States Zoom In on Frontier Bankruptcy
Frontier Communications’ reorganization is facing state scrutiny where the carrier sought speedy reviews. Some commissions seek more information in their proceedings and at U.S. Bankruptcy Court for the Southern District of New York. Unions and consumers groups are prodding states to look closely. “States are collectively bringing forward the perspective of the average ratepayer,” which can get lost in bankruptcy court, said Connecticut Public Utilities Regulatory Authority Chair Marissa Gillett in an interview.
The FCC said Tuesday it expects to open a public comment cycle. Frontier June 24 asked the agency to approve its restructuring plan (see 2006250011). OK is required before Frontier could transfer FCC licenses in a transaction or restructuring.
Regulatory approvals can come before or after the court's nod of the reorganization, the company said Tuesday. It wants the FCC and states to provide those OKs as soon as possible, it told us, "so the company can emerge from Chapter 11 and be better positioned to provide competitive services." A court hearing on confirmation is scheduled for Aug. 11, Frontier said. A remote evidentiary hearing is scheduled Thursday at the SDNY in case no. 20-22476 (RDD) on debtors' performance-based incentive programs. In a quarterly investor update June 11, Frontier shared plans to reduce churn, increase fiber-to-the-home, and participate in the FCC's upcoming Rural Digital Opportunity Fund auction. Frontier will file a short form application with the FCC to be RDOF eligible, the carrier said Tuesday.
Frontier completed its Connecticut application Friday and PURA will now commence statutory review, the state agency’s spokesperson emailed. PURA dismissed Frontier's application last month in docket 20-04-31 that included a plan that “indicated numerous times it was in draft form,” Gillett told us Friday. “We didn’t feel the application was ripe.” Connecticut law gives the agency 120 days to decide a change in control and “commissioners didn’t want to take the risk that the decision deadline was going to be rushed if the underlying application underwent any significant changes as a result of the federal bankruptcy proceeding,” she said.
PURA has a “duty to Connecticut ratepayers to ensure that the company that emerges from bankruptcy is capable of providing the necessary capital investments that are needed to maintain and improve infrastructure,” Gillett said. Frontier's acquiring AT&T in Connecticut “seemed to make some good sense” at the time, “except we didn't know the corporate plans to overleverage and put the entire corporation at risk,” PURA Commissioner Michael Caron told us separately.
The Minnesota PUC received comments last week. Unions called for detailed review, and the Minnesota Commerce Department warned that not clearing the reorganization could disrupt service and delay network improvements (see 2007090049). Minnesota Commissioner John Tuma told us Thursday he wants “clear evidence” Frontier will meet settlement conditions from a recent PUC probe. Tuma said he would be surprised if his agency went to the bankruptcy court since the PUC can exercise its own regulatory authority and he’s not sure how the court would help. Frontier said in April it would meet Minnesota settlement terms (see 2004150063). The carrier settled a separate Minnesota probe Monday (see 2007140051).
The Pennsylvania PUC seeks protests and petitions to intervene by Aug. 10, the agency said Friday. The agency disagreed with Frontier classifying the transaction as “pro forma” because it would result in a 100% indirect transfer, and commission rules say transferring more than 20% is a “general rule transaction.” The PUC filed May 29 at the bankruptcy court so it may “actively monitor the case and intervene -- if necessary -- to protect Pennsylvania consumers,” a spokesperson emailed Monday. California, Connecticut and New York commissions also filed statements of interest at the court.
“Frontier’s change of control applications associated with its Plan of Reorganization are progressing as expected, with the Company already receiving approval from the Nebraska and South Carolina Public Service Commissions," a company spokesperson emailed. "Frontier will continue to respond as needed to move the approval process forward expeditiously to bring the benefits of the restructuring."
Reviews Urged
Seeking thorough state reviews of the Frontier reorganization, Communications Workers of America intervened at California (docket A.20-05-010), Pennsylvania (A-2020-3020004), West Virginia (20-0400-T-PC) and Minnesota (20-504) commissions. Multiple consumer advocates also protested the California application.
CWA will consider intervening in each state where it has members on a case-by-case basis, said Hooman Hedayati, strategic research associate-telecom policy, in an interview. Whereas the federal review is focused on financial matters, state PUCs have authority to review service quality, he said. “Our main goal is to safeguard the interests of consumers, facility workers and the public at large in the communities where Frontier provides service.” The company is trying to “rush the process without adequate review through the state PUCs and trying to get expedited reviews ... when there is no final agreement and everything is in a draft,” he said: The carrier provided states with general claims, not details.
Collective bargaining agreements with unionized employees would be assumed under the current restructuring plan, said Cohen Weiss attorney Richard Seltzer, bankruptcy counsel to CWA. Everything owed to employees will go forward as if the bankruptcy hadn't happened, he said: "The union has participated throughout to protect its members." CWA and other parties oppose a recent executive compensation plan, Seltzer said.
State consumer advocates are “extremely interested” in the deal that will have a “profound effect” on an essential service for customers across about 30 states, National Association of State Utility Consumer Advocates Telecom Committee Chair Regina Costa told us. Frontier serves some metropolitan areas, but “a lot of it is in places where they’re the only game in town," she said. Costa thinks the court will focus on financials and doubts the FCC will closely scrutinize the deal, she said. States can dive deep into its impact and make conditions to protect consumers, she said.
If state commissions “were to speak with one voice to the bankruptcy court, boy, you’d better believe they’d be heard,” said Ronald Pearson, former chief judge of the U.S. Bankruptcy Court for the Southern District of West Virginia, on a June 23 webinar at a Mid-Atlantic Conference of Regulatory Utilities Commissioners virtual conference. Bankruptcy judges are encouraged by law to “respect the work of public service commissions to protect” customers, he said.
California
The California Public Utilities Commission is expected to post a schedule after a July 24 prehearing conference. CWA and consumer advocates asked the CPUC for a comprehensive review.
Frontier should produce detailed California plans, said Ana Maria Johnson, communications program manager at the California Public Utilities Commission’s independent Public Advocates Office. “We want to make sure that California ratepayers are not adversely impacted by this transaction” and “there are public interest benefits delivered to Californians,” she said. PAO wants better service quality, more network resiliency and more broadband investment without price increases or adverse changes to terms, she said.
Frontier’s application at the CPUC was “woefully inadequate” on the federal bankruptcy process, composition of the note holders and the ultimate actual owners of the reorganized company, said The Utility Reform Network Managing Director-San Diego Christine Mailloux. The carrier assured it would be business as usual but didn’t give enough detail to independently assess that, she said.
TURN wants measurable improvements, not status quo, said Mailloux, citing CPUC authority to ensure transactions are in the public interest. “Let’s put some structure, some reporting, some processes, some dollar figures in place so we have something tangible that we can bank on.”
California’s proceeding is “not an open-ended opportunity to evaluate” the operations, nor is it a “referendum” on the company acquiring Verizon assets in 2016, Frontier replied last week to CWA, TURN, PAO and others’ protests.