Tag Archives: frontiercommunications

With Frontier in free fall, California needs a Plan B

Frontier stock chart 8aug2019

Frontier Communications’ strategy of upgrading fiber speeds for high income, urban customers, and letting poor, rural ones rely on slow, wireless broadband systems didn’t seem to make an impression on Wall Street. The company’s stock price lost nearly 25% of its already diminished value after the release of second quarter 2019 results on Tuesday.

Even before this latest crash, a study by the California Public Utilities Commission concluded that Frontier is sinking in California, and it’s time to start thinking about what happens next…

While Frontier’s priorities are in maintaining and growing its [legacy telephone] properties, the company’s financial resources have become so deteriorated as to threaten its ongoing ability to pursue these priorities going forward. Frontier’s common stock price has dropped by around 98% since its high in February 2015, and as of April 10, 2019 its market cap was at $261.2- million – notably, Frontier has invested more than that in California alone over the first 21 months of its ownership. The parent company’s earnings have been consistently negative since the second quarter of 2016. Its annual debt service payments are now consuming more than one- fifth of its total operating revenues, making prospects for raising additional debt or equity financing extremely challenging. It is now abundantly clear that Frontier’s decision to purchase Verizon California in 2015 was both ill-timed and ill-conceived…

The Commission should establish a process to proactively examine the alternatives that would be available to maintain adequate service to Frontier California customers in the event that the parent company no longer has the financial resources to provide safe and reliable services in California.

That warning was published last month, and relied on data that was current as of April 2019. At the end of that month, Frontier’s share price was $2.85, which was about 2% of its 2015 high of $125.70 (after factoring in a reverse split). Yesterday it closed in penny stock territory at 93¢, less than 1% of its peak value and less than a third of its April high.

Two million Californian homes look to Frontier for telephone and broadband service, and many of them have no other option, as the CPUC report notes. The time for being proactive is running out.

Frontier CEO confirms affluent, urban communities to get 1,000X better broadband than poor, rural ones

Frontier 2q2019 broadband results

On Tuesday, Frontier Communications’ CEO confirmed the findings of a California Public Utilities Commission study that concluded that Frontier (as well as AT&T) is “disinvesting in infrastructure overall”, and the disinvestment is “most pronounced in the more rural and low-income service areas”. The company released its financial results for the second quarter of this year on Tuesday, announcing a $5.3 billion loss for the three months and 71,000 fewer broadband subscribers.

Most of the lost accounts – 46,000 – were DSL customers, served, at least in California, via decaying copper networks Frontier acquired from Verizon. Much of that territory is rural, and falls under the federal Connect America Fund subsidy program. Frontier affirmed it is switching to low capacity fixed wireless broadband systems in CAF territories, which in theory will deliver the 10 Mbps download and 1 Mbps upload speeds (actually, 8 Mbps down/800 Kbps up, 80% of the time) that the program requires.

That’s in contrast to the 10 Gbps upgrades that Frontier announced it was making in high capacity, fiber-to-the-home (FTTH) systems formerly owned by Verizon, which are predominantly in more affluent urban and suburban communities. This thousand-fold disparity between Frontier’s rural and urban infrastructure is a deliberate strategy, according to the Seeking Alpha transcript of CEO Dan Murphy’s conference call with Wall Street analysts…

Our objective continues to be to optimize our business, leveraging our best assets for future growth, while managing the elements of our business in secular decline by executing on cost efficiency programs and selective capital investment.

“Best assets” = FTTH to people with money to spend; “elements…in secular decline” = copper systems where household incomes are low. Murphy was straightforward with the analysts, not just because that’s what they wanted to hear but also because there are criminal penalties for lying to Wall Street.

Unlike lying to the CPUC: when seeking approval to take over Verizon’s systems, it claimed it “is strategically focused solely on wireline telecommunications” and “all of Frontier’s capital and human resources are concentrated on wireline communications services”.

When Californians are trapped in monopoly telecom markets, AT&T and Frontier take the money and run

by Steve Blum • , , , ,

Leaning pole

Competition matters. When telephone or cable companies face a competitive threat – either from each other or from an independent Internet service provider, they respond by upgrading infrastructure and service, and by cranking up the volume on promotional discounts. The converse is true: no competition means no infrastructure investment or service upgrades or marketing love.

That’s a lesson I’ve learned time and again with municipal and independent broadband projects. When a city or an independent credibly threatens to enter the market, incumbents respond. Santa Cruz is a good example. When the City of Santa Cruz partnered with Cruzio, a local ISP, to build a muni fiber-to-the-premise system, Comcast upgraded its infrastructure. The deal didn’t come to fruition, but Cruzio’s subsequent solo fiber build out gave AT&T an incentive to upgrade neighborhoods with sufficient revenue potential to FTTP status.

It’s also a major conclusion of a report just released by the California Public Utilities Commission. It shows competition determines to a large degree where AT&T and Frontier Communications invest what money they’re willing or able to spend in California. According to the study, Frontier allows its facilities to decay in communities where it has monopoly control…

Wire centers with the smallest decrease in POTS lines fared far worse in terms of most service quality metrics. The deterioration in service quality in these small wire centers, generally serving communities with the fewest number of competitive providers, suggests that the company has been devoting more of its resources and efforts to those communities most impacted by competition for traditional POTS services.

The study found the same pattern in AT&T’s territory, concluding that it’s pursuing a “harvesting strategy” – a polite way of saying milking the cash cow by relying “upon successive price increases and customer inertia to maintain its declining [legacy telephone] revenue stream”, despite continually worsening service quality.

The study recommends increasing the amount of fines imposed by the CPUC on AT&T and Frontier for substandard service, as a substitute for competition – make the fines match the losses that the two companies would otherwise suffer if competitors were present. That’s difficult because 1. figuring out the proper amount is a fraught exercise, and 2. thanks to cynical maneuvering by outgoing president Michael Picker, the CPUC doesn’t actually fine telcos. It lets them keep the money so long as they claim they’re spending it on “incremental” service improvements.

AT&T redlines poor and rural Californians because it can, Frontier because it can’t afford otherwise, CPUC study says

by Steve Blum • , , , ,

History of the World, Part 1 - Piss Boy

Corporate choices made by AT&T and Verizon, and Frontier Communications’ dire financial condition created the growing divide between relatively modern telecoms infrastructure in affluent urban and suburban communities, and the decaying infrastructure in poor and rural ones. The result is “deteriorating service quality”, “persistent disinvestment”, an “investment focus on higher income communities” and an “increased focus on areas most heavily impacted by competition”, according to a study done for the California Public Utilities Commission by a Boston-based consulting company.

The report paints a contrasting picture of the corporate attitudes of AT&T and Frontier, but neither is flattering. The conclusions are, and should be, devastating for both companies. The report speaks for itself:

  • Both AT&T California and Frontier…[are] in effect, disinvesting in infrastructure overall, and [the disinvestment is] most pronounced in the more rural and low-income service areas.
  • AT&T has the financial resources to maintain and upgrade its wireline network in California, but has yet to do so. Frontier has a strong interest in pursuing such upgrades, but lacks the financial capacity to make the necessary investments.
  • AT&T wire centers that have been upgraded with fiber optic facilities and other broadband-related investments disproportionately serve higher income communities.
  • The AT&T wire centers serving areas with the lowest household incomes tend to exhibit the highest trouble report rates, the longest out-of-service durations, and the lowest percentages of outages cleared within 24 hours.
  • AT&T and Frontier appear to have focused most of their attention in those communities where competition and the potential for loss of customers is greatest.
  • The quality of AT&T and Frontier voice services has steadily declined over the 8-year period from 2010–2017…with the number of outages increasing and the service restoration times getting longer.
  • AT&T no longer actively markets legacy Plain Old Telephone Service (“POTS”) and is instead actively promoting broadband service to customers in order to maintain and grow its revenue steam. As a result, AT&T has allowed POTS service quality to degrade over time.
  • Investments that were made have been primarily directed toward supporting new broadband services…In locations where such investments have been made, POTS service quality has improved.
  • This study provides evidence of a strong relationship between significant adverse weather conditions and an increase in the number of service outages. This pattern suggests that the networks of AT&T and Frontier are not as robust as they need to be.

This study almost didn’t happen. CPUC president Michael Picker, who is resigning and likely will chair his last meeting on Friday, tried to block it. He bowed to “vociferous opposition” from AT&T and Verizon, which later sold its fiber and decaying copper systems to Frontier. Two former commissioners – Catherine Sandoval and Mike Florio – put a counter proposal on the table, which passed by a vote of 4 to 1, with Picker the only no vote.

There’s apparently more to come – yesterday’s report was only the executive summary, and there’s much more detailed data and analysis behind it. There’s also the question of whether the CPUC will take action – much will depend on incoming president Marybel Batjer – and whether the California legislature will allow it. Assembly bill 1366 would effectively wind down the CPUC’s oversight of telecoms in California.

Examination of the Local Telecommunications Networks and Related Policies and Practices of AT&T California and Frontier California, Economics and Technology, Inc., April 2019 (published 22 July 2019)

Table of Contents

For more background documents, click here.

Note: except for bracketed text, the bullet points above are direct quotes from the report, but the order of the quotes was changed.

Frontier-CETF shotgun marriage will continue til death do us part

by Steve Blum • , , , ,

Shotgun wedding

Frontier Communications and the California Emerging Technology Fund (CETF) have tentatively settled a dispute over a mandated low income broadband marketing program. Under the terms of the agreement, instead of ending last year, as previously scheduled…

  • The program will continue indefinitely.
  • Frontier will pay CETF an additional $25,000.
  • CETF won’t have to pay back any of the approximately $700,000 remaining from the $1 million advanced to it.
  • Performance goals remain “aspirational” rather than hard targets.
  • The two organisations will hold lots of meetings and exchange lots of reports, mostly about things they plan to do, with no obligation to perform and complete freedom to unilaterally change their minds.
  • Frontier gets an extra couple of years to complete the gargantuan task of installing 33 free WiFi hotspots.

The program was one of the conditions imposed by the California Public Utilities Commission when it allowed Frontier to buy Verizon’s wireline telephone systems in California in 2015. It had the delusional aspirational goal of signing up 200,000 qualifying subscribers to low priced broadband plans, offered to low income households by Frontier and other Internet service providers.

The original deadline was 30 June 2018. By that point, about 9,200 low income subs had been signed up. CETF and the non-profit organisations it’s working with accounted for 4,300 of those new subs, versus a funded quota of 50,000 (the rest were signed up by Frontier, though its normal sales channels). The deal was that Frontier would pay $60 per new sub, with a total budget of $3 million.

The settlement keeps the $3 million on the table until the non-profits hit the 50,000 new sub mark, or until everyone gets tired of the whole thing. It could take a long time. Although Frontier’s initial obligation expired at the end of last June, it agreed to extend it another year. During the past six months or so, CETF’s non-profit clients only signed up another 200 subscribers, according to the numbers in the settlement agreement.

The next step is for the CPUC to review the settlement, and decide whether or not to accept it.

CPUC allows AT&T, Frontier to tap dance their way out of fines for bad service

by Steve Blum • , , , ,

AT&T and Frontier Communications were fined $2.2 million and $823,000, respectively, by California Public Utilities Commission, for “chronic” service failure, primarily in rural California. Sorta. Kinda.

Well, not really.

At its meeting in Fresno last week, the CPUC voted unanimously to allow Frontier and AT&T to skip the fines, which were mostly for taking too long to restore telephone service for customers who experienced outages. In return, the companies promised to make “incremental” investments in improving service quality. The amount of those supposedly incremental investments are claimed to be twice the amount of the fines. Which is allowed under a baffling and irregular decision made two years ago by the commission.

The resolution regarding the AT&T fines noted the difficulty in figuring out what’s incremental and what’s money that would have been spent anyway. CPUC staff asked AT&T for list of what it planned to spend on “construction and rehabilitation projects”. AT&T responded with a list of repair work it was doing, rather than “planned projects focused on the rehabilitation of poor performing central offices”. That was because AT&T claimed not to know what it would have spent normally, because “they do not budget for specific projects; all project work is identified on a rolling basis and reprioritised based on the ability to reduce high maintenance costs”.

Translation: we can tell you anything we want and you have to believe us because you can’t prove differently.

After some back and forth, CPUC staff accepted AT&T’s story and recommended that commissioners accept AT&T’s claims and give the company two years to demonstrate “the results of their proposed projects to measurably improve service quality in its network”.

Frontier’s explanations are similarly wooly.

After the vote, which was on a consent agenda – a bunch of resolutions bundled together – commissioner Clifford Rechtscaffen said the policy of letting telephone companies fine themselves and keep the money needs a second look…

These are a set of resolutions we just approved under a new program we initiated a couple of years ago as an amendment to general order 133-D, and in particular they allow telephone companies who have been found to have violated our service quality requirements to substitute paying a penalty by making investments to improve service quality that are at least twice the amount of the penalty. I understand that this investment option was a creative way to try to address longstanding service quality deficiencies.

At the time the resolution was adopted a couple of commissioners expressed concerns and reservations about it, including commissioner Randolph, who asked the question of whether or not we would really be able to tell whether or not the investments that were made were incremental to what telephone companies would be doing in the normal course of business.

We’ve approved these three investment alternatives, but in practice we can now see that it is difficult, in fact, to determine whether or not the investments are incremental. This required a lot of staff time working with the companies to figure out what was new, what was not new and where the best places for the investments would be. I commend the staff for reaching good conclusions here. I continue to have some reservations about this option. I think we want to look carefully and see whether or not the investments really do improve service quality and whether or not this option makes sense in terms of our larger enforcement objectives.

The option doesn’t make sense. There’s no indication that either AT&T or Frontier offered any two year budgets, which is the only way to even begin determining whether their proposed spending-in-lieu-of-fines is, in truth, extra money on top of what they’d spend anyway. Or whether they’re just shifting money from one line item to another.

Letting Frontier and AT&T pay fines to themselves was a bad decision in the first place, and the details behind last week’s commission vote proves it.

Money and performance at center of CETF’s fight with Frontier

by Steve Blum • , , , ,

Frontier Communications says the California Emerging Technology Fund (CETF) has to return $714,000, if it asks for it. CETF’s response on Friday was we don’t have it anymore.

When Frontier won California Public Utilities Commission approval in 2015 to buy Verizon’s landline telephone systems in California, a long list of conditions was attached. Among them was a contract that committed “up to” $3 million to achieve the “aspirational goal” of signing up 200,000 low income Californian households for broadband service – from any provider, not just Frontier. In return, CETF dropped its opposition to the Verizon deal.

A second implementation contract spelled out more detailed terms: Frontier would pay $60 to non-profit groups recruited by CETF for each new, qualified broadband subscriber. Frontier also agreed to periodically advance portions of the money, and CETF agreed to return any unused funds after the contract expired on 30 June 2018.

The non-profits only signed up 4,300 subs, while Frontier advanced CETF $1 million. By Frontier’s math, that leaves $714,000 in the bank.

CETF wants the program to continue. Frontier is willing to go along with that for another year, up to a point. Which wasn’t enough for CETF, so the dispute landed at the CPUC. CETF wants the commission to rewrite the contracts by fiat. Frontier prefers them as they are and hinted in a reply filed with the CPUC that it might come looking for its money.

CETF says it only has $294,000 left in “trust” it because it similarly advanced cash to its non-profit clients, with the expectation that they would be signing up a lot more new subscribers than they did. A sample CETF grant contract, included in one of Frontier’s CPUC filings, says that unearned money has to be paid back. That might be, um, difficult for some non-profits. Without favorable intervention by the CPUC, CETF might be on the hook for the difference. Which would be, um, inconvenient.

There’s more.

In a rhetorical back flip, CETF argues that it wasn’t the 200,000 household goal that was “aspirational” (even though the contract said it was). Instead, CETF says it was the clear contract expiration date that was a fuzzy target.

CETF then makes what ought to be Frontier’s case. It argues that because the program is a failure, Frontier needs to fix it…

Instead of 200,000 low-income broadband home adoptions, there are only 11,038, which means the shortfall is a staggering 188,962 households. This is prima facie evidence that Frontier’s approach was in need of revision to fulfill its obligations.

Only 39% of those new subscribers were signed up by CETF’s non-profit clients. The remaining 61% were directly acquired by Frontier. Even if you assume that Frontier is obliged to continue its efforts to bring more low income households into the online world, the numbers don’t suggest that the best way to do it is to continue working through CETF’s non-profit sales channel.

A hearing in front of a CPUC administrative law judge is scheduled for 28 November 2018.

CPUC tells Frontier to answer charge it’s not meeting Verizon purchase obligations

by Steve Blum • , , , ,

Frontier Communications’ delivery on promises made when it received permission to buy Verizon’s Californian telephone systems in 2015 will be investigated by the California Public Utilities Commission. Earlier this year, the California Emerging Technology Fund (CETF) asked the commission to unilaterally change some of the conditions they imposed on Frontier when they approved the deal, claiming that the goals of the decision were not met.

According to the CPUC administrative law judge handling the case, last month CETF and six of its non-profit clients sent a letter to commissioners accusing Frontier of “attempting to abandon their obligations and escape their public benefit commitments”. As a result, Frontier will have to defend itself in an evidentiary hearing, maybe next week, maybe later depending on whether the ALJ agrees to postpone it, as both parties have requested.

It’s complicated. The so-called “public benefits” relate to a program Frontier contractually agreed to pay for, which is aimed at signing up low income households for broadband service. Via CETF, it would pay the non-profit organisations $60 for every new, qualified broadband subscriber – up to a total of $3 million – as well as providing free Chromebooks and setting up a relative handful of free WiFi access points. The money would have been paid regardless of whether a qualified household signed up for service from Frontier or another broadband provider.

The program has the “aspirational” goal of recruiting 200,000 low income subscribers and was supposed to run through last June. According to Frontier’s latest response to the allegations, the non-profits only managed to sign up 4,300 new broadband households over two and a half years. CETF claims that it was Frontier that failed because its low income broadband packages were poorly designed (confusingly, it has three), and it dragged its feet fixing them.

Frontier’s response says it fulfilled its contracts as written: the company provided cash and Chromebooks based on the performance of CETF and its non-profit clients; the results “reflect the difficulties of promoting broadband adoption”.

There’s also a hanging question about a balance of $715,000 that Frontier says it advanced to CETF, but wasn’t paid out to the non-profits because they didn’t generate the required sign ups. Its filing pointedly states that CETF is “obligated to return these unused funds to Frontier no later than July 30, 2018, but Frontier has not requested return of these funds”.

Yet.

CPUC refuses to reconsider waiving AT&T, Frontier fines for bad rural service

by Steve Blum • , , , ,

AT&T, Frontier Communications and other telephone companies can continue to fine themselves and keep the money, if they fail to meet California’s service quality standards. The California Public Utilities Commission rejected an appeal by a group of consumer organisations, which claim that the bizarre 2016 decision allowing telcos to pay their own expenses instead of paying fines was made “without any support whatsoever in the record”.

The decision was rammed through by commission president Michael Picker, who refused to allow a vote on an alternative offered by then-commissioner Catherine Sandoval, contrary to usual procedure.

Four organisations – TURN, the Greenlining Institute the Center for Accessible Technology and the CPUC’s office of ratepayer advocates – asked commissioners to reconsider the decision, pointing out that the let telcos keep the money alternative was never on the table during the years while evidence was gathered. It first appeared in a draft decision, after the record was closed.

The commission’s response, adopted in a closed door meeting last week, was to 1. argue that vague comments and complaints made by telcos early in the proceeding were a sufficient “factual record basis”, and 2. refuse to reconsider the decision.

Next week, commissioners are scheduled to vote on proposals to let Frontier and AT&T off the hook for hundreds of thousands of dollars worth of fines they’ve incurred because of poor telephone service in rural California. The 2016 decision says that’s okay if they spend at least twice the amount on “a project” that “improves service quality” in the next two years. That doesn’t necessarily mean building new infrastructure. It could go toward salaries or other operating expenses too. It just has to be an “incremental expenditure”.

There’s no way to know if they would have spent that money anyway. Corporate budgets shift year to year and quarter to quarter. We won’t even know what they’re spending the money on, or what service quality improvements to expect: the CPUC plans to keep that information secret, because of its “sensitive nature”.

Frontier’s Colusa DSL subsidy request breaks rules, which is OK if everyone can play

by Steve Blum • , , , ,

Frontier Communications wants $253,000 from the California Advanced Services Fund (CASF) to upgrade its copper DSL facilities in the town of Colusa, in rural Colusa County. Its existing service in and around the community relies on a mix of 1990s vintage DSL and more advanced ADSL2 and VDSL technology. It’s proposing to upgrade its central office to extend its VDSL capabilities, and run fiber to the county fairgrounds in town.

The justification for the project, as described in the public summary Frontier distributed, is 45 homes that either don’t have any broadband access at all, or the service they have delivers less than 6 Mbps download or 1 Mbps upload speeds. Which is in line with the changes incumbents lobbied for last year, when the California legislature effectively turned CASF into a piggy bank for Frontier and AT&T.

What isn’t in line with past practice, or the legislation, is Frontier’s plan to use the subsidised upgrade to improve service for 2,300 homes that do have access to that pitifully slow standard of service. Or to build what is, by some definitions, a non-essential middle mile fiber line to the fairgrounds.

All that may be a good thing, and if Frontier’s rationale – which isn’t explained in the public document – is accepted by the California Public Utilities Commission then other important projects in underserved communities might be able to move forward as well.

But Frontier’s motive is not likely to be so noble minded. It has a history of viciously contesting CASF projects proposed by independent Internet service providers in similar circumstances. Frontier’s past challenges – sometimes based on false information – have forced independent applicants to trim their grant requests on a pro-rata basis to prevent subsidisation of “served” homes, or to withdraw their proposals completely. A more plausible interpretation is that Frontier thinks it can get away with scooping up as much taxpayer money as it wants.

The CPUC is in the process of rewriting the rules for the CASF infrastructure subsidy program, and Frontier’s Colusa project might or might not fit within it. I hope the CPUC clearly states that it does. Upgrading decaying rural DSL service is worthy, even if the company involved is, in effect, overbuilding itself.

Allowing upgraded – or newly built – infrastructure to serve the dual purpose of boosting service for “served” as well as “unserved” homes would make it easier for independent competitors to develop projects that do more than offer the marginal technical improvements Frontier is proposing. Which would be a genuine step forward for rural California.