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Frontier Urgently Trying to Restructure $17 Billion Debt as Chapter 11 Looms

Frontier Communications is preparing a detailed plan for bondholders explaining how the company hopes to cut its $17 billion in debt before it faces the possibility of bankruptcy.

The Wall Street Journal reports Frontier is ready to begin formal negotiations with those holding its debt to create a new payback plan before it faces the first of several repayment deadlines for bonds running into the billions, starting in 2022. But the strategy is risky because if any of the company’s major bondholders disagree, it could put Frontier on a fast track to Chapter 11 bankruptcy reorganization.

Frontier’s debt problems are a consequence of its decision to expand its wireline footprint through acquisitions of castoff copper landline networks being sold primarily by Verizon Communications and AT&T. Critics have repeatedly called out Frontier for bungling network transitions with extended service outages, billing problems, and other customer service-related failures that left customers and some state regulators frustrated and alienated. The company is still facing regulatory review in states like Connecticut, where it failed to properly manage a customer cutover from AT&T’s systems to its own, and in Utah, West Virginia, California, and Florida where similar cutovers from Verizon Communications left more than a few customers without service and months of billing problems.

As a result, Frontier lost many of the customers it acquired, with many unwilling to consider doing business with the phone company ever again.

Although Frontier’s latest acquisitions of Verizon landline customers in California, Texas, and Florida included large Verizon FiOS fiber to the home territories, Frontier customers continue to disconnect service at a greater pace than the phone company’s chief cable competitors — Comcast and Charter Spectrum. Customer defections are even worse in large sections of Frontier’s stagnant “legacy” markets — service areas that have been managed by Frontier or its predecessor Citizens Communications for decades. That is because almost all of those legacy markets are still serviced by decades-old copper wire networks, many capable only of providing low speed DSL internet access.

Frontier’s large debt load is cited as the principal reason the company cannot embark on upgrade efforts to replace existing copper wiring with optical fiber. In fact, virtually all of Frontier’s fiber service areas have been acquired from AT&T or Verizon. Frontier executives have attempted to placate shareholders by promising to aggressively manage costs. But promises of dramatic savings have proved elusive and frequent media reports have emerged covering extensive service outages, poor network maintenance, ongoing billing and customer service issues, and inadequate staffing to address a growing number of service outages and problems. In several states, repeated 911 outages have triggered regulator investigations with the prospect of stiff fines.

Three Frontier insiders have privately shared their insights with Stop the Cap! about ongoing frustrations with the company and the most recent developments.

“Upper management has no comprehension that in many of our markets, customers have choices and they abandon us when all we can sell is DSL service at speeds often less than 12 Mbps,” one senior regional executive told us. “Our retention efforts are so poor these days, representatives are not really expected to rescue accounts because in most cases there is no legitimate reason to do business with us. In some states where there are high mandated surcharges, we cost more than our cable competitors.”

Another mid-level executive in one of Frontier’s largest legacy markets — Rochester, N.Y., said morale is low and a growing number of colleagues believe the days to bankruptcy are short.

Frontier Communications debt load.

“Our loyal customers are literally dying off, as their adult children disconnect decades-old landline accounts,” said an executive who wished to remain anonymous because they were not authorized to speak with the media. “The customer numbers have been ugly for a long time and are getting worse. Our recently retired customers who have had DSL and voice service with us since the 1990s are disconnecting because some have gone with Spectrum and others are moving out of the area. Some of these customers hate Spectrum and won’t do business with them no matter the price, but we are losing their business anyway when they move out of state.”

The Rochester executive noted Frontier has an impossible job trying to sell its internet and voice products against Charter Spectrum.

“Their offers are $40 a month for 100 Mbps internet and $10 for unlimited local and long-distance calls,” the executive noted. “Ours costs nearly $30 just for the phone line after taxes and fees, and how can you sell someone DSL that delivers less than 6 Mbps to many parts of a market still served by copper trunk lines to a central office several miles away? They also find out they have to lease our modem at an additional fee and there are other fees in the contract many customers have learned to look for. Answer: you can’t.”

A Frontier executive in Ohio shared a similar story.

“We hold our own in our rural markets where we can offer a customer better than dial-up internet, and our service is very good if you live in an area where we expanded broadband thanks to FCC subsidies. Some of these new areas are even served by fiber,” the executive explained. “The problem with this is fewer people live in rural areas and these places cost a lot more to maintain when we dispatch service crews or have to run new cable. For Frontier to be truly successful, we have to get better internet service into our larger older markets, but that means pulling copper off poles and putting up fiber and there is just no interest from the higher ups to spend the money to do this. So instead the company bought new territories to keep revenue numbers up, but we are also quickly losing many of those customers to cable too. I really don’t know what we will do when wireless companies offer 5G internet.”

Some Frontier bondholders recognize Frontier must reduce its debt to have the financial resources to expand fiber service. Others want the company to shed its legacy copper service areas (while keeping FiOS/U-verse enabled markets) either to regional companies willing to invest in upgrades or to hedge funds that would likely ring whatever remaining value still exists out of these abandoned service areas. Some suspect these hedge funds would also load up the spinoff companies with even greater debt to facilitate dividend payouts and other investor-friendly rewards.

It will be up to state and federal regulators to protect Frontier’s customers as the two emerging groups of conflicting bondholders angle to protect their investments, perhaps at the risk of reliable phone and internet service.

The Wall Street Journal:

One, including Elliott Management and Franklin Resources, pushed for an exchange of their bonds at a discount to their face value for new secured debt that would be paid before unsecured debt in a potential bankruptcy.

Still, bondholders including GoldenTree Asset Management have warned the company against doing such a swap since 2018, arguing it violated the terms of their bonds.

The company this week reached out to Houlihan Lokey, which represents a group of bondholders that includes GoldenTree—as well as JPMorgan Chase & Co., Oaktree Capital Management and Brigade Capital Management—to sign up to view a confidential restructuring proposal, a person familiar with the matter said. That group has yet to gather enough holders to form a majority, people familiar with the matter said.

Verizon Suspends Planned $10 Extra Charge for 5G Service

Verizon Communications has indefinitely suspended plans to charge customers an extra $10 a month for access to Verizon’s extremely spotty and uneven 5G service, which launched earlier this month in Chicago and Minneapolis.

Early adopters were told Verizon would waive the extra $10 fee for the first three months of service. But after receiving mixed reviews about Verizon’s 5G performance and very limited coverage area after launch, Verizon decided to withdraw the charge until further notice.

“This is some of the blowback you get from being first” in offering smartphone 5G service, John Hodulik, an analyst at UBS Group AG, told the Wall Street Journal. “It didn’t make sense to charge people extra money for a service that they’re rarely going to use.”

AT&T’s CEO Randall Stephenson sent signals to shareholders AT&T was also considering charging a premium rate for customers upgrading to 5G technology in the next two or three years.

Questions Grow Over CenturyLink’s Massive 2-Day December Outage

Phillip Dampier January 22, 2019 CenturyLink, Consumer News, Public Policy & Gov't, Video 1 Comment

What do an emergency operations center in Cochise County, Ariz., Colorado hospitals, the Idaho Bureau of Corrections, and many 911 call centers across Massachusetts have in common? They were all brought down by a two-day nationwide CenturyLink outage from Dec. 27-28 that also resulted in internet outages for tens of thousands of CenturyLink’s residential customers. The cause? CenturyLink blamed a single, faulty third-party network management card in Denver for disrupting services for CenturyLink and other phone companies, notably Verizon, from Alaska to Florida.

Hours after outage began, two days after Christmas, CenturyLink issued a general statement:

“CenturyLink experienced a network event on one of our six transport networks beginning on December 27 that impacted voice, IP, and transport services for some of our customers. The event also impacted CenturyLink’s visibility into our network management system, impairing our ability to troubleshoot and prolonging the duration of the outage.”

That “network event” caused serious disruptions to critical services in 37 states, including 911, according to Brian Kyes, president of the Massachusetts Major City Chiefs of Police Association.

“This is affecting 911 (wireline & wireless) delivery to most of Massachusetts,” Kyes said in a statement during the outage to the Boston Herald. “We have heard from MEMA that this issue may also affect some landlines but I have not heard of any specific situations or communities that have been impacted. We are advising all police and fire chiefs to test their local 911 systems and notify their residents of potential issues by reverse 911, social media or any other means that they have at their disposal. The interruption in service may depend on a particular phone carrier and the information that we have is that it may be intermittent.”

CenturyLink outages on Dec. 27, 2018. (Image: Downdetector.com)

The disruptions affected much of Massachusetts — a state served primarily by Verizon Communications, because CenturyLink is a major commercial services vendor inside and outside of its local landline service areas and supplies some connectivity services to Verizon, mostly for wireless customers.

ATM networks also went down in certain parts of the country. CenturyLink is one of many vendors providing data connectivity between the cashpoint machines and several banking institutions.

Also impacted, the Idaho Department of Corrections, including inmate phone systems, and the Idaho Department of Education, which lost the ability to make or receive calls.

Consumers also noticed their internet connections were often down or sporadic in some locations, primarily because CenturyLink’s backbone network became saturated with rogue packets.

The Denver Post presented a more detailed technical explanation about the outage:

CenturyLink said the [defective] card was propagating “invalid frame packets” that were sent out over its secondary network, which controlled the flow of data traffic.

“Once on the secondary communication channel, the invalid frame packets multiplied, forming loops and replicating high volumes of traffic across the network, which congested controller card CPUs (central processing unit) network-wide, causing functionality issues and rendering many nodes unreachable,” the company said in a statement.

Once the syndrome gets going, it can be difficult to trace back to its original source and to stop, a big reason networks are designed to isolate failures early and contain them.

“We have learned through experience about these different types of failure modes. We build our systems to try and localize those failures,” said Craig Partridge, chair of the computer science department at Colorado State University in Fort Collins and a member of the Internet Hall of Fame. “I would hope that what is going on is that CenturyLink is trying to understand why a relatively well-known failure mode has bit them.”

The Federal Communications Commission also expects answers to some questions, opening another investigation of the phone company. In 2015, CenturyLink agreed to pay a $16 million settlement to the federal agency after a seven-state outage in April 2014.

Pai

FCC Chairman Ajit Pai said the agency would once again take a look at CenturyLink, focusing on disruptions to emergency services.

“When an emergency strikes, it’s critical that Americans are able to use 911 to reach those who can help,” Pai said in a statement. “This inquiry will include an examination of the effect that CenturyLink’s outage appears to have had on other providers’ 911 services.”

A retired manager at Qwest, a former Baby Bell now owned by CenturyLink, strongly criticized CenturyLink’s lack of communications with customers and an apparent lack of network redundancy.

“For a company in the communication business, they sure failed on this,” said Albuquerque resident Sam Martin. “I participated on the Qwest Disaster Recovery teams, and I do not recall ever having the network down for this kind of time and certainly never the 911 network. The 911 network should never have been down. The lack of this network can contribute to delays in rescue and fire saving lives.”

Martin is dubious about CenturyLink’s explanation for the network outage, suggesting a defective network card may be only a part of the problem.

“The explanations given so far are not valid,” Martin said. “The public may not be aware of it, but the communication network has redundancy and for essential services like inter-office trunking and 911 calls, there are duplicate fiber optic feeds – “rings” that duplicate the main circuit in another path – and switching equipment to these locations so that they may be switched electronically and automatically upon failure to a back-up network ring. When these systems are operating properly, the customer is unaware a failure occurred. If the automatic switching does not take place, employees involved with disaster recovery can intervene and manually switch the affected network to another fiber ring or electronic hub and service is restored until the actual damage is fixed.”

None of those things appeared to happen in this case, and the outage persisted for 48 hours before all services were restored.

“CenturyLink has to have a disaster recovery plan with redundancies in place for electrical, inbound and outbound local and toll-free carriers, as well as network and hardware component redundancies. CenturyLink should be able to switch between multiple fiber optic rings or central offices in case entire networks of phones go down. They would then locate and repair, or replace, defective telecommunication components without the customer ever knowing. The fact that this did not happen is discouraging and scary for the consumer. The fact that it happened nationwide is even more surprising and disturbing. Hopefully the truth will come out soon.”

A critical editorial in the Albuquerque Journal added:

We need answers from CenturyLink beyond the cryptic “a network element” caused the outage. We need to know how many CenturyLink and Verizon customers were affected. And we need to know what they – and other internet and phone providers – are doing to prevent similar outages or worse from happening in the future. Because if the outage showed nothing else, it’s that like an old-time string of Christmas lights, we are living in an interconnected world.

And when one light goes out, they can all go out.

KTVB in Boise, Idaho reported on CenturyLink’s massive outage on Dec. 27-28 and how it impacted local businesses and government services. (3:09)

A Lukewarm Reception for Vermont’s Plan to Lure Internet Providers

Vermont residents want better internet service and protection for universal access to phone service, even if customers have to pay a surcharge on their bill to make sure the traditional landline is still available in 100% of the state.

In contrast, some residents complain, Vermont regulators want to make life easier for a telecom industry that wants to abandon universal service, fails to connect rural customers to the internet, and has left major cell phone signal gaps around the state.

In 2017, Vermont commissioned two surveys that asked 400 business and 418 residential customers about their telecommunications services. It was quickly clear from the results that most wanted some changes.

Vermont is a largely rural, small state that presents a difficult business case for many for-profit telecom companies. Verizon Communications sold its landline business in northern New England, including Vermont, to FairPoint Communications in 2007. FairPoint limped along for several years until it declared bankruptcy and was eventually acquired by Consolidated Communications, which still provides telephone service to most of the state.

Many rural areas are not furnished with anything close to the FCC’s definition of broadband (25/3 Mbps). DSL service at speeds hovering around 4 Mbps is still common, especially in areas relying on Verizon’s old copper wire infrastructure.

Comcast dominates cable service in the state, except for a portion of east-central Vermont, which is served by Charter Communications (Spectrum). Getting cable broadband service in rural Vermont remains challenging, as those areas usually fail the Return On Investment test. Still, 85% of respondents said they had internet service available in their home. Vermont’s Department of Public Service (DPS) estimates about 7% of homes in Vermont have no internet provider offering service, with a larger percentage served only by the incumbent phone company.

The majority of residents own cell phones, with Verizon (47.5%) and AT&T (31.8%) dominating market share. Sprint has 0.6% of the market; T-Mobile has a 1.2% share, both largely due to coverage issues. But even with Verizon and AT&T, 40% of respondents said cell phone companies cannot deliver a signal in their homes. As a result, many residents are hanging on to landline service, which is considered more reliable than cell service. Some 40% of those relying on cell phones said they would consider going back to a landline for various reasons.

With the FCC ready to cut support funding for rural landline service, residents were asked if the state should maintain funding to assure continued universal access to landline service. Among respondents, 87.8% thought it was either “very important” or “somewhat important.” The study also found 51% would accept a general statewide rate increase to cover those costs, while 29% preferred rate increases be targeted to rural ratepayers only. About 16% did not like either idea, and 4% liked both.

When asked whether residents would be interested in having a fiber connection in their home, 80% of respondents said “yes,” but 30% were unwilling to pay a higher bill to get it.

Ironically, the state’s most aggressive residential fiber buildouts are run by some of the smallest community-owned internet providers, rural electric or telecom co-ops, and small independent phone companies. What makes these smaller providers different is that they answer to their customers, not shareholders.

Comcast and Charter are the two largest cable companies in Vermont.

Recently, the DPS released a 100+ page final draft of its 2018 Vermont Telecommunications Plan, setting out a vision of where Vermont should be a decade from now, especially regarding rural broadband expansion, pole attachment issues, and cell tower/small cell zoning.

The report acknowledges the state’s own existing rural broadband expansion fund is woefully inadequate. In 2017, the Vermont Universal Service Fund paid out $220,000 to assist ISPs with building out networks to rural areas.

“The amount of money available to the fund pales in comparison to the amount of funding requests that the Department receives, which is generally in the millions of dollars,” the draft report states. “With approximately 20,000 unserved and underserved addresses in Vermont, the Connectivity Initiative cannot make a meaningful dent in the number of underserved locations.”

Much of the report focuses on ideas to lure incumbent providers into volunteering to expand their networks, either through deregulation, pole attachment reform, direct subsidies, or cost sharing arrangements that split the expenses of network extensions between providers, the state, and residents.

A significant weakness in the report covered the forthcoming challenge of upgrading a state like Vermont with 5G wireless service:

Small cell deployment has been attempted along rural routes with very limited success and the national efforts to expand small-cell, distributed-antenna systems, and 5G upgrades have focused on urban areas. The common refrain on 5G is that ‘it’s not coming to rural America.’ 5G should come to rural Vermont and the state should take efforts to improve its reach into rural areas.

A small cell attached to a light pole.

To accomplish this, the report only recommends streamlining the permitting process for new cell towers and small cells. The report says nothing about how the state can make a compelling case to convince providers to spend millions to deploy small cells in rural areas.

Where for-profit providers refuse to provide service, local communities and co-op phone or electric providers often step into the void. But Vermont prohibits municipalities from using tax dollars to fund telecommunications projects, which the law claims was designed to protect communities from investing in ‘unprofitable broadband networks.’

The draft proposal offers a mild recommendation to change the law to allow towns to bond for some capital expenditures on existing or starting networks:

Vermont could use a similar program to help start Communications Union Districts as well as allow towns to invest in existing networks of incumbent providers. Limitations on the authority to bond would need to be put in place. Such limitations should include focusing capital to underserved locations only, limiting the amount (or percentage) of tax payer dollars allowed to be collateralized, and setting technical requirements for the service.

Such restrictions often leave community broadband projects untenable and lacking a sufficient service area or customer base to cover construction and operating expenses. Instead, only the most difficult and costly-to-serve areas would be served. The current law also prevents local communities from making decisions on the local level to meet local needs.

At a public hearing last Tuesday in Montpelier, the report faced immediate criticism from a state legislator and some consumers for being vague and lacking measurable, attainable goals.

“This plan does not appear to move Vermont ahead in a way that enables it to compete effectively,” said state Sen. Mark MacDonald (D-Orange). “It doesn’t seem to be moving forward at the pace we’re capable of.”

Clay Purvis, director of telecommunications and connectivity for the DPS, defended the plan by alluding to how the state intends to establish a cooperative environment for internet service providers and help cut through red tape. But much of those efforts are focused on resolving controversial pole attachment fees and disputes, assuming there are providers fighting to place their competing infrastructure on those utility poles.

Montpelier resident Stephen Whitaker was profoundly underwhelmed by the report.

“There is no plan at all here,” Whitaker said at Tuesday’s public hearing. “There is some new background information from the 2014 version, but there’s no plan there. There is no objective to reach the statutory goals.”

Verizon Says Goodbye to 10,400 Workers; Company Will Slash $10 Billion in Costs

Phillip Dampier December 10, 2018 Verizon, Wireless Broadband 1 Comment

Despite a strong economy, Verizon Communications will shed 10,400 employees and cut $10 billion in costs as part of a transformation initiative promoted by the company’s newest top executive.

“These changes are well-planned and anticipated, and they will be seamless to our customers,” said Verizon CEO Hans Vestberg. “This is a moment in time, given our financial and operational strength, to begin to better serve customers with more agility, speed and flexibility.”

For Andrew Challenger, vice president of Challenger, Gray & Christmas, an outplacement firm that closely monitors corporate layoffs, Verizon’s willingness to let go of 7% of their workforce is an ominous sign of possible additional job reductions in the future.

Vestberg has advocated reorienting Verizon towards a potentially lucrative 5G wireless future. The estimated $10 billion in cost savings could placate investors on Wall Street alarmed about increased spending Verizon is likely to undertake to deploy 5G infrastructure over the next five years.

In October, Verizon offered more than 44,000 employees a voluntary buyout package and announced it would transfer thousands of current employees to Infosys, an outsourcing company headquartered in India. The voluntary separation package included up to 60 weeks’ salary, bonus and benefits, depending on length of service. This morning, accepted participants received word of their last day of employment, which will be the last day of this year or at the end of March or June, 2019. Verizon currently has 152,300 employees.

Challenger believes Verizon is likely to continue letting employees go as the company faces ongoing pressures on its landline and business service units and endures cord-cutting for its FiOS fiber to the home service. Challenger told CNBC the 44,000 workers who took Verizon’s offer likely made a smart decision. Companies that offer voluntary buyouts in good times can be a sign of likely layoffs when the economy slows down. With record low unemployment, the Verizon workers leaving the telecom company are likely to find new jobs much easier than those forced to look during a recession.

Verizon employees transferred to Infosys may be among the next to be targeted in future layoffs, according to Challenger. Verizon workers will be working closely with low-paid Indian staffers who may eventually replace them.

Workers who are assigned to train cheaper workers should keep their eyes open and resumes ready, Challenger warned.

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  • Mel: Not surprised.. Service is off and on constantly..Poor service, representative communication sucks... Constant billing issues... But like others,I hav...
  • Lou: cancelled my service back in october on the 16 due to no service from any of the included equipment an never getting either my phone or internet worki...
  • Denise: We in the Chenango county are screwed!! No one to compete with! We have no choices & Spectrum knows it! I thought New York was kicking them out!...
  • Diane: Frontier has screwed over their customers for years! I live in such a rural area and it’s all that’s available so I just keep paying for nothing! My ...
  • EJ1977: That is my understanding anyways, but I am no means a corporate bankruptcy expert....
  • EJ1977: It will depend on which bankruptcy they file, but no probably not. Pensions are not protected under bankruptcy laws so if there is money left then it ...
  • William: Could be their terrible predatory practices and awful customer service....................
  • Marcy Ohlemeier: I completely agree- while other providers are two roads up from me they dont provided service in my area, frontier is also my only option....
  • EJ1977: No jobs should be lost because of this and in fact it may saves jobs. Phone companies have to stay open no matter what. Under bankruptcy the company w...
  • EJ1977: You will continue to have service. Due to the nature of things no matter what happens (Chapter 7 or 11) your service will stay up and working. You do ...
  • Mary F Piccone: if Frontier files do the Retirees lose their monthly Pensions or is protected under law...
  • Mary F Piccone: If Frontier does file do the retirees lose their monthly pension or is protected ??...

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