish we had been investing in broadband infrastructure instead of cutting taxes significantly when times were good.

“Our limited, unreliable broadband is often overtaxed. Internet that was already struggling to serve our communities is now unable to keep up with the unprecedented demand from educators, people working from home, families ordering groceries online, and nearly every other Idahoan using the web to stay connected. Even the time to clear a credit card payment at a grocery store has increased.”

Internet access in rural states like Idaho is mostly a mixture of cable internet in larger cities and towns and DSL service in suburban areas. Rural communities often have to rely on wireless internet, where available, or satellite internet access. A few communities have a co-op utility that doubles as a broadband provider, but in most cases rural Idaho only gets what CenturyLink, Frontier, and other telephone companies are willing to provide.

“Last year, the governor’s Broadband Task Force found that North Central Idaho has the least access to functional broadband in the state,” Nelson noted. “Since schools have closed due to coronavirus, North Idaho school districts are experiencing the consequences of Idaho’s lack of investment in broadband infrastructure.”

After years of trying to convince private telecom companies to do the right thing by their customers and expand internet access, Nelson points out the current COVID-19 crisis is a perfect example of why states like Idaho can no longer afford to wait.

“The coronavirus pandemic has made it more obvious than ever that reliable internet access is a public utility that all Idahoans need,” Nelson said.

Frontier Communications filed for bankruptcy reorganization protection this week with more than $10 billion in debts and departing customers, despite retention efforts that cost the company more than $5 million a month.

The company had warned investors it was considering restructuring and failed to make a timely bond payment to cover a portion of its debts. Frontier had been in negotiations with debt holders for several months, attempting to secure a Restructuring Support Agreement that would reduce debt in return for an equity stake in the company. At least 75% of unsecured bondholders are reportedly on board with a deal that would free up money to spend on fiber optic upgrades.

Most of Frontier’s legacy customers are served by a deteriorating copper wire network designed for basic landline phone service. The company’s DSL internet service has been roundly criticized for being slow and unreliable. Instead of upgrading copper customers to fiber service, Frontier instead spent billions acquiring new territories from other phone companies, notably Verizon Communications and AT&T. The acquisitions did not deliver the financial returns the company expected, and customers canceled service after Frontier botched billing and service transitions that left some without service for weeks.

Today, Frontier has about four million customers, 3.5 million broadband subscribers and 18,300 employees operating in 29 states. The company has arranged a debtor-in-possession loan of $460 million from Goldman Sachs Bank to continue operating during the bankruptcy reorganization. It also expects to receive an additional $1.35 billion in cash later this month from the sale of its territories in Idaho, Montana, Oregon, and Washington to Northwest Fiber.

Frontier also divulged new details about its deteriorating business to the Bankruptcy Court:

• Frontier estimates it spends approximately $1,000 for each new residential customer and $2,500 for each new commercial customer.
• Almost all of its new customers sign up for service under a sales promotion. “On average, [Frontier] spends approximately $1.3 million per month on marketing campaigns.”
• Customer retention efforts are crucial for Frontier, which has been losing customers at an alarming rate. Frontier uses three enticements to convince customers to stay: “Save Offers,” “Roll-Off Offers,” and “Discretionary Credits.”
• “Save Offers” are a classic retention tool, offering enticements to customers threatening to cancel. Frontier offers free premium channels, reduced rates, and/or discounted service upgrades to convince customers not to leave. Frontier disclosed it pitches approximately 24,000 Save Offers each month, a sign many customers are prepared to cancel their accounts.
• “Roll-Off Offers” are made to customers calling to complain about their bill after their new customer promotion ends. Frontier regularly offers complaining, bill-shocked customers a new, less generous promotion going forward. For example, an expiring new customer discount of $60/month might be replaced with a $30/month discount if the customer agrees to stay. These offers typically last six months to a year and still leave the customer eventually paying regular prices. Frontier disclosed that it loses many more complaining customers than it keeps after promotions expire. About 16,000 customers per month (or roughly one-fourth of customers complaining about an expiring promotion) are retained as customers because of a roll-off offer.
• “Discretionary Credits” are one-time bill credits given when customers call with service complaints, reports of damage done to private property by Frontier, or missed time guarantees for service calls. Frontier admitted it is currently paying out an average of $3.9 million a month in Discretionary Credits to upset customers.

Post bankruptcy, Frontier has proposed undertaking a modest fiber upgrade program in its more profitable territories where a significant return on investment for fiber upgrades can be demonstrated. That is unlikely to include many of Frontier’s rural service areas.

Frontier provides service to all but around a half dozen communities in West Virginia.

A comprehensive independent audit of Frontier Communications operations in West Virginia found the phone company is not keeping up with network maintenance, causing increased service problems for the company’s customers.

The significantly redacted 164-page report produced by Schumaker and Company found plenty of room for improvement for Frontier’s landline and broadband services.

The report was commissioned under order by the West Virginia Public Service Commission after the regulator received almost 2,000 customer complaints about Frontier’s service. The PSC’s demand for an audit also received the support of over 700 Frontier customers in the state.

Despite several redactions, the report offers clues about the quality of Frontier’s infrastructure for landline and internet services in West Virginia.

Frontier provides service for all but a half dozen localities in the state. Because of West Virginia’s mountainous topology, significant portions of the state do not receive adequate cellular service, making wired landlines still an essential safety tool in some areas. Despite that, Frontier’s relatively poor performance has driven away a significant number of its customers. Some subscribe to cable phone service, but most now depend on cell phones.

A Frontier crossbox in use in West Virginia.

The PSC allowed Frontier to offer a redacted public version of the auditor’s report after Frontier cited confidential business information and the Commission’s lack of regulatory oversight over the company’s DSL internet service. The redactions were substantial, blotting out significant information such as the age of Frontier’s network and equipment in different corners of the state, the condition of the company’s large number of utility poles, outage statistics, budgeting and investment numbers, repair programs, and basic information about the company’s employees and its broadband service offerings. The PSC staff filed its own recommendation that such redactions be rejected, noting Frontier is the unique carrier of last resort in West Virginia, with no competitor likely to attempt similar service. Staff members also claimed the telecom industry would find data specific to West Virginia not very useful elsewhere.

Despite the redactions, it is easy to deduce Frontier has a significant problem. Its copper landline network is gradually succumbing to a lack of regular maintenance, which can cause prolonged service degradation and outages. The audit specifically cites Frontier’s growing challenges dealing with a copper wire network that has been on utility poles for decades. Some wiring is likely to have been installed during the Johnson or Nixon Administration. The audit found that previous owner Verizon embarked on two significant copper line replacement programs, one in 1974 and the other in 1983 — 46 and 37 years ago, respectively. No large scale replacements have been undertaken since.

Phone companies like Frontier have been losing landline customers for years. The audit estimated that “more than half (57%) of American homes only have wireless communications. The displacement is even more pronounced when viewed through the prism of demographics. Over three quarters (76.5%) of young adults (aged 25-34) live in homes with only wireless connections.” In 2018, Frontier told the PSC 37 percent of its access lines were permanently disconnected between 2010 and 2017, bringing the number of customers down from 613,443 to 385,832. A 2017 Center for Health Statistics study found that roughly 53 percent of all West Virginia adults use wireless services exclusively, while another 10 percent use wireless services most of the time, with almost 22 percent of West Virginia adults still using landline services exclusively or most of the time. Frontier holds on to a larger percentage of customers than that with the sale of its rural DSL internet service.

Frontier heavily redacted the independent audit about its performance.

Frontier’s largest service problems result from its indefinite reliance on splicing damaged or degraded line pairs servicing individual customers. With fewer customers, the company has more choices of alternative line pairs it can use to restore service for customers affected by service interruptions. The audit found many line splices were decades old and often were responsible for eventual larger scale service outages, especially when repairs were inadequately completed exposing the entire cable to the elements. The audit also found no formal tree trimming operation was in place at the company, which meant trees inevitably overgrew into the company’s lines. In storms, trees can disrupt service by blowing into cables or even tearing wires off utility poles. The report also noted that technicians often drove around and spotted network defects and other problems likely to eventually cause service outages, but there was no formal reporting and mitigation strategy, which often left repairs delayed for months or years.

Frontier is also facing a talent flight, as network engineers that have serviced the lines since they were operated by Verizon are preparing to retire in large numbers. That could create even greater problems as inexperienced new technicians unfamiliar with the state of Frontier’s network gradually replace them.

Despite these problems, the auditors found Frontier was still earning a healthy amount of revenue in West Virginia. Oddly, that assertion was hotly disputed by Frontier itself, claiming that conclusion was “flatly wrong” and it had been losing money in the state every year since 2012.

“The auditors did not properly account for pensions, post-employment healthcare, and other benefits paid by Frontier nor for interest costs on the money Frontier borrowed to invest in West Virginia,” wrote Allison Ellis, Frontier’s senior vice president of regulatory affairs. “When those expenses are taken into account, it is clear that Frontier has invested more in the state than it has recouped.”

Auditors recommend that Frontier establish a more robust network engineering effort, aggressively repairing line issues before they become apparent to customers and improving its reporting systems to track service problems from start to finish. It also recommended increasing the amount of fiber in the network to reduce service issues and maintenance expenses and allow for better internet speeds. Finally, it recommends customers receive additional compensation for repeated service outages.

Frontier Communications has revealed to investors what many probably realized long ago — the independent phone company chronically underinvested in network upgrades and repairs for years, giving customers an excuse to switch providers.

Remarkably, the phone company did not just underperform for its remaining voice and DSL internet customers. In a sprawling confidential “Presentation to Unsecured Bondholders” report produced by Frontier’s top executives, the company admits it was even unable to achieve significant growth in its fiber territories, where Frontier-acquired high-speed FiOS and U-verse fiber networks held out a promise to deliver urgently needed revenue.

Frontier’s bondholders were told the company’s ongoing losses and poor overall performance were unsustainable, despite years of executive “happy talk” about Frontier’s various rescue and upgrade plans. In sobering language, Frontier admitted its capital structure and efforts to deleverage the company’s massive debts were likely to cut the company off from future borrowing opportunities and deter future investment.

The presentation found multiple points of weakness in Frontier’s current business plan:

Voice landline service remains in perpetual decline. Like other companies, Frontier’s residential landline customers left first, but now business customers are also increasingly disconnecting traditional phone service.

About 51% of Frontier’s revenue comes from its residential customers. That number has been declining about 5% annually, year over year as customers leave. Frontier’s internet products are now crucial to the company’s ability to stay in business. Less than 30% of Frontier’s revenue comes from selling home phone lines. For Frontier to remain viable, the company must attract and keep internet customers. For the last several years, it has failed to do either.

Frontier customers are disconnecting the company’s low-speed DSL service in growing numbers, usually leaving for its biggest residential competitor: Charter Spectrum. Frontier remains saddled with a massive and rapidly deteriorating copper wire network. The company disclosed that 79% of its footprint is still served with copper-based DSL. Only 21% of Frontier’s service area is served by fiber optics, after more than a decade of promised upgrades. Frontier’s own numbers prove that where the company still relies on selling DSL, it is losing ground fast. Only its fiber service areas stand a chance. Just consider these numbers:

• Out of 11 million homes in Frontier’s DSL service area, only 1.5 million customers subscribe. That’s a market share of just 13 percent, and that number declines every quarter.
• Where Frontier customers can sign up for fiber to the home service, 1.2 million customers have done so, delivering Frontier a respectable 40 percent market share.

Frontier has been promising DSL speed upgrades for over a decade, but the company’s own numbers show a consistent failure to deliver speeds that can meet the FCC’s definition of “broadband,” currently 25 Mbps.

At least 30% of Frontier DSL customers receive between 0-12 Mbps download speed. Another 35% receive between 13-24 Mbps. Only 6% of Frontier customers get the “fast” DSL capable of exceeding 24 Mbps that is touted repeatedly by Frontier executives on quarterly conference calls.

Despite the obvious case for fiber to the home service, Frontier systematically “under-invested in fiber upgrades” in copper service areas at the same time consumers were upgrading broadband to acquire more download speed. Frontier’s report discloses that nearly 40% of consumers in its service area subscribe to internet plans offering 100 Mbps or faster service. Another 40% subscribe to plans offering 25-100 Mbps. In copper service areas, Frontier is speed-competitive in just 6% of its footprint. That leaves most speed-craving customers with only one path to faster speed: switching to another provider, typically the local cable company.

So why would a company like Frontier not immediately hit the upgrade button and start a massive copper retirement-fiber upgrade plan to keep the company in the black? In short, Frontier has survived chronic underinvestment because of a lack of broadband competition. Nearly two million Frontier customers have only one choice for internet access: Frontier. For another 11.3 million, there is only one other choice – a cable company that many detest. Frontier has enjoyed its broadband monopoly/duopoly for at least two decades. So long as its customers have fewer options, Frontier is under less pressure to invest in upgrades.

For years Frontier’s stock was primarily known for its generous dividend payouts to shareholders — money that could have been spent on network upgrades. But what hurt Frontier even more was an aggressive merger and acquisition strategy that acquired castoff landline customers from Verizon and AT&T in several states. In its most recent multi-billion dollar acquisition of Verizon customers in California, Texas, and Florida, Frontier did not achieve the desired financial results after alienating customers with persistent service and billing problems. The longer term legacy of these acquisitions is a huge amount of unpaid debt.

Frontier’s notorious customer service problems are now legendary. Frontier’s new CEO Bernie Han promises that customer service improvements are among his top four priorities. Improving the morale of employees that have been forced to disappoint customers on an ongoing basis is another.

Frontier executives are proposing to fix the company by deleveraging the company’s debt and restructuring it, freeing up capital that can be spent on long overdue network upgrades. Executives claim the first priority will be to scrap more of Frontier’s copper wire network in favor of fiber upgrades. That would be measurable progress for Frontier, which has traditionally relied on acquiring fiber networks from other companies instead of building their own.

But the company will also continue to benefit from a chronic lack of competition and Wall Street’s inherent dislike of large capital spending projects. The proposal does not come close to advocating the scrapping of all of Frontier’s copper service in favor of fiber. In fact, a rebooted Frontier would only incrementally spend $1.4 billion on fiber upgrades until 2024, $1.9 billion in all over the next decade. That would bring fiber to only three million additional Frontier customers, those the company is confident would bring the highest revenue returns. The remaining eight million copper customers would be stuck relying on Frontier’s existing DSL or potentially be sold off to another company.

Frontier seems more attracted to the prospect of introducing or upgrading service to approximately one million unserved or underserved rural customers where it can leverage broadband subsidy funding from the U.S. government. To quote from the presentation: Frontier plans to “invest in areas that are most appropriate and profitable and limit or cease investments in areas that are not.”

Another chronic problem for Frontier’s current business is its cable TV product, sold to fiber customers.

“High content/acquisition costs have made adding new customers to the Company’s video product no longer a profitable exercise,” the company presentation admits. If the company cannot raise prices on its video packages or successfully renegotiate expensive video contracts to a lower price, customers can expect a slimmed down video package, likely dispensing with regional sports networks and other high cost channels. Frontier may even eventually scrap its video packages altogether.

To successfully achieve its goals, Frontier is likely to put itself into Chapter 11 bankruptcy reorganization no later than April 14, 2020. The company’s earlier plans may have been impacted by the current economic crisis caused by the coronavirus pandemic, so the exact date of a bankruptcy declaration is not yet known.