Tag Archives: frontier

Legacy telcos chalk up historically bad financial results

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Forward looking statement.

It’s hard times for legacy telephone companies, at least the sort that have to rely on wireline – mostly copper – systems to serve customers. The plummeting share prices of Frontier Communications, CenturyLink and Windstream have gone where no telco has gone before. According to a story by Sean Buckley in FierceTelecom, that’s the conclusion of financial analysts at Cowen…

“Shares in the wireline [incumbent/rural carrier] space (CenturyLink, Frontier, Windstream) have endured the worst three consecutive quarters in industry history, with shares plummeting an average of -20% in 4Q16, -21% in 1Q17, and -24% in 2Q17 (we note another -5% in 3Q17 thus far), mostly from Frontier and Windstream as CenturyLink shares are being supported by the Level 3 acquisition,” Cowen said in a research note…

Overall, the three companies face the industry-wide challenge of balancing strategic service growth with ongoing legacy service declines and losing market share to cable operators.

Additionally, each of these companies has been dealing with specific headwinds in their businesses. Frontier has been challenged by integrating the properties it purchased from Verizon in California, Texas and Florida, while CenturyLink is dealing with a raft of lawsuits over alleged consumer fraud issues.

Windstream isn’t a factor in California, but Frontier and CenturyLink are, and both companies are showing increasing signs of desperation as they try to bend regulators and lawmakers to their will.

CenturyLink wants permission – quickly – to buy Level 3 and consolidate ownership of key long haul fiber routes in California into a cozy club of three monopoly-centric telcos. It needs a fast yes from the California Public Utilities Commission in order to close the deal by its self imposed end-of-September deadline, and its arguments and pleadings have taken on a shrill, incoherent tone.

Frontier is fighting on two fronts. Its attempts at the CPUC to derail competitive fiber builds in rural areas where it hoped to milk monopoly profits from decaying copper have pushed past the boundaries of truth, and its lobbyists are trying to get the California legislature to stop the bleeding by building a statutory wall.

Radical innovation is needed. Allowing Frontier and CenturyLink to hold businesses and consumers hostage will only be short term help, at a high long term price that Californians should not have to pay.

Cracks in Frontier’s business model widen

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Competition and a botched takeover of Verizon wireline systems in California, Texas and Florida are pushing Frontier Communications deeper into the red, as its customers cancel service. According to an article in the Wall Street Journal, via Morningstar.com, company executives have backed away from predications that falling subscriber revenue would soon be on the way up…

Revenue has instead declined companywide for the past year. Frontier’s 2016 loss widened to $373 million from $196 million a year earlier. The company plans to devote at least $1 billion this year on capital spending to keep its network humming.

“Cable companies are beating the pants off Frontier,” said Jonathan Chaplin, an analyst for New Street Research, noting that companies like Charter Communications Inc. have invested more heavily in marketing, network equipment and customer service in the past three years.

The stiffened competition came just as Frontier faced pressure to cut costs, partly so it could pay for the networks it bought. The result was a series of network failures and complaints about customer service.

Frontier’s share price has been in free fall, dropping 69% this year according to the article. It went so low that the company had to do a reverse split, giving shareholders 1 share for every 15 they previously owned, to keep the share price from dropping below the $1 mark and risking being kicked off of the NASDAQ exchange.

Bankruptcy doesn’t appear to be an immediate threat, although the article pointedly notes that two other companies that bought systems from Verizon – FairPoint Communications and Hawaiian Telcom – did file for Chapter 11 protection. The longer term outlook is more uncertain. Frontier has $17 billion in debt and has to make a $2.4 billion payment in three years. To do that, it’ll have to look to the bond market for refinancing.

If it doesn’t start gaining subscribers, it won’t “demonstrate sustainability to the bond market” and could hit a brick wall. That’s something to keep in mind as Frontier scrambles after California broadband subsidy money and tries to fend off competition with promises of future upgrades.

CPUC debunks Frontier’s service claims, approves FTTH grant in Phelan

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The high desert community of Phelan, in San Bernardino County, will get gigabit class fiber to the home service. The California Public Utilities Commission voted four to one yesterday to approve a $28 million grant to Race Telecommunications, which will cover 60% of the cost of building the project. The single no came from commission president Michael Picker.

The decision had been delayed two weeks, while Race and Frontier Communications explored ways they might work together. That discussion came at the request of commissioners, who were trying to avoid spending state money in an area that was also getting federal subsidies, albeit for relatively minor upgrades to ageing DSL systems that will not meet the CPUC’s minimum standards.

The CPUC also did some ground truthing and discovered Frontier’s service claims did not line up with reality, according to commissioner Clifford Rechtschaffen…

Since our last meeting [CPUC staff] has gone down to Phelan’s central business district and established that they are in fact going forward with their upgrades to some households and businesses. They also though, and this I think is quite significant, they determined based on the engineering constraints of the project, that Frontier’s upgrade would not reach nearly 100% of the community not even the 85% that we thought before, but more like 60%. So 40% of the community would not be served. And that’s very significant. That means that we have a significant portion of the community would not be served in an area that we have identified as our highest priority.

But Rechtschaffen also warned that the Phelan project shouldn’t set a precedent, and other pending projects should be looked at differently.

The backlog of proposals for California Advanced Services Fund subsidies is being whittled down. Four grant applications are still pending, and only one of those – a middle mile project proposed by Ducor Telephone in the Tulare County mountain community of Kennedy Meadows – is completely outside of the current phase of the federal Connect America Fund subsidy program. Although, as a small rural telephone company, Ducor has access to money from related federal programs.

The other pending projects – Connect Anza in Riverside County, Vandyland in Santa Barbara County and Las Cumbres in Santa Cruz County – are, like Phelan, in the former Verizon territories acquired by Frontier and share some overlap with federally funded areas.

Frontier’s broadband claims can’t be trusted, says Race’s reply to grant protest

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“Frontier is attempting to subvert the [California Public Utilities] Commission’s [California Advanced Services Fund] rules and processes to block a sorely needed project for a disadvantaged community”. That’s the bottom line of Race Telecommunications’ reply to Frontier Communications’ last minute trashing of a $28 million grant for an FTTH system in Phelan and other, nearby high desert communities in San Bernardino County.

The key issue is whether Frontier provides service in the area at the CPUC’s minimum 6 Mbps download and 1.5 Mbps upload speed level. Frontier has made increasingly expansive claims about what it will do in the future, but has offered no proof that it has actually done anything yet. In its reply, Race points to Frontier’s ads that similarly, and falsely, promise fast service in a Californian desert community…

Boron, CA is the site of a successful and fully constructed Race CASF project that is 100% Fiber to the Home. According to Frontier, they have been investing funds in Boron since 2012 and advertise speeds of up to 50 Mbps download. Frontier also claims “to be Boron’s only Internet provider that uses a completely fiber optic network.” These claims are inherently false and further demonstrate the lengths that Frontier will go to deceive consumers and the Commission in regards to their service levels. Customers in Boron and Phelan face many issues with Frontier’’s alleged service – from billing problems, to dishonesty regarding service eligibility. The reality is Frontier has not met the past serviceability needs of this area and cannot document they can do so now. Further, Frontier’s publicly released documents demonstrate its inconsistent definitions of available bandwidth speeds with admitted shortcomings in network capacity. With Frontier’’s woeful rural deployment history as the backdrop, when contrasted against Race’s “Gigafy” solutions, the goals of the Commission will be met and competitive choice for the citizens of Phelan will result with long-term benefit.

The CPUC put Race’s Phelan FTTH proposal through an excruciating review process that dragged on for nearly two years. Anyone who applies for a grant from CASF has to document the lack of service in the project area in detail, and provide verifiable information about financing, budgets, business and construction plans and a long list of other items. Race has played by the rules and passed the test; Frontier has not.

At this point it’s about keeping faith: with independent ISPs, like Race, who rely on the rules and level playing field professed by the CPUC, and with the thousands of people in Phelan who have a right to expect fair treatment.

Letters of support for the Gigafy Phelan grant, submitted by Race Telecommunications, 26 June 2017.
Reply to Frontier’s comments about Gigafy Phelan, submitted by Race Telecommunications, 26 June 2017.
Reply to the CPUC’s office of ratepayer advocates’ comments about Gigafy Phelan, submitted by Race Telecommunications, 26 June 2017.

Case against San Bernardino FTTH embraces low federal expectations

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A proposed $28 million grant for a fiber to the home project in the Phelan area of San Bernardino County has drawn two formal challenges. One, from Frontier Communications, was completely predictable, but the other, from the California Public Utilities Commission’s office of ratepayer advocates (ORA), was somewhat unexpected.

Only somewhat, because ORA has a track record of sporadically opposing grants for FTTH systems from the California Advanced Services Fund (CASF). However, its objections usually second guess design or budget decisions. This time though, ORA is taking Frontier’s side, arguing that CASF subsidies shouldn’t be given for projects in areas where incumbents are getting federal money via the Connect America Fund program.

There are two big problems with that argument. First, the federal money generally pays for minimal upgrades to existing, and typically antiquated, broadband infrastructure. To get the money, Frontier only has to commit to providing service at 10 Mbps download and 1 Mbps upload speeds. In other words, substandard service that leaves communities underserved by the CPUC’s minimum benchmark of 6 Mbps down and 1.5 Mbps up, and therefor eligible for CASF money.

ORA makes much of Frontier’s claims that it can do better, but if this project is approved, Race Telecommunications will offer gigabit service for $60 a month to every home in its footprint. And that’s an enforceable obligation, since it’s tied to the grant money. Frontier, on the other hand, can’t be forced to deliver on its half promises about speeds and it’s making no commitments about prices.

Second, Frontier won’t be serving all the homes in Race’s proposed project area: the federal money is scattered around a checker board of census blocks, per the map above. Some people will be left without broadband service at all, and others will end up with speeds that wouldn’t have been considered sufficient ten years ago, let alone today.

The real problem is that the federal program is poorly designed. It pays for propping up incumbents’ slow service, out of date infrastructure and inconsistent deployment. If the aim is to avoid overlapping subsidies, then it’s the federal money that should be spent elsewhere. Its increasingly aggressive rhetoric and lawyerly intimidation notwithstanding, Frontier does not own exclusive rights to the Phelan community. The people – the ratepayers – there deserve advocacy too.

$900K chopped from San Bernardino FTTH subsidy plan, but it’s moving again

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A fiber to the home project in San Bernardino County is back on track, sorta. California Public Utilities Commission staff cut $900,000 from a proposed $29 million grant to Race Telecommunications for the Gigafy Phelan project, and sent it all back into a 30 day comment, reply and commission consideration cycle.

Gigafy Phelan is an ambitious attempt to extend FTTH service to 8,400 homes in California’s high desert region, in and around the town of Phelan. Or maybe it’s 7,600 homes. It depends on how homes is defined, and in this case it’s more than academic. It makes a $900,000 difference.

The federal census bureau tracks housing units and households. A housing unit is a discrete structure where people might live: “a house, an apartment, a mobile home or trailer, a group of rooms, or a single room that is occupied, or, if vacant, is intended for occupancy as separate living quarters", as the census bureau, as quoted by CPUC staff, puts it. A household is an occupied housing unit, regardless of the number of occupants or the relationships between them.

The California Advanced Service Fund – the broadband subsidy program that would pick up the tab – uses households as its primary metric. Housing units is a better measure, since a home that’s unoccupied today is as likely to be occupied tomorrow as any other, and everyone needs broadband service. But it’s just a way of keeping score and, so long as it’s done consistently, one way works pretty much as well as another.

It’s also a poor excuse for whittling down an FTTH project at the 11th hour, particularly one that delivers a gigabit for $60 a month and is the second "highest-scoring pending project application on the CASF’s project evaluation scoring matrix".

The revisions open up a window for another round of protests, and you can expect Frontier Communications will continue to object, claiming that its substandard, 10 Mbps down/1 Mbps up, federally subsidised service – at no particular price point – is enough for people who live in Phelan. The A in CASF stands for Advanced services. It’s time to get on with it.

CPUC, California lawmakers need to be as rational as a telecoms monopolist

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Update: the CPUC delayed action on the Gigafy Phelan project, and rescheduled it for consideration at its 25 May 2107 meeting.

Frontier Communication’s request to the California Public Utilities Commission to squash a potential competitor is economically rational – it has a monopoly and wants to keep it – which is why it should be rejected. Utility regulators exist to moderate monopolist impulses, not turbocharge them. If the CPUC rejects a $29 million infrastructure grant request from Race Telecommunications for its Gigafy Phelan fiber to the premise project, it will be handing over effective broadband ownership of 8,000 San Bernardino County homes to Frontier, which in turn will redline 3,000 of them because they haven’t been blessed with federal subsidies. Of the remaining 5,000, only a fraction will receive service that meets the CPUC’s minimum standard of 6 Mbps download and 1.5 Mbps upload speeds.

I made that point in reply comments I filed on Friday with the CPUC, as a rebuttal to the challenge Frontier mounted. I also debunked Frontier’s attempt to invoke assembly bill 1665, which would kill Race’s project if it actually makes it into law…

The bill in question – Assembly Bill 1665 – has not been enacted or similarly endorsed by the California Legislature. It is a controversial bill which has only been heard in a single assembly committee. In fact, a Frontier representative raised objections to the bill during the hearing…

It is disingenuous in the extreme to characterise AB 1665 as California policy or, indeed, anything other than a wish list submitted for consideration by its prospective beneficiaries, which include Frontier Communications, its objections notwithstanding.

Frontier’s objections to AB 1665 amount to almost isn’t good enough, I want it all. Which make plain its intent to use policy makers as tools to cement its grip on rural broadband customers while scooping any available subsidy money into its own pocket. Which is a completely and economically rational way of looking at the world. The CPUC and California legislators should respond in kind.

Race Telecommunications reply comments on Resolution T-17525 – CASF grant to construct the Gigafy Phelan project, 5 May 2015
Tellus Venture Associates reply comments on Resolution T-17525 – CASF grant to construct the Gigafy Phelan project, 5 May 2015

Frontier makes the case, California’s AB 1665 is double disaster

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Frontier’s admittedly “late-filed” attempt to kill grant funding for the Gigafy Phelan fiber to the home proposal in San Bernardino County does a much better job of demonstrating why assembly bill 1665 is a bad idea than it does of effectively arguing against the project.

In addition to reinstating a tax on phone bills and adding $300 million to the California Advanced Services Fund (CASF), AB 1665 would lower California’s minimum broadband service standard to 6 Mbps download and 1 Mbps upload speeds. It would also give incumbent telephone companies – Frontier and AT&T, primarily – de facto exclusive rights to rural broadband customers, whether or not they offer Internet access that meets the Californian minimum or, indeed, whether they offer broadband service at all. All they have to do is accept federal money from the Connect America Fund (CAF) program to build broadband infrastructure that meets the lower standard they’re pushing, somewhere in the general area.

Frontier is so eager to claim that prize that it cited AB 1665 in its argument against Gigafy Phelan, saying “just last week, the Legislature endorsed [using federal funds] again by amending CASF funding legislation to expressly prohibit award of a CASF grant to overbuild a CAF-funded broadband project”.

The “again” bit is misleading. California law and policy is full of exhortations to tap federal funds. What’s different and dangerous about AB 1665 is that it deliberately fences off large areas from state funded broadband upgrades when infrastructure is installed that doesn’t meet the current five year old Californian standard, even if no federal money is used.

That’s a point that Frontier clearly, if probably inadvertently, makes when it says it’s “currently in construction to expand broadband access by August 2017 to about 5,000 of the 8,361 households this application proposes to serve”. Why only 60% of the homes? Take a look at the map of Phelan above. The areas tinted yellow in checkerboard fashion are where Frontier is taking federal money to do substandard upgrades; there’s no money on offer for the areas in between. Guess where the more than 3,000 homes it’s bypassing are located?

That checkerboard pattern makes it completely impractical for another company to come in and serve people who don’t live where federal money flows, with or without a CASF grant. But Frontier would be completely entitled to double dip CASF money there and use it to offer service that wouldn’t meet basic needs five years ago, let alone today.

If the current version of AB 1665 becomes law.

Frontier Communications hates double dipping, unless it’s licking the cone

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As might be expected, Frontier Communications objects to a proposed $29 million California Advanced Services Fund subsidy for a fiber to the home project in its San Bernardino County territory. Its first instinct was to try to a backdoor approach at the California Public Utilities Commission, but that was rebuffed. So yesterday Frontier filed formal comments urging the CPUC to kill the Gigafy Phelan project when it comes up for a vote next week.

There are a few problems with its arguments against it.

First, it claims it’s going to upgrade the area that Race Telecommunications wants to serve. Well, not the entire area. Only 60% of the homes. And Frontier is very careful not to mention what that upgraded service will be. That’s because it’s only willing to commit to meeting a federal subsidy program’s 10 Mbps download/1 Mbps upload standard, as its previous filings at the CPUC have made abundantly clear. That service level does not meet the CPUC’s 6 Mbps down/1.5 Mbps up minimum. So even if the upgrade is completed in August, Frontier’s service in the Phelan area will still be substandard, for both the 40% of homes it’s bypassing and for many, if not all, of the remaining 60%.

Second, it makes a very odd argument against tapping two subsidy programs in one area. The CASF grant, which would give a gigabit to 100% of the homes in the project area, comes from California taxpayers, who also contribute to the federal Connect America Fund program that is financing Frontier’s substandard upgrade. It’s a fair point that taxpayers should only be paying for one broadband upgrade project, but should it be the one that offers a gigabit for $60 a month or the one that’ll lock in ten or twenty year old technology for the next twenty or thirty years?

There’s no way that Frontier will pass up that money, though. In fact, it doesn’t pass up money even when it means engaging in the kind of double dipping that it so piously objects to in its letter to the CPUC. In 2015, Frontier pursued, and received, CASF and federal subsidies to prop up its ageing DSL infrastructure in the Humboldt County town of Petrolia.

Frontier is entitled to play subsidies as dealt. But it’s gross hypocrisy to complain about the game when the other guy ends up with better cards.

Frontier pays a price for its California meltdown

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Frontier Communications’ cutover problems when it took control of Verizon’s wireline systems in California, Texas and Florida were costly, in terms of broadband subscribers and overall revenue. On Frontier’s third quarter earnings call earlier this week, company executives said that they saw a net loss of 100,000 broadband customers in the three states between April and June, and lost another 75,000 from July through September.

In revenue terms, though, the biggest hit in California and the other two states came from phone and video customers: total revenue was down $55 million in the third quarter, compared to the second, with video services accounting for $24 million and phone service for another $20 million.

The losses were attributed to the problems Frontier had in transferring call center operations from the Philippines back to the U.S., as well as tighter credit management. During the first few months, Frontier gave customers considerable slack in making payments, but as the transition was completed normal credit practices came into play.

Looking ahead, Frontier CEO Dan McCarthy said that 300,000 homes in three states will get broadband service upgrades in the next 90 days. Frontier is in the process of upgrading legacy DSL systems it acquired from Verizon, which typically max out at 6 Mbps download speeds, to modern DSL technology with claimed download speeds of 50 Mbps. No mention was made of upload speeds.

Those 300,000 homes represent about 12% of the new subscribers that Frontier picked up in the three states.

McCarthy also said that by the end of the year, 170,000 homes will get broadband upgrades (or broadband service for the first time in many cases) in areas subsidised by the Federal Communications Commission’s Connect America Fund program. Another 90,000 homes that are adjacent to those areas, but aren’t eligible for the subsidies, will also be upgraded. He wasn’t clear on whether those homes were specifically in California, Florida and Texas, though.