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Shareholders ‘Beating the Drums’ Demanding Quick Sale of FairPoint Communications… to Anyone

Phillip Dampier March 4, 2015 Consumer News, FairPoint, Public Policy & Gov't, Video 1 Comment

fairpointJust weeks after FairPoint Communications and union workers settled a prolonged strike involving more than 1,700 workers that began last October, shareholders are demanding the company sell itself and exit the business.

Investors are reacting negatively to today’s news that FairPoint’s quarterly losses accelerated during the 131-day strike to $136.3 million as the company spent an extra $73.6 million on temporary replacement workers and defending itself in strike-related negotiations.

Since FairPoint declared bankruptcy reorganization in 2011, the company has continued to post losses each year since, and those losses show no signs of ending. The company today abandoned issuing guidance on its future earnings for the rest of 2015, claiming it was uncertain of the impact of the strike on its future revenue.

They could ask customers like John Bouchard in Robbinston, Maine, who canceled after becoming fed up with FairPoint’s impotent customer service department, unable to resolve service problems during the strike.

Bouchard told the Associated Press after his FairPoint DSL service went out, he set up an installation appointment with the cable company and had to leave his home office and drive through a snowstorm to find Internet access while Time Warner Cable caught up with the demand for new service installations.

“It’s very frustrating,” he said.

fairpoint1_0FairPoint’s unionized workers returning to the job openly worried about the state of FairPoint’s network after a hard winter and how inexperienced temporary workers maintained the facilities while they were on strike.

Multiple press reports documented instances of shoddy repair work from the temporary workers, including some safety hazards.

“We have to win back the confidence of our customers,” said Adam Frederickson, a FairPoint worker in Nashua, N.H.

Barry Sine, an analyst who follows FairPoint for Drexel Hamilton, a New York-based brokerage, said he believes it will take 30 to 45 days for the company’s workforce to restore service quality to pre-strike levels. But by then, thousands of customers are likely to have switched providers.

North Carolina-based FairPoint disagreed that the problems were serious. “The FairPoint network performed exceptionally during the work stoppage and our well-trained and qualified contract workforce provided superb support of that network,” said company spokeswoman Angelynne Amores Beaudry.

Sine believes FairPoint would have been a prime target for acquisition earlier if it were not for its legacy workforce costs, which include benefits the company just successfully cut in the labor contract that ended the strike. With the strike now behind the company, investors believe now is the time FairPoint should sell itself to maximize shareholder value.

“Shareholders are beating the drums; they want to sell this company now,” said Sine. “The unions, there’s no love lost with this management team. The unions would like a new owner as well.”

for sale by ownerUnion leaders sense the company is already quietly getting the books in order for a sale.

Don Trementozzi, president of the Communications Workers of America Local 1400 in Portsmouth, N.H. told the AP the company seemed fixated on improving its books instead of focusing on customers.

“The brand has put a sour taste in the mouths of customers,” he said. “We’re going to go back to work and do everything we can to make this company profitable. But the brand, the name, suffered greatly in this. I don’t know if you can recover without a sale.”

In any sale, FairPoint executives and shareholders are likely to win the most. FairPoint workers, already challenged by significant benefit cuts, could face pressure from new owners to further reduce pay and benefits. FairPoint would likely sell for $25-30 a share, or around $780 million. But a buyer would also have to assume nearly a billion dollars in prior debt from a company that has never managed to post a quarterly profit since emerging from bankruptcy.

The most likely buyer would be Frontier Communications, already solidly established in the northeastern United States. But it may be too preoccupied with its recent $10 billion acquisition of Verizon landlines in Florida, California, and Texas to consider another acquisition. The next likely buyer would be Arkansas-based Windstream, followed by CenturyLink.

FairPoint’s president of Maine operations dismissed the speculation about FairPoint’s future, claiming it is focused on growing the business, not selling it.

“We have a responsibility to our customers, to our shareholders. We need to run the company as profitably as we can, to provide the best service that we can provide. That’s what we do,” he said. The union’s contention that FairPoint fought to cut worker benefits just to make itself attractive to buyers “is a stretch,” he said.

[flv]http://www.phillipdampier.com/video/WFFF Burlington FairPoint Workers React to Tentative Deal 2-24-15.mp4[/flv]

A FairPoint employee tells WFFF-TV in Burlington, Vt. how declining service may have finally forced FairPoint to the bargaining table with a proposal workers could accept.  (2:51)

Frontier’s Acquisition of Verizon Landline/FiOS Properties in Calif., Tex., and Fla. Called “Insane”

Phillip Dampier February 5, 2015 Competition, Consumer News, Frontier, Net Neutrality, Public Policy & Gov't, Rural Broadband, Verizon 3 Comments

Frontier Communications today announced a $10.54 billion all-cash acquisition of Verizon’s wired networks, including landline and FiOS properties, in the states of Florida, California, and Texas.

Frontier will acquire Verizon’s wireline operations that offer services to residential, commercial and wholesale customers numbering 3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS video connections. The acquired territory is 54 percent served by FiOS fiber to the home service.

frontier expanded improvement

“This transaction marks a natural evolution for our company and leverages our proven skills and established track record from previous integrations,” said Maggie Wilderotter, Frontier Communications chairman and chief executive officer. “These properties are a great fit for Frontier and will strengthen our presence in competitive suburban markets and accelerate our recent market share gains. We look forward to realizing the benefits this transaction will bring to our shareholders, customers and employees.”

Dan McCarthy, Frontier’s president and chief operating officer, commented, “This transaction is an exciting opportunity for Frontier. We are well-positioned to maximize value for our shareholders and create a great experience for new customers. We have four FiOS markets today from our 2010 transaction with Verizon, and a high level of familiarity with the systems underlying these properties. We plan to flash-cut convert these properties to Frontier’s systems as we did in states including West Virginia and Connecticut.”

frontierBut Frontier’s “flash cut” conversions in West Virginia and Connecticut led to months of serious service and billing problems leading to two state-level investigations into Frontier’s performance. Problems are still ongoing in parts of Connecticut several months after Frontier transferred Connecticut territories from AT&T. Customers in West Virginia continue to criticize Frontier Communications for its underwhelming broadband performance.

Saibus Research, a Wall Street analyst, said they were “stunned” Frontier was repeating the same mistake it made back in 2010 when it acquired other former GTE service areas from Verizon.

“We remembered that its $8.7 billion wireline purchase in 2010 did not work out so well for it,” wrote the analyst. “When we consider that Frontier’s share price declined by nearly 60% from 2010-2012 after the deal closed before recovering those losses since 2012, we were shocked that Frontier’s share price increased by 10.6% in response to its announcement that it was buying assets from Verizon. Frontier’s pro forma revenue has declined by 30% since 2009, its residential consumer base declined by 33%, its operating income declined by 34% and its dividend declined by 60% since then.”

“Albert Einstein said that insanity is doing the same thing over again and expecting a different result and we think that Frontier’s CEO Maggie Wilderotter has come down with a serious case of insanity for her willingness to buy whatever Verizon is selling,” said Saibus Research. “As such, we think income-oriented telecom investors should consider accumulating shares of Verizon, and selling or shorting Frontier.”

Frontier will accumulate billions in new debt to fund the transaction, bad news for legacy Frontier customers still served by the company’s copper wire networks. Frontier hoped to realize $500 million in cost reductions from its 2010 acquisition of Verizon territories in the Pacific Northwest, West Virginia, and several midwestern states. Instead of savings, it ended up spending millions to rehabilitate deteriorating landlines Verizon underinvested in for years. The new unsecured debt load will likely cut into available funds to upgrade older networks, particularly in the northeast and inside New York, Ohio and Pennsylvania.

Frontier will get marginal improvements in programming costs from the greater volume discounts its larger customer base qualifies to receive. But outside of Connecticut (Frontier U-verse) and Washington, Oregon, Indiana and South Carolina (Frontier FiOS), the rest of Frontier’s customers will continue to be offered Dish Network satellite service and various flavors of DSL.

If approved by regulators, the transaction will be finalized in 2016.

Verizon Cutting Wireline Broadband Investments: Still No FiOS Expansion, Less Money for Wired Networks

Phillip Dampier January 22, 2015 Broadband "Shortage", Broadband Speed, Competition, Consumer News, Verizon, Wireless Broadband 4 Comments
Verizon's FiOS expansion is still dead.

Verizon’s FiOS expansion is still dead.

Verizon Communications signaled today it plans further cuts in investments for its wireline network, which includes traditional copper-based telephone service and DSL as well as its fiber-optic network FiOS.

“We will spend more CapEx in the wireless side and we will continue to curtail CapEx on the wireline side,” Verizon’s chief financial officer Fran Shammo told investors this morning. “Some of that is because we are getting to the end of our committed build around FiOS.”

Instead of expanding its FiOS fiber to the home network to new areas, Verizon is trying to increase its customer base in areas previously wired. It is less costly to reconnect homes previously wired for FiOS compared with installing fiber where copper wiring still exists.

Verizon continues to lose traditional landline customers, so the company is increasingly dependent on FiOS to boost wired revenue. The fiber network now accounts for 77% of Verizon’s residential wireline revenue.

Wherever FiOS exists, it has taken a significant number of customers away from cable competitors. FiOS Internet has now achieved 41.1% market penetration, with 6.6 million customers, up 544,000 from last year. Of those, the majority want broadband speeds they were not getting from the cable company. At the end of 2014, 59% of FiOS Internet customers subscribe to broadband speeds above 50Mbps, up from 46% at the end of 2013.

Verizon-logoDespite the success of FiOS, Verizon’s senior management continues to devote more attention to its highly profitable Verizon Wireless division, spending an even larger proportion of its total capital investments on wireless services.

In 2014, Verizon spent $17.2 billion on capital expenditures, an increase of 3.5% over 2013. But only $5.8 billion was spent on maintaining and upgrading Verizon’s landline and FiOS networks, down 7.7% over 2013. Verizon Wireless in contrast was given $10.5 billion to spend in 2014. The company is using that money to add network density to its increasingly congested 4G LTE network. In many cities, Verizon Wireless is activating its idle AWS spectrum to share the traffic load and is accelerating deployment of small cell technology and in-building microcells to deal with dense traffic found in a relatively small geographic area — such as in sports stadiums, office buildings, shopping centers, etc.

Verizon Wireless is branding its network expansion “XLTE,” which sounds to the uninitiated like the next generation LTE network. It isn’t. “XLTE” simply refers to areas where expanded LTE bandwidth has been activated. Unfortunately, many Verizon Wireless devices made before 2014 will not benefit, unable to access the extra frequencies XLTE uses.

With Verizon increasing the dividend it pays shareholders, the company is also cutting costs in both its wired and wireless divisions:

  • Verizon Wireless’ 3G data network will see a growing amount of its available spectrum reassigned to 4G data, which is less costly to offer on a per megabyte basis. As Verizon pushes more 4G-capable devices into the market, 3G usage has declined. But the reduced spectrum could lead to speed slowdowns in areas where 3G usage remains constant or does not decline as quickly as Verizon expects;
  • Verizon will push more customers to use “self-service” customer care options instead of walking into a Verizon store or calling customer service;
  • The company will continue to move towards decommissioning its copper wire network, especially in FiOS areas. Existing landline customers are being encouraged to switch to FiOS fiber, even if they have only landline service. Copper maintenance costs are higher than taking care of fiber optic wiring;
  • Verizon has accelerated the closing down of many central switching offices left over from the landline era. As the company sells the buildings and property that used to serve its network, Verizon’s property tax bill decreases;
  • Verizon will continue cutting its employee headcount. Shammo told investors in December, Verizon Communications cut an extra 2,300 employees that took care of its wired networks.

Verizon Wireless Arrives in Alaska; Helps Drive Alaska Communications Out of the Wireless Business

Phillip Dampier January 7, 2015 Alaska Communications, Competition, Consumer News, GCI (Alaska), Rural Broadband, Verizon, Wireless Broadband 1 Comment

acs logoWhen Verizon Wireless finally fired up its network in Alaska in September of 2014, the writing was on the wall for at least one of Alaska’s homegrown wireless competitors.

Faced with competing against Verizon’s $115 million, state-of-the-art advanced LTE network that already supports new features like Voice over LTE (far ahead of what many customers in the lower 48 states get) Alaska Communications System Group, Inc., decided it was time to sell.

An ACS and GCI-shared cell tower. (Photo: Rosemarie Alexander)

An ACS and GCI-shared cell tower. (Photo: Rosemarie Alexander)

ACS’ 109,000 wireless customers won’t be going far. The buyer, General Communications, Inc., (GCI) is a co-investor in the Alaska Wireless Network that ACS also relies on to offer wireless service. Besides billing and rate plans, most ACS customers won’t notice much of a change after the $300 million sale is complete during the first quarter of this year. GCI will end up with about 253,000 customers after the transaction is finished, which represents about one-third of the Alaskan wireless marketplace. The sale will mean most Alaskans will have a practical choice of three major wireless carriers — AT&T, Verizon Wireless, and GCI.

ACS, weighed down by debt, wanted out of the wireless business because it has proven expensive to support a network serving a high-cost, low margin state like Alaska, where small communities are often far apart. Serving cities like Fairbanks and Juneau is one thing. Serving hundreds of settlements like Meyers Chuck (pop. 21) or towns like Unalakleet (pop. 688) is another.

Like many traditional rural or independent telephone companies, ACS sees gold in its future focusing on selling lucrative broadband service to residential and business customers, where profit margins often exceed 50 percent. There is plenty of room to grow if ACS invests in network upgrades. ACS currently only has a 20 percent share of Alaska’s broadband market, primarily selling DSL service. GCI, which sells cable broadband, has managed a speed advantage.

Both companies have reassured Wall Street that despite ACS’ renewed focus on broadband, there will be no fierce competition, no price wars, or lower prices for consumers. ACS will devote considerable resources into bolstering its business broadband marketing and has already secured contracts with the state government and a regional health consortium.

Despite the $300 million windfall, ACS plans to turn most of that money towards paying off its debts and possibly reinstating a dividend payout program for shareholders. The company is expected to only spend $35 million to $40 million annually on capital investment projects and executives promise they will only open their wallet for projects that guarantee a high return on that investment. As a result, ACS will likely not spend much on rural broadband expansion.

Cable One Spinning Away From Graham Family In Likely Move Towards Eventual Sale

Phillip Dampier November 18, 2014 Cable One, Competition, Consumer News, Rural Broadband Comments Off on Cable One Spinning Away From Graham Family In Likely Move Towards Eventual Sale

cableoneCable One’s history as a former part of the Washington Post and its publishers — the Graham family — will come to an end next year as it is spun off to shareholders, positioned for a quick sale as the march towards consolidation of the cable industry continues.

The board of directors of Graham Holdings authorized company management to spin-off the cable company in a tax-free transaction. Many industry analysts believe that is a prelude to maximizing shareholder value by selling the cable operator to a larger cable operator, most likely Charter Communications.

Cable One serves just under 500,000 customers in rural markets in 19 states. The company struggled in 2014 with high-profile battles over programming costs, notably with Viacom, that has led to channel blackouts running nearly seven months. Cable One’s small footprint has put the cable company at a disadvantage, unable to qualify for deep volume discounts for cable programming. Frequent competitor AT&T U-verse has taken a toll on the cable company’s video subscribers, down 15% since the fall of 2013. Cable One spent much of 2014 investing in network upgrades, particularly to improve its newly prioritized broadband service.

The news boosted shares of Graham Holdings stock, increasing in value as much as 12% to $886.05 per share late last week. Shareholders are positioned to benefit the most from a sale of the company, which could fetch as much as $2.5 billion in a sale. The most likely buyer is Charter Communications, which serves similar-sized communities in the central and southern United States and is ready to grow larger with acquisitions of smaller companies like Cable One.

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