13 Nov Editor’s Corner—Frontier is reportedly looking for a new CEO as it ponders reorganization
Frontier Communications is looking to right the ship by hiring a new CEO and restructuring its $17.5 billion debt load, according to Bloomberg.
On the heels of last week’s third quarter earnings, Bloomberg reported that advisors to Frontier are looking for a possible replacement for current CEO and President Dan McCarthy. According to his company bio, McCarthy joined Frontier in 1990 when it was called Citizens Utilities. After serving in various executive roles, McCarthy took over as president and CEO of Frontier in 2015.
When asked about the search being underway to replace McCarthy, a spokesman for the company said it does not comment on rumors and speculation.
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Bloomberg’s unnamed sources also said some of Frontier’s creditors have hired telecom consulting firm Altman Vilandrie to conduct due diligence on Frontier, which includes developing a post-reorganization business plan. Those same sources said that Frontier could file for bankruptcy in the first quarter of next year ahead of $300 million in interest that’s due in March.
Frontier is being advised by Kirkland & Ellis LLP and Evercore Inc., according to Bloomberg. A group of creditors, including Elliott Management, which recently pushed AT&T into a restructuring plan, and Franklin Resources hold close to 50% of Frontier’s bonds. Restructuring Frontier’s debt load via bankruptcy would be among the largest telecom reorganization efforts since Worldcom’s in 2002, according to Bloomberg.
While there are lots of balls in the air for Frontier’s future, it seems likely that some of them are about hit the ground in the near future.
RELATED: Frontier’s CEO says company is on the rebound thanks to its fiber assets, better customer care
Speaking at an investor conference in May, McCarthy said Frontier’s fiber assets, improved field operations and customer care were key points in the company’s turnaround efforts. During last week’s third quarter earnings report, Frontier lost 1,000 fiber customers, which was a slightly lower loss from the previous quarter. While most of the major telecom operators are posting increased broadband subscribers on a steady drumbeat every quarter, Frontier lost 71,000 broadband subscribers in the quarter.
While Frontier cited a seasonality slowdown and the end of promotions as the causes for the broadband losses, the increase in consumer customer churn in the third quarter to 2.24% was up from 2.14% sequentially and 2.03% year-over-year. Clearly, Frontier is bleeding out broadband subscribers.
RELATED: Frontier Communications narrows its loss in Q3 but revenue declines
Last week, Frontier racked up a net loss of $345 million, a loss of $3.31 per share, compared to a loss of $426 million ($4.11 per share) in the same quarter a year ago. In this year’s second quarter, Frontier reported a $5.2 billion loss.
Frontier executives said on the recent earnings call that the losses were primarily due to goodwill impairment charges of $276 million, as well as an additional $30 million loss on the previously announced sale of operations in Washington, Oregon, Idaho and Montana.
WaveDivision Capital, in partnership with Searchlight Capital Partners, is buying Frontier’s assets in the four states in a deal Frontier CEO Dan McCarthy said is scheduled to close in the second quarter of next year. At the start of the year, Frontier sold off nearly 100 wireless towers in Connecticut, New York and California to Pittsburgh-based Everest Infrastructure Partners for $80 million.
Across the four states, WaveDivision stands to gain more than 350,000 residential and commercial customers, and a network that passes 1.7 million locations, including 500,000 that are fiber-to-the-premise (FTTP) capable. As of March, Frontier served approximately 150,000 fiber broadband, 150,000 copper broadband and 35,000 video connections in the four states.
Frontier’s problems today can be traced back to its deals with Verizon and AT&T. Four years ago, Frontier bought Verizon’s wireline operations in California, Florida and Texas for $10.5 billion. In 2010, Frontier purchased Verizon’s rural wireline assets in 14 states for $6.8 billion. Later, Frontier purchased AT&T’s Connecticut wireline operations for $2 billion.
A number of Frontier’s subscribers were upset with the company’s integration issues across the former Verizon operations, and Frontier bought them when the growth levels in those footprints were starting to taper off. While the operations that Frontier bought from Verizon were among the first to get Verizon’s FiOS broadband service, the high penetration rates didn’t leave a lot of headroom for growth.
Frontier tees-up enterprise offerings
Frontier announced a new managed SD-WAN service this month that includes integration with Amazon Web Services. In September, Frontier rolled out new managed cloud IT service. Frontier’s Cloud Managed Solutions was designed to enable cloud-native automation for enterprises by either a fully managed service model or through a self-service portal.
RELATED: Frontier tees up managed cloud solutions for enterprises
In addition to the fiber build, new enterprise solutions could be a boon to Frontier’s bottom line, but whether McCarthy and some of his executive team are still around to reap those rewards remains to be seen. — Mike
Editor’s Corners are opinion columns written by a member of the Fierce editorial team. They are edited for balance and accuracy.