States' Eyes Peeled as Frontier Declares Bankruptcy; Some Cautiously Optimistic

State regulators will scrutinize Frontier Communications as the midsize carrier goes through bankruptcy, commissioners told us Wednesday. Some felt reassured by the company pledging uninterrupted service and no change to selling some systems in the U.S. Northwest and West.

Frontier filed Tuesday for Chapter 11 protection in U.S. District Court for the Southern District of New York, the carrier announced late that night (see 2004140069). “Operational challenges related to integrating recent acquisitions, shifting consumer preferences, highly competitive industry dynamics, and certain other business challenges, have caused Frontier’s capital structure to become overleveraged,” Executive Vice President Carlin Adrianopoli declared (in Pacer) at SDNY. “After months of extensive analysis, Frontier recognized that debt-oriented liability management transactions alone would not sufficiently improve its capital structure and that executing one or more liability management transaction(s) would at best delay maturities without comprehensively addressing the challenges inherent in its capital structure.”

Bondholders representing more than 75% of the approximately $11 billion in unsecured bonds agreed to support the plan that's expected to reduce the company’s debt by more than $10 billion, said a news release. The carrier “has sufficient liquidity to meet its ongoing obligations,” and promises to “continue providing quality service to its customers without interruption and work with its business partners as usual throughout the court-supervised process.” Frontier “put a tremendous amount of time and effort into this process to ensure we limit the impact on our stakeholders,” said a bankruptcy FAQ. There are no plans to raise prices, said another. Windstream filed for bankruptcy last year.

The FCC Wireline Bureau "will be vigilant in ensuring both that Frontier's customers stay connected to vital 911, voice, and broadband services and Frontier continues to put the federal funds it receives through the Connect America Fund and other universal service programs to work for the American people," Bureau Chief Kris Monteith said Wednesday. She said Frontier has made clear consumers will stay connected.

Frontier said it's evaluating Rural Digital Opportunity Fund participation. For RDOF, the FCC changed the definition of broadband to 25/3 Mbps, a higher performance standard than the 4/1 Mbps in CAF, Frontier noted. The carrier would need to update its infrastructure to compete, the filing said.

The bureau would evaluate the telco's short-form RDOF application "along with all the other applications," an FCC spokesperson emailed. An RDOF order footnote says the U.S. can't discriminate against a party in bankruptcy protection. Commissioners' offices didn't comment.

The company acknowledged COVID-19. It added that many states have executive orders prohibiting carriers from disconnecting telecom services during this state of emergency.

State Probes

Frontier already faced state investigations. Connecticut, Minnesota, South Carolina, Utah and West Virginia have ongoing or recent probes (see 2002200022).

The West Virginia Public Service Commission “will be watching this very closely,” Chairman Charlotte Lane said in a Wednesday interview. Frontier’s chief counsel notified Lane Tuesday, before the filing, and assured the chairman 911 centers will continue operating and West Virginia customers will see “no change in service,” she said. Lane hopes the company will exit bankruptcy with less debt and more money to “address the problems we have seen with Frontier’s network and service.” Frontier faces a Monday deadline to respond to a West Virginia PSC audit, but Lane predicted the carrier will seek an extension since staff was tied up preparing the Chapter 11 filing. Bankruptcy won’t change what recommendations the commission makes, said Lane: The filing should leave Frontier better positioned financially to address PSC concerns, she said.

Minnesota Public Utilities Commissioner John Tuma is wary even with the carrier pledging to maintain service, he told us. Frontier settled a PUC probe last year but faces a second investigation by the state Commerce Department. The carrier told the commission that bankruptcy won’t affect service but “didn’t say it would get better” amid continuing PUC concerns about service, billing practices and 911 obligation, he said. Tuma said the company told the PUC it will “comply with its existing regulatory obligations and commitments.” He seeks confirmation this includes Minnesota settlement terms to give customers bill rebates and credits by July. Tuma said his experience with telecom companies encourages him to verify.

Frontier "may seek a short extension to respond" to the West Virginia audit, but it's due to COVID-19 rather than the Chapter 11 filing, said Senior Vice President-Regulatory Allison Ellis. "Any extension request would be very limited, would be the first made by Frontier in the proceeding, and would be necessitated by the diversion of key personnel to managing our response to the COVID-19 epidemic and keeping customers connected." In Minnesota, Frontier "has been working to meet and comply with the settlement obligations and will continue to do so notwithstanding the Chapter 11 bankruptcy," said Senior Vice President-Federal Regulatory Affairs Ken Mason.

The Utah Department of Commerce will continue investigating Frontier and “advocate for the public interest in reliable services at reasonable rates,” a spokesperson said.

Connecticut's Public Utilities Regulatory Authority and the state attorney general office are "reviewing the numerous bankruptcy filings and will take appropriate action" to make sure Frontier "continues to reliably provide competitive and non-competitive services in Connecticut," a PURA spokesperson said: the authority may review any sale of the Connecticut business or assets.

Connecticut's public advocate thinks the bankruptcy could help the company, especially if there's no fight among creditors in court. Frontier's record in his state is "mixed at best," said acting Consumer Counsel Richard Sobolewski. He cited what he hears from residents, particularly where he lives, and what he sees on social media: "Such a small piece of the pie is regulated" anymore, amounting to maybe 300,000 wireline customers. The company's unregulated broadband service is cheaper than cable but doesn't appear to be as fast, Sobolewski said. From what he heard and read about the bankruptcy filing from the company, which contacted him by email and phone Wednesday, "it was reassuring" service won't be hurt.

Northwest Fiber

Frontier plans to continue selling Idaho, Montana, Oregon and Washington operations to Northwest Fiber for $1.35 billion cash. Closing may occur April 30 and the seller said it will seek court approval “to complete the transaction on an expedited basis,” it said.

State regulators expect no hiccups.

“Based on some initial contact from Frontier, it appears as if the Northwest Fiber venture is still on track,” emailed Idaho PUC Commissioner Paul Kjellander. The commission is assessing potential impacts, he said. “While a filing like this is concerning, it appears as if Frontier has every intention of surviving as a company and providing service to its customers.”

The sale is still expected to close April 30, a Washington Utilities and Transportation Commission spokesperson emailed. Frontier promised Wednesday in docket 190574 to comply with the UTC’s Feb. 19 conditional OK.

Oregon PUC members and staff will monitor the situation, an agency spokesperson said. The Montana PSC didn’t comment.

Workers

The head of a union in Connecticut, where last decade the telco bought local operations from AT&T (see here and here), is cautiously optimistic shedding debt will help Frontier spend more on fiber and other services to retain customers.

Communications Workers of America Local 1298 President Dave Weidlich, who has worked for Frontier and previous incarnations for about 35 years, hopes “they turn things around because we are willing to do our part to help,” he said of the approximately 1,700 CWA members working for the telco in the state. “The way it was going obviously led us to where we are today.” There were problems integrating Frontier with the acquired systems in his state, “and we were about to turn the corner and start investing in fiber in Connecticut, but the financial picture went very badly after that 2016 purchase” for about $10 billion of Verizon wireline operations in California, Florida and Texas, Weidlich recalled. “That was the moment at which things started to go backwards.”

Financial pressures like too much debt led Frontier to not aggressively connect its strong fiber network directly to residences, the union representative said. Customer service, billing and other problems generally “got progressively worse, rather than better,” Weidlich said. The company's new CEO “seems to understand the operations and I’m hopeful that he can improve our systems and invest in our network.” In December, Frontier said Bernie Han was succeeding Daniel McCarthy as CEO (see 1912040031). Han was hired in October as an adviser.

Seeking Chapter 11 protection, "while not surprising, is disappointing" to the national CWA. Management didn't "engage with CWA members or leadership as part of their negotiations with creditors, denying their workforce a much-needed voice in the future of the company," the union said. "CWA members expect to have input in the direction of the company" in bankruptcy, it added. The telco and "creditors" should "put Frontier on a strong financial footing and prioritize the long-term gains that will come from investment" in the network, the organization said. CWA declined an interview request.

New York’s Department of Public Service “will review the company’s bankruptcy court filings and public statements to ensure Frontier customers do not lose the telecommunication services they depend upon, especially in light of the ongoing pandemic,” a DPS spokesperson emailed. “It is essential that Frontier safeguard the continued employment of Frontier’s employees ... to maintain the company’s legally required service requirements.”

Michigan's consumer advocate had an OK experience with Frontier when he subscribed several years ago to its wireline phone and DSL broadband service, he recalled. Like elsewhere where plain old telephone service is the only telco product that's state regulated, the public advocate said he doesn't hear many complaints about this carrier. It appears that in recent years, Frontier generally wasn't "investing a lot of money in the landlines, and just trying to make money off of it, probably," said Michael Moody, who runs the Michigan attorney general's Special Litigation Division. "We’re hopeful that this won't affect quality of service," he said of the bankruptcy. "Maybe they’ll focus on the remaining areas and hopefully put some energy into it." That's after the sale to Northwest Fiber.

“Frontier’s service quality has been a continuing problem for Ohio consumers," emailed a spokesperson for Ohio Consumers’ Counsel Bruce Weston. COVID-19 highlights the need "for rural consumers to have reliable telephone service and modern broadband service," Weston's rep added. "Those communications services should be available to consumers in the areas served by Frontier, including made available by any restructured company that emerges from Frontier’s announced financial difficulties.”