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

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

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

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

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

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

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

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

Wilderotter

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

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

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

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

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

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

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

Gilmer County, W.V.

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

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

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

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

The biggest challenges facing Frontier over the next year?

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

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

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

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

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

Fracking traffic

The controversial practice of extracting natural gas from so-called “fracking” techniques is generating controversy of a whole new kind as workers are being fingered for interrupting phone and broadband service around the state of West Virginia.

Harrison and Doddridge County residents are irritated they keep losing Frontier phone and Internet service thanks to careless turns by large rig drivers that hook poles and telephone lines and tear them down.

“We’ve lost service three times so far because the trucks keep knocking down phone poles or rip the lines right off,” writes Stop the Cap! reader Jennifer J. “I guess looking for natural gas and keeping phones working at the same time just isn’t possible around here.”

“Since the oil and gas industry has had a boom, we have definitely seen an increase in cut cables and things of that nature in Harrison and especially Doddridge County,” Frontier Communications general manager Chip Van Alsburg told The Exponent Telegram.

Frontier would not reveal exactly how many phone line accidents have been caused by the workers, but Van Alsburg told the newspaper there were a “number of gas-industry-related incidents” recently.

Frontier’s headquarters in Rochester, N.Y.

Tens of thousands of Frontier Communications customers have dealt with the loss of their broadband and phone service in five states because of cable damage, copper theft, and overselling broadband service with insufficient capacity.

Upstate New York

Officials in Oswego County report Frontier phone and broadband service was disrupted Monday for customers in several central New York communities. At least 3,400 customers were unable to dial outside of their home exchanges in Fairhaven, Hannibal, Cato and Lysander. Frontier said a cable owned and maintained by Verizon was responsible, and they were unaware when Verizon would complete repairs.

Tennessee and Illinois

Frontier Communications acknowledged a “major outage” was affecting customers in both Tennessee and Illinois today. As of late this afternoon, Frontier said it was still attempting to restore service to both states’ customers.

Washington

Frontier Communications has reported copper lines stolen in Snohomish, Skykomish and Granite Falls, causing temporary outages for thousands of customers throughout north King and Snohomish counties. It’s the tenth copper wire theft affecting Frontier so far this year.

West Virginia

Ongoing problems in the Panhandle region of West Virginia have left Frontier broadband customers without service, sometimes for days. Customers have been told copper thefts were responsible for outages in mid-July, but some Frontier technicians have also told customers that slow speeds that persist month after month are a result of too many customers trying to use Frontier broadband at the same time. Other customers in the Shepherdstown area report persistent, ongoing problems with broadband outages as well.

[flv width=”640″ height=”380″]http://www.phillipdampier.com/video/KCPQ Seattle Frontier Copper Theft 7-25-13.flv[/flv]

KCPQ in Seattle reports Frontier has been a repeated victim of copper thefts in Washington state. At least 10 instances of copper theft have left thousands of customers without service until the company can string new cable.  (3 minutes)

West Virginia has spent nearly three times more than it anticipated for each mile of fiber optics being laid by Frontier Communications as part of the state’s taxpayer-funded broadband expansion project, according to a new report.

The Saturday Gazette-Mail reports that state officials originally planned to spend $17,000 for each mile of fiber cable laid to community institutions including schools and libraries. Instead, it is paying $47,500 per fiber mile, more than double the industry average of $20,000.

Frontier Communications is getting at least $45 million in taxpayer dollars towards construction costs and will end up owning the completed fiber network that won’t directly deliver broadband service to a single home or business in the state.

West Virginia will make use of a 675-mile institutional fiber network when the project is finished, 25 percent smaller than the 900-mile network originally proposed.

State officials including Homeland Security director Jimmy Gianato have come up with some novel defenses for the cost overruns, blaming:

• The 2011 Japanese earthquake/tsunami that allegedly spiked fiber prices to as much as $50,000 per mile;
• Superstorm Sandy which delayed the project and caused $14 million in damage;
• The cost of environmental impact studies.

The state is in a hurry to spend down the remaining funds left over from the $126.3 million taxpayer grant before they expire September 30. The broadband project has been mired in controversy from almost the beginning, including allegations that major telecom company employees serving as consultants steered project managers to invest in expensive, oversized routers intended to serve college campuses that ended up installed in tiny community libraries.

State officials also found many of the institutions slated to receive fiber upgrades already had fiber service. That left officials scrambling to find any schools, libraries, hospitals — even prisons where taxpayer-funded fiber broadband would prove useful.

In the end, Frontier will be the biggest beneficiary of the project and state officials predict $4-8 million will remain in unspent funds when the project is complete.

“If people step back, they can see this monstrosity in all its true glory,” says Jan Huntser. “Private companies like Frontier don’t want taxpayer money building public fiber networks for homes and businesses because that represents unfair competition. Instead, Frontier pockets taxpayer money to build a private fiber network they will end up owning that taxpayers cannot access. Instead, we’ll keep using their slow DSL service.”

Huntser says if taxpayer money is spent to build fiber networks, taxpayers ought to be able to use them.

“None of this makes any sense,” Huntser adds. “Frontier tells friends to buy a satellite dish for broadband because they will never offer it while a library in that town has four terminals and enough broadband equipment to support a business with hundreds of employees. They can’t even understand how to make it work, so they still rely on their DSL service to run the Wi-Fi connection instead.”

Despite findings from an independent consultant that reported West Virginia wasted millions on a broadband expansion effort that effectively built a private, taxpayer-funded fiber network for Frontier Communications, the governor’s office abruptly canceled a 2011 follow-up state audit of the $126.3 million project.

The Charleston Gazette reports Gov. Earl Ray Tomblin’s office said it dropped the audit because Frontier “answered or addressed” issues raised in a memo produced by an out-of-state independent consulting firm.

ICF’s document was so scathing of the state government’s handling of federal broadband stimulus funds, the governor’s office kept it secret until a copy was independently leaked to the Charleston newspaper. The governor’s office said it initially withheld the “internal memorandum” produced by Vienna, Va.-based ICF International because it proved “embarrassing to some people.”

Among ICF’s findings:

• Taxpayers underwrote the construction of a Frontier Communications’ owned and operated fiber broadband network so fragmented in its construction, the only entity likely to benefit is Frontier Communications;
• ICF found West Virginia’s broadband grant program created an “unintended monopoly” for Frontier Communications, and an unusable ‘open access’ network except for Frontier;”
• Frontier’s documentation and expense reports, submitted for reimbursement by taxpayers were inadequate and could have resulted in double billing;
• Frontier overbuilt its network with excessive numbers of fiber strands three to six times above industry standards, driving up construction costs.

Frontier’s called the ICF report “worthless” and accused the consultant of using inaccurate and stale comments that repeat “previously repudiated allegations.”

Frontier also produced its own company-sponsored “external audit” of its work on the $126.3 million broadband project that found “no material deficiencies.”

But ICF says it is standing by its report, and documented instances where the state authorized Frontier to spend significant sums to build fiber connections to community institutions that were later scaled back by the company. Whether Frontier was paid for the originally scheduled work, or for the scaled back construction eventually completed, is unknown.

At this point, ICF reports it is resigned to the fact Frontier will be a major beneficiary of the taxpayer-funded fiber infrastructure and the state has few options to fix the problems they created. The consultant firm says the only workable option would be a joint effort by Frontier’s competitors to build, at their own expense, a “middle-mile, open-access network” that can interconnect with Frontier’s taxpayer-funded network, assuming Frontier will allow it.

A major critic of the broadband stimulus program in West Virginia, Citynet President Jim Martin, has long said the broadband project was primarily going to benefit Frontier.

In September 2010, Martin told the Gazette, “Frontier is going to have the state’s business forever. No other company will have the money to come in and build the network.”

Two months later, Martin was back ringing the alarm bell before more than $126 million in taxpayer funds were spent.

“The state represented it would build a ‘middle-mile’ network reaching 700,000 homes and 100,000 businesses, and it would be this great new superhighway and do all the things the federal government is seeking,” Martin told the Gazette. “But afterward, Citynet and others got to look and it looks like it is a windfall for Frontier Communications only.”

“We’ll ultimately prove this was a complete sham and didn’t benefit anybody,” Martin said. “We’re here. We’re not going anywhere. We totally recognize this is going to be a long battle unless the Broadband Council or the new governor or the next governor does something. We’re going to be on this for however many years it takes. We’re going to hold the state accountable for every single dollar they’re spending. At the end of the day we will show that no jobs were created, there’s no benefit to the citizens of West Virginia. Hopefully we’ll show this was all about Frontier.”

Three years later, Martin is still trying to get accurate broadband maps that depict exactly where Frontier has laid its publicly funded fiber infrastructure. Apparently they are secret, too.