Late last week, with all eyes on the then-undetermined presidential election, Frontier Communications unleashed their version of an October surprise.
In the opening minutes of a hearing to determine the company’s fate in West Virginia, a top executive promised “substantial” new investments in the state, including new fiber deployments to homes and businesses.
Frontier is bankrupt, and needs approval from the state’s utility regulator, the Public Service Commission, to restructure and shed $10 billion in debt. As part of that restructuring, Frontier told its bondholders that it would target future investment in a select group of states.
But the company has remained mum about which states those would be, infuriating West Virginia regulators who wanted reassurance that the “New Frontier,” with its radically improved balance sheet post-bankruptcy, would invest in improving its infrastructure in West Virginia.
Until now. At a two-day hearing last week in front of the PSC, Frontier told regulators they would get what they wanted: a commitment to expand and improve.
But initial excitement about the announcement dissipated when it became clear that Frontier was going to offer no additional details. Executives refused to answer questions about the extent or location of the new fiber, and attempted to downplay evidence that the company had extracted profits from West Virginia to pay off the burgeoning debts it accrued through a buying spree of new territory across the country.
“There has to be something we can hold them to,” said Delegate Chad Lovejoy (D-Cabell), who is following the proceedings, in an interview earlier this week. He believes the PSC needs to require “binding commitments” from Frontier, “so that we know we’ll have a sufficient level of investment.”
“Reliable internet service is not a luxury,” he added.
Now, it is up to the PSC’s three commissioners to decide if they’re willing to take Frontier at its word. It’s a tough sell. Since the company came to West Virginia a decade ago, Frontier has made a series of breathtaking promises and devastating mistakes. As a result, much of rural West Virginia still lacks reliable high-speed internet — a problem that Frontier’s latest promise seems unlikely to fix.
‘Ludicrous’ implications
In order to restructure after bankruptcy, Frontier needs approval from 17 of the states in which it operates. It’s already won approval in 11, including New York, where the company promised $9 million in “incremental capital expenditures.” A similar specific financial condition is one of the possibilities being weighed in West Virginia, which is one of only six remaining holdouts.
Staff at the West Virginia PSC argue that Frontier should be required to maintain or increase capital budgets going forward — the company spent $58 million last year on capital investment in West Virginia alone — “in light of the work Frontier must do to repair and improve the copper network,” wrote the director of the Utilities Division at the PSC, Karen Macon.
“To imply that Staff is being unreasonable with such a recommendation — is ludicrous,” she went on, in written testimony prior to the hearing.
The announcement that Frontier intends to invest more in West Virginia and deploy faster fiber internet — which included no hard numbers or financial commitments — was greeted with “cautious optimism” by participants in the call, which included the three commissioners and around a dozen lawyers representing the commission, Frontier and its workers’ union, the Communication Workers of America.
“I’m feeling better,” said Terri Blake, a telecommunications supervisor at the commission who gave testimony at the hearing.
But it caught her, and others on the call, off-guard. They’d been fighting for just such an assurance for weeks, and until now, Frontier hadn’t budged.
“This position from [Frontier Chief Legal Officer Mark] Nielsen was a complete — complete — change from his direct testimony, and caught me and everybody else quite a bit by surprise,” said Tom White, a lawyer for the PSC’s consumer advocate division.
Nielsen said Frontier would devote “substantial” investment to building fiber to West Virginia homes, beginning sometime in the next few years. A vast majority of its approximately 170,000 broadband customers are on DSL, an outdated technology that is slower and less reliable than the cable and fiber connections that are common in major cities.
But the details of why this investment was such “good news,” as Nielsen put it, were sketchy. The company has already deployed fiber to the home in five West Virginia cities, including Bridgeport and Charles Town. And Nielsen couldn’t answer basic questions about where or when the new fiber would be installed.
“I do not know,” Nielsen said, when asked how many homes would be hooked up.
He repeated the response when asked whether the deployments would be in urban areas, which are already well served by other providers, or rural areas, which are largely underserved — and in some places, not served at all.
When pressed on how much money the company planned to spend, Nielsen refused to provide an answer, deferring to his two colleagues on the call. They proved equally unhelpful.
“The Frontier representatives were unable or unwilling to provide any specific information during the hearing as to the extent of the planned investment or in which areas of West Virginia it intended to install fiber,” Linda Bouvette, a staff lawyer at the commission, later wrote in letters to Lovejoy and other state lawmakers.
Broken promises
West Virginia has a long history of taking Frontier at its word — and being burned in the process.
Frontier came to West Virginia in 2010 when it purchased Verizon’s network of telephone lines across the state. Staff at the Public Service Commission at the time disapproved of the deal, fearing the upstart company would be incapable of fixing West Virginia’s aging network of copper telephone wires. To get the deal past the commission, Frontier had to make a series of promises.
It promised to keep its regional headquarters, with executives and staff responsible for a half dozen southern states, in Charleston. But that regional headquarters disappeared in a corporate restructuring.
It promised to notify the commission ahead of time if it planned to fire more than 5% of its staff. Those reductions seem to have happened: in 2018, Frontier’s union declared a strike, noting a “27.5% decline in Frontier jobs across the state” since 2012.
“Our workforce shrank in the state substantially,” Nielsen said. But he pointed out that Frontier had never let go of more than 5% of its workforce at once, so it deemed it not necessary to notify the commission.
“We applied that requirement by its terms,” he added.
And Frontier promised to bring broadband to 85% of households in its service territory, which covers nearly all of West Virginia. It technically did, or at least installed the necessary networking equipment according to reports submitted to the Public Service Commission.
But Frontier then failed to upgrade the hardware that converts telephone signals into data, as more customers signed up, rendering the service unavailable — or too slow to use — in many rural areas of the state.
Customers have filed complaints with the commission alleging that Frontier denied them service because that nearest network switch lacked available ports. Others have taken Frontier to court for promising data speeds that the overloaded equipment was incapable of providing.
In 2013 the West Virginia Attorney General’s office began investigating these complaints and eventually settled with Frontier in exchange for $150 million in capital investment. But it was a hollow promise. Frontier ended up spending even less in the state.
Creative accounting
Frontier has long claimed that it’s simply too expensive to keep upgrading its equipment as customers flee to competitors and its business crumbles. “In fact, both of Frontier’s West Virginia companies have lost money since 2012,” the company wrote in April, responding to a scathing report from state auditors that found the company had failed to do basic preventative maintenance on its telephone wires and poles.
But new information about Frontier’s finances, provided to the Public Service Commission as part of their ongoing investigation into complaints about Frontier’s phone and internet services, sheds doubt on that narrative.
In order to prove it was losing money, Frontier relied on some creative accounting.
Over the last decade, Frontier has taken out massive loans to gobble up new territory across the United States — $11.5 billion in 2015 alone when it expanded into Florida, Texas and California. These loans ended up crippling, and eventually bankrupting, the company and Frontier has been spending $1.5 billion per year just to pay interest on those debts.
And in its books, the company has assigned over $75 million of that annual payment to its operations in West Virginia, even though little, if any, of that loan actually went to investment in the state.
This “cash flow” analysis, which was presented in a confidential filing to state regulators, was revealed by PSC Chairman Charlotte Lane in her questions to Frontier’s executives last week.
In 2019, she said, Frontier generated $128 million in revenue from West Virginia. It spent $29 million more than that in the state.
But those expenditures included the $75 million “corporate interest” payment. Without that payment, West Virginia was highly profitable for Frontier.
“When I look at this chart, I see $45 million in extra cash,” she said, to the chagrin of the Frontier executives, who later said they regretted sharing the analysis.
‘The worst ran company I’d ever seen’
As Frontier fights a state-by-state battle to complete its bankruptcy, it’s also fighting a 2017 federal lawsuit alleging that the company’s mishandling of a slew of acquisitions — including Verizon’s network in West Virginia — amounts to securities fraud.
In 2016, Frontier’s stock was trading at $80 a share. It is now nearly worthless.
The case was dismissed — Frontier’s claims ”while optimistic, did not amount to fraud,” the judge wrote — and is now in appeal, awaiting Frontier’s emergence from bankruptcy.
But the legal complaint explains in stunning detail how badly Frontier mishandled its West Virginia operations. A former Frontier project manager, with 28 years of experience, who joined the company shortly after the acquisition, called Frontier “the worst ran company I’d ever seen.”
When Frontier’s Director of Operations in Florida, who is unnamed in the 2017 complaint, was flown in to West Virginia to help clean up the mess, she was shocked by the chaos she found. She said she was told “multiple times” by Frontier executives, including the southeastern regional director, Michael Flynn, to cover up the extent of the company’s problems by purging trouble tickets from the central computer system.
When Flynn was told of major outages in Florida, he allegedly responded, “So what… we have those in West Virginia all the time,” according to the complaint.
On the ground in West Virginia’s rural areas, Frontier’s business practices proved devastating. Many of these communities have no affordable alternative to access the internet or call 911.
Blake was on the front lines, fielding complaints at the Public Service Commission. There have been more than 750 so far in 2020.
She exhorted the commissioners to hold Frontier accountable. The commission has a menu of conditions they could potentially attach to their approval of the company’s bankruptcy plan — from new reporting benchmarks to minimum spending requirements. But it is not clear how stringent, or effective, they’ll prove to be.
“When there are issues that are brought to my attention — that people have been aware of for months, if not years — I am concerned there will not be enough money to address the most critical issues in the most rural areas of West Virginia,” Blake told the executives.
She’s concerned that Frontier and all of the company’s vague promises are missing the point. “I imagine fiber is going to be placed in the most densely populated areas,” she said.
She’s worried about the people in rural areas of the state – ”like Paw Paw, and parts of Grant County.”
“They’ll still be in the position that they’re all in today,” she said.