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Frontier’s Inner Secrets Revealed: ‘We Underinvested for Years’

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.

DSL is Failing Rural America – Service Rarely Achieves FCC’s 25 Mbps Broadband Minimum

With the average speed of DSL service under 10 Mbps in rural counties across the United States, this legacy technology is disenfranchising a growing number of rural Americans and is largely responsible for dragging down overall U.S. internet speed scores. Only satellite internet offers overall lower speed and poor customer satisfaction, according to consumer surveys.

In some areas, customers cannot even get bad DSL service, despite the fact the Federal Communications Commission marks many of those addresses as well-served. According to a new report by the company Broadband Now, the FCC could be claiming at least 20 million Americans have access to robust internet service that, in fact, does not exist, especially in rural counties.

Citylab:

To get its estimate, the Broadband Now team manually ran 11,663 randomly selected addresses through the “check availability” tool of nine large internet service providers that claim to serve those areas. All in all, the team analyzed 20,000 provider-address combinations. A fifth of them indicated that no service was available, suggesting to the researchers that companies may be overstating their availability by 20%, said John Busby, the managing director of Broadband Now. The results also show that 13% of the addresses served by multiple providers didn’t actually have available service through any of them. They then applied these rates across the country to get their final estimate of 42 million people without broadband.

The disparity between their estimate and the FCC’s largely comes from the agency’s reliance on Form 477 reports, in which internet providers self-report the locations they serve. Providers can claim to serve the population of an entire census block if service is provided to just one household in that block. After the release of FCC’s May report, the agency’s Democratic commissioners dismissed the report, berating their colleagues for “blindly accepting incorrect data” and using the numbers to “clap its hands and pronounce our broadband job done.”

Across DSL-heavy rural Ohio, weary residents have nothing to clap about as they desperately look for something better than slow speed DSL from the local phone company.

“It’s a good day when Frontier DSL breaks 2 Mbps, although they advertise (and we pay for) 10 Mbps,” said Fred Phelps, a Frontier DSL customer for more than a decade. “In rural Ohio, it is take it or leave it internet access and we have no choice other than Frontier.”

Phelps has longed for Charter Spectrum to wire his area, next to a large farm operation, but the nearest Spectrum-connected home is a half-mile down the road. Phelps was lucky to get DSL at all. That aforementioned farm paid Frontier a handsome sum to extend its commercial DSL service to the farm’s office, putting Phelps in range for a residential DSL connection.

“It is always slow and frequently goes offline on rainy and snowy days because water is getting into the phone cable somewhere,” Phelps told Stop the Cap! “Service calls are a waste of time because the problem always disappears by the time the repair crew shows up.”

Cindy B (last name withheld at request) is in a similar situation in Ohio. She has a CenturyLink DSL line that averages 1 Mbps, although some of her relatives have managed to get almost 12 Mbps from CenturyLink closer to town.

Warren County, Ky.

“CenturyLink treats you like they are doing you a favor even offering DSL service in this part of Ohio. There is no cable TV service for at least 20 miles, so cable internet is out of the question,” Cindy tells us. “They have also made it crystal clear there are no plans to upgrade service in our area.”

She used to be a Viasat satellite internet customer but quickly canceled service.

“Satellite internet should be considered torture and banned as illegal,” Cindy said. “You can spend five minutes just trying to open an email, and the only time we could download a file was overnight, but even that failed all the time.”

Cindy and Fred are collateral damage of the country’s broadband dilemma. They are stuck with DSL, a service that often wildly over-claims advertised speed that it actually cannot deliver in rural areas. In much of rural Ohio, DSL speeds are usually under 6 Mbps, although companies often claim much faster speed on reports sent to the FCC.

“According to the FCC website, we should be getting 24 Mbps internet from Frontier and two other companies, but that simply does not exist,” said Phelps. “I really don’t understand how the FCC can rely on its own database for broadband speed that is not available and never has been.”

Cindy said her children cannot depend on their DSL line and have to do their homework at school or in the library, where a more dependable Wi-Fi connection exists.

“The problem is getting worse because websites are becoming more elaborate and are designed for people who have real internet connections, so often they won’t even load for us,” she said.

Warren Rural Electric Co-Op’s service area.

But according to the FCC, neither Cindy nor Fred live in a broadband-deprived area. For this reason, public funding to improve internet access is hard to come by because the FCC deems both areas well-served.

South of Ohio, in Warren County, Ky., a local rural electric co-op is not waiting for the State of Kentucky or the federal government to fix inaccurate data about broadband service in the rural exurbs around Bowling Green, usually stuck with slow DSL or no internet access at all. Warren Rural Electric Cooperative and Lafayette, Tenn.-based North Central Telephone Co-Op are working together to lay fiber optic cables to bring fiber to the home internet service to some broadband-deprived communities in the county. Warren RECC serves eight counties in south central Kentucky with over 5,700 miles of electric transmission and distribution lines, mostly in rural parts of the state. Two communities chosen for service as part of a pilot project — Boyce and September Lakes, are more than a little excited to get connected.

The Bowling Green Daily News reports that an informational meeting held in early February drew 300 residents (out of nearly 800) ready to hear more information about the project. Almost 150 signed up for future fiber service on the spot. Many more have subsequently signed up online. The new service will charge $64.95/mo for 100 Mbps service or $94.95 for 1,000 Mbps service. That is about $5 less than what Charter Spectrum charges city folks and is many times faster than what most phone companies are offering in rural Kentucky.

Cable Companies See Big Growth in Broadband and Wireless, Big Losses in TV

Most analysts are predicting this past year will be the worst yet for video customer losses, with nearly two million cable TV customers cutting the cord in 2019, up from 1.26 million in 2018. Business is even worse for satellite TV operators, which lost 1.2 million customers in 2018 and are expected to have shed another 3.25 million customers in 2019 — mostly because of mass customer defections at AT&T’s DirecTV. Altogether, over five million Americans are estimated to have cut the cord over the past year.

Investors have largely stopped worrying about video subscriber losses, and cable operators have boldly told Wall Street they have stopped chasing video customers threatening to cancel service, claiming many are no longer profitable enough to keep. Their key competitors, online streaming video services like Sling TV, AT&T TV Now, and Hulu with Live TV are also seeing subscriber gains slowing, most likely because of price increases. One analyst predicted these online cable TV replacements would add a combined 804,000 customers in 2019, less than half of the 2.3 million they added in 2018.

Cable companies seem unfazed, in part because of record-breaking gains they are expected to have made in internet and wireless customers in the last year. One analyst suggests that most of those gains are coming directly at the expense of phone companies.

Comcast and Charter are the two largest cable companies in the United States.

“Cable’s clear speed advantage in roughly half the U.S. is driving continued strong share performance,” Jayant told clients in a research note. Jayant expects some of the biggest gains will come from ex-DSL customers in Comcast and Charter Spectrum’s service areas.

Nationwide, cable operators likely added 3.1 million new broadband customers in 2019, up 15% over last year. Phone companies are predicted to have lost at least 402,000 internet customers, up from 342,000 in 2018. Most of those departing customers are not served by fiber broadband.

Both Comcast and Charter Spectrum are also successfully attracting a growing number of mobile customers, as is Altice USA. Charter and Comcast offer their broadband customers the option of signing up for wireless mobile service, powered by Verizon Wireless. Altice USA resells Sprint service at cut-rate prices.

Comcast is estimated to have added 778,000 wireless customers in 2019 and analysts predict that the company will add another 909,000 in 2020. Charter Spectrum is expected to have gained 923,000 wireless customers in 2019, with another 1.04 million likely to sign up in 2020. Altice USA’s deal with Sprint in its Cablevision/Optimum service area has already attracted about 80,000 customers, with 550,000 more likely to follow in 2020.

FCC, Wireless Industry Take Aim At C Band Satellite Spectrum for 5G

Phillip Dampier September 9, 2019 Public Policy & Gov't, Video, Wireless Broadband No Comments

A major battle between satellite owners, broadcasters, and the telecom industry has emerged over a proposal to repurpose a portion of C Band satellite spectrum for use by the wireless industry.

Multiple proposals from the wireless and cable industry to raid C Band satellite frequencies for the use of future 5G wireless networks suggest carving up a band that has been used for decades to distribute radio and television programming.

Before the advent of Dish Networks and DirecTV, homeowners placed 6-12′ large rotatable satellite dishes in backyards across rural America to access more than a dozen C Band satellites delivering radio and television programming. Although most consumers have switched to much smaller fixed satellite dishes associated with Dish or DirecTV, broadcasters and cable companies have mostly kept their C Band dishes to reliably receive programming for rebroadcast.

Now the wireless industry is hoping to poach a significant amount of frequencies in the C Band allocation of 3.7-4.2 GHz to use for 5G wireless service. Competing plans vary on exactly how much of the satellite band would be carved out. One plan proposed by Charter Communications and some independent cable companies would take 370 megahertz from the 500 megahertz now used by C Band satellites and sell it off in at least one FCC-managed auction to the wireless industry. A more modest plan by an alliance of satellite owners would give up 200 megahertz of the band, allowing wireless companies to acquire 180 megahertz of spectrum. To reduce the potential of interference, both major plans offer to set aside 20 megahertz to be used as a “guard band” to separate satellite signals from 5G wireless transmissions.

Satellite dish outside of KTVB-TV in Boise, Ida. (Image courtesy: KTVB-TV)

Much like the FCC’s repack of the UHF TV dial, which is forcing many stations to relocate to a much smaller number of available UHF TV channels, most proposals call on the FCC to subsidize dislocated satellite broadcasters and users with some of the auction proceeds to help pay the costs to switch to fiber optic terrestrial distribution instead.

Broadcasters and satellite companies claim the cable industry proposal would leave U.S. satellite users drastically short of the minimum 300 megahertz of satellite spectrum required to provide radio and television stations with network programming. Many rural broadcasters have complained that the cable industry plan calling for a shift to fiber optic distribution ignores the fact that there is no fiber service available in many areas. Other objectors claim fiber outages are much more common than disruptions to satellite signals, putting viewers at risk of a much greater chance of programming disruptions.

With spectrum valued at more than $8 billion at stake, various industry groups are organized into coalitions and alliances to either support or fight the proposals. The Trump Administration has made it known it is putting a high priority on facilitating the development of 5G services to beat the Chinese wireless industry, which is already moving forward on a major deployment of next generation wireless networks. The FCC, with a 3-2 Republican majority, has signaled it is open to reallocating spectrum to wireless carriers for the rollout of 5G service. Unfortunately, much of this spectrum is already in use, setting up battles between incumbent users threatened to be displaced and the wireless industry, which sees big profits from acquiring and deploying more spectrum.

With serious money at stake, strains are emerging among some individual members of the different industry groups. Late last week, Paris-based Eutelsat Communications quit the largest satellite owner coalition, the C-Band Alliance. The move fractured unity among the world’s satellite owners, just as the FCC seems ready to move on a reallocation plan. Eutelsat will now lobby the FCC directly, reportedly because of concerns among shareholders that splitting off significant amounts of C Band spectrum is inevitable and could drastically reduce the value of Eutelsat’s share price. Eutelsat reportedly wants to independently participate in the FCC’s proceeding, potentially securing a larger amount of compensation from the FCC for the spectrum it will give up as part of a final reallocation plan.

Whatever compensation plan emerges will run into the billions of dollars. Satellite dishes will probably require new equipment to shield signals from interference, may require re-pointing to a different satellite (which could prove problematic for some equipment originally installed in the 1980s), and may even require the launch of additional satellites to provide more capacity in the newly slimmed C Band.

The FCC is expected to decide on the reallocation proposals this fall, with a signal repack likely to take between 18-36 months before the frequencies can be cleared for use by wireless operators.

Satellite owners, mobile carriers, and cable operators discuss reallocating part of the satellite C Band for use by 5G wireless networks. Sponsored by the industry-funded Technology Policy Institute. Sept. 3, 2019 (44:10)

India Getting 100 Mbps Fiber-to-the-Home Service for Under $10/Month

Jio founder Mukesh Ambani formally announces the launch of Jio Fiber.

Starting Thursday, the first 500,000 of over 15 million Indians pre-registered for service will begin receiving fiber to the home broadband at speeds starting at 100 Mbps, bundled with free unlimited voice calling for under $10 per month.

Jio Giga Fiber will eventually serve more than 20 million Indian homes and businesses in over 1,600 communities, charging a fraction of the prices charged by North American cable and phone companies, and expects to remain profitable by selling extra services, including unlimited global calling plans and television service, to Indian consumers. To sweeten the deal, customers that commit to a year of service will receive a 4K LED TV and set-top box for free.

Jio has already laid over 186,000 miles of optical fiber and has an existing base of 500,000 trial customers across India that have been testing the service.

Jio is India’s largest wireless provider, with over 323 million subscribers, making it the third largest mobile operator in the world. It is also one the newest, having launched wireless service in late 2015 over an expansive 4G LTE network. The company was founded by Mukesh Dhirubhai Ambani, one of Asia’s wealthiest men. His vision is to make telecommunications services affordable and available to the largest number of people possible, with an emphasis on making entry-level plans usable and affordable. His presence in the Indian telecom market has caused the same marketplace disruption T-Mobile has caused in the U.S.

Jio’s chief competitor, the state-owned BSNL telephone company, is rumored to be negotiating with several of India’s independent cable and internet providers to offer a competing joint bundle of TV, landline, and broadband services over optical fiber at prices under $9.75/month.

If both companies are successful, Indians will have access to some of the cheapest internet service in the world. 

Jio Fiber is designed to provide India with fiber broadband service as good or better than what is available in the United States and Canada, for a much cheaper price. Ambani noted the average broadband speed in the U.S. is now 90 Mbps, but Jio Fiber will beat that with plans starting at 100 Mbps. He has successfully navigated around skeptical investors by putting up more than $30 billion of his firm’s own money to back the telecom venture, instead of returning that money to shareholders in the form of dividend payouts and share buybacks. He can raise even more cash by selling and leasing back Jio’s extensive network of wireless cell sites.

Ambani sees Jio’s fiber network as a foundation for marketing additional products and services. Wealthier Indians will be invited to spend up to $139 a month on gigabit internet, a deluxe TV package with over 600 TV channels, a landline with unlimited international calling, and access to popular movies on the same day titles are released in Indian theaters. Customers with premium level service will also get free subscriptions to “most” popular video streaming services available in India (excluding Netflix and Amazon Prime Video). One downside to Jio’s plan — it comes with a 100 GB monthly data cap. Those exceeding it will see their speeds reduced to 1 Mbps for the rest of the current billing period. There is no word yet about the availability of unlimited use plans at an additional cost.

Jio has been strategically planning to introduce fiber service for several years and has purchased several Indian cable companies to help manage infrastructure, installation, and a network of retail stores that will act as a sales point for Jio’s wireless and fiber services.

Jio’s Mukesh Ambani introduces India to Jio’s new fiber to the home service, which will cost under $10 a month. (6:59)

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  • Maureen O’Brien: I also think Charter Cable (spectrum) is a disgrace. Their billing info is a travesty of justice. I would like to know congressmen/women were agains...
  • Phil: I moved into a new build neighborhood late last year in Ohio, was excited to see (on their website, and verified by calling) that they were offering F...
  • U Marc: This is incorrect Information. XFi pods maxim throughput speeds on 2.4 Ghz band is 300MBPS and 867Mbps on the 5 Ghz band...
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  • Sherry: I also bought equipment and haven’t had very long also please let me know if you file a lawsuit will join...
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  • Guest: I live in an area where Frontier bought up Verizon FIOS, and then completely underdelivered. Frequent service outages, billing problems. I too changed...
  • Phillip Dampier: There is nothing inherently wrong with the product, they just don't want to sell or support it any longer. They should unlock the hardware and allow t...
  • Phillip Dampier: We've covered that story exhaustively over the years, just not here. Yes, they botched every cutover everytime and drove customers off in herds....
  • Phillip Dampier: I suspect the test for fiber will be the return on investment. They want north of 20% revenue return to fiber-qualify an area. That means urban/suburb...
  • Paul Houle: What's missing from that report is the other stakeholders affected by this. In many Frontier service areas (mine in particular) there is no cell ph...

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