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.