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Frontier inches toward bankruptcy

Signaling a possible bankruptcy filing in the coming weeks, Frontier Communications outlined a restructuring plan that included the possibility of asset sales.

Frontier indicated it could file for Chapter 11 by April 14. In regulatory filings and presentations to investors, the company notably bemoaned that its lack of fiber network upgrades and reliance on legacy infrastructure (including DSL) have played a starring role in putting the company in this tenuous position.

"Significant under-investment in Fiber deployment and limited enterprise product offerings have created headwinds that the Company is repositioning itself to reverse," Frontier explained in this lengthy presentation to investors (PDF).

About 11 million of the 14 million homes served by Frontier's are on DSL (or 79%), with the remaining 3 million (or 21%) on fiber, according to the company. Frontier said that mixture has put the company "at a disadvantage relative to cable."

On the consumer end, Frontier noted that 29% of its broadband housing units served were on fiber, with the rest on DSL – 6% on "fast" DSL (greater than 24 Mbit/s), 35% on DSL at speeds between 13 Mbit/s to 24 Mbit/s, and 30% on DSL speeds up to 12 Mbit/s.

Overall, 34% of Frontier's 2019 revenues came from fiber-based infrastructure (across consumer commercial and wholesale), and 66% came by way of legacy infrastructure. In addition to investing in high-return fiber upgrades in its footprint, Frontier is also looking to densify and edge-out its existing fiber networks and invest in expansions that could aid the company's wireless and wholesale customers.

A sizable chunk of Frontier's fiber-based footprint originated from its acquisition of certain Verizon Fios assets. And Frontier is is in the process of selling operations in Washington, Oregon, Idaho and Montana for $1.35 billion to WaveDivision Capital, which plans to sell services there under a new brand called Ziply Fiber.

Likewise, a large portion of Frontier's revenues come from its "declining legacy products," primarily TDM voice.

Frontier hopes a reorg and a revised strategic vision will improve the company's outlook, telling investors that it plans to "transform the business from a legacy telecom services over a primarily copper-based network to a next-generation broadband-service provider with long-lived fiber-based infrastructure," while also managing the decline of "non-core" products and customers.

Among the strategic initiatives being weighed, Frontier is sizing up new fiber builds to about 3 million incremental households, with about $1.4 billion in estimated cumulative build capex requirements through 2024. On the wireless backhaul side, Frontier is envisioning about 9,000 new sites by 2024.

In a 10-K filing, Frontier acknowledged that its ability to "continue as a going concern is dependent" on its ability to restructure with enough liquidity to meet our its obligations and operating needs. Discussions on a restructuring got underway in January 2020.

Frontier said it had cash and cash equivalents of $760 million and an accumulated deficit of $8.57 billion at the end of 2019. The company also posted a net loss of $5.91 billion for full-year 2019 and, on March 16, 2020, it deferred making $322 million scheduled interest payments and entered into a 60-day grace period so it could discuss restructuring plans with noteholders.

Frontier's base case revenue forecast is dim, with the company anticipating revenue declines of about 5.8% driven by drops in legacy data and traditional voice across all major segments.

Customer declines
Frontier is also bleeding customers.

In 2019, it lost 313,000, or 8%, of its consumer customers, including a 5% drop in consumer broadband subs primarily due to competition offering more attractive pricing or higher speeds, the company said. Frontier also lost 20% of its video sub base (offered through the company's own Fios and Vantage-branded services or through resale of Dish Network satellite TV) as customers moved to other competitors, including new OTT-delivered video offerings.

On the commercial end, Frontier lost 40,000, or 10%, of customers in that bucket, with small business customers comprising about 91% of that loss.

Specific details about Frontier's reorg plan enters the picture roughly four months after the company appointed former Dish exec Bernie Han as president and CEO, succeeding Daniel McCarthy.

Frontier ended 2019 with about 18,300 employees, compared to 21,200 at the end of 2018. It expects to transfer about 1,000 employees via the sale of Frontier's Northwest operations.

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— Jeff Baumgartner, Senior Editor, Light Reading

taneg8 4/6/2020 | 12:25:42 PM
taneg8 My buddy's aunt makes $64/hr on the computer. She has been unemployed for eight months but last month her pay check was $12716 just working on the computer for a few hours. read the article... WORKS66.ⅭOⅯ
Duh! 4/6/2020 | 12:00:04 PM
Predictable I have long preached the strategic necessity of overbuilding decaying and inadequate copper access networks with fiber. Even if it means a hit on dividends, even if it means taking on debt. That owners of large quantities of those copper networks would take on debt to buy more of them always struck me as folly. Verizon's dumping of those assets onto Frontier and Fairpoint is plain evidence of the greater fool theory.

The question for Frontier is how they're going to execute the new strategy. With masses of debt liquidated, who is going to fund a massive investment in FTTH? With their workforce cut to below safe minimums, and contractors fully occupied, who's going to do the work?

I do hope the new management team finds a way to turn things around.

Incidentally, last week I talked with at Tier-3 that is in the final phases of a copper-to-FTTH upgrade. One of the most striking things was what it did to customer satisfaction and churn: they found a reservoir of good will toward the hometown telco underneath all the customer negativity that came from their crappy DSL. That means taking back customers they had lost to cable.

-- Dan Grossman

 
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