NewHavenBIZ

n e w h a v e n b i z . c o m | J u n e / J u l y 2 0 2 0 | n e w h a v e n B I Z 9 balance sheet would ultimately allow Frontier to provide a better customer experience. "With this agreement with our bondholders, we can now focus on executing our strategy to drive oper- ational efficiencies and position our business for long-term growth," Han said in a statement when Frontier announced the bankruptcy in April. David Cadden, professor emeritus of entrepreneurship and strategy at Quinnipiac School of Business, says Han must move quickly to reverse declining cus- tomer confidence in the company. "ings would have to be done extremely rapidly and they would have to really gut their service systems, because it has been terri- ble," Cadden says. "e question becomes, can you race the installa- tion of fiber to a sufficient number of homes to be able to retain the customers that they currently have? And that's a big challenge." Troubled Acquisitions Telecom experts and even Fron- tier executives themselves place much of the blame for the com- pany's troubles on two mega-ac- quisitions over the last decade, including the $2 billion purchase of the legacy Southern New England Telecommunications Corp. of New Haven from AT&T in 2014. e tipping point came with the deal it announced just a few months later: the $10.5 billion acquisition of Verizon's wireline operations in California, Florida and Texas, more than doubling the size of the company. "Serving the new territories proved more difficult and expen- sive than the company anticipated, and integration issues made it more difficult to retain customers," Fron- tier said in paperwork filed in U.S. Bankruptcy Court. "Simultaneously the company faced headwinds stemming from fierce competition in the telecommunications sector, shiing consumer preferences and accelerating bandwidth and perfor- mance demands." Dave Weidlich Jr., president of the Communications Workers of America Local 1298, which rep- resents Frontier's 2,100 workers in Connecticut, has worked for Fron- tier and its predecessors AT&T and SNET for more than three decades. Although the company experi- enced service problems when it first entered the Connecticut market, Frontier was transitioning through them and was still investing in its network, Weidlich says. But that investment came to a halt following the California, Texas and Florida purchase. "Aer that acquisition, things just kept going from bad to worse," Weidlich recounts. "Very clearly they bit off way more than they could chew. ey did not have the systems or the personnel in place to take over all of the business that those states had." He said the company began using third-party vendors to oversee customer service and sales without the appropriate checks and balanc- es. Computer systems permitted third-party sales reps to sell services such as fast internet speeds that weren't available in certain geo- graphic areas, he said. "Customers would be le not only without the new service, but without their original service as well, and then it would take days to put them back in service. In some cases, they just le," he says. Invest or Die Industry experts say Frontier, which now provides phone, internet and video services in 25 states, underestimated the complex and competitive telecom landscape in Connecticut and the other new territories. Before the deals, the company had been a local telephone provider mostly in rural America, markets with few if any competitors. "ey didn't understand that they were going into a vastly different market than they had ever been in before, and it just killed them," says one Connecticut telecom industry insider, who was not authorized to speak for attribution. "If you're in rural Indiana, you can just say [to customers] here's Man with a plan?: New Frontier CEO Han was hired in late 2019 to stop the bleeding. NEWS FEATURE your DSL [internet connection], this is what you're getting and this is the price and I'm not doing anything else for you," he contin- ues. "It's very different here where there's a lot of competi- tion." With both transactions fi- nanced almost entirely with debt, Fron- tier became overleveraged, leaving little to invest in the company. And until just a couple of years ago, it spent what cash it did have on pay- ing large dividends to investors, he said. Frontier suspended the dividend in 2018. "If you can't invest in this busi- ness you will die," says the telecom official. "Period, end of story." Jeff Kagan, a telecom industry analyst based in Atlanta, Ga., says Frontier needs to take a page from the playbook of successful telecoms like AT&T and Verizon, which have adapted to the chang- ing environment by diversifying and continuing to offer new and better services. He points to AT&T's transfor- mation over the last decade from a traditional phone company to a wireless network turned media-and-entertainment giant (thanks to its 2018 merger with Time Warner, which gave it con- trol of brands like HBO and satel- lite television provider DirectTV). Meanwhile, Kagan says many cable companies have expanded into wireless services by part- nering with mobile telephone companies like Verizon and TMo- bile, while also offering ultra-fast internet speeds, and voice-over-IP telephone along with pay TV. "To start growing, Frontier needs to participate in the changing industry," he says. "It can be done. e question is: Will the new CEO take that path, or will he just continue to stop the bleeding?" Connecticut Impact Frontier expects to emerge from bankruptcy in August, if the court approves. Under a pre-negotiated restructuring deal with 75 percent of creditors, it would convert more than $10 billion in debt to common stock in a newly formed parent company called Frontier Com- munications Holdings. e state's Public Utilities Regulatory Author- ity (PURA) must also sign off on the deal. What's still unclear is specifically how Han's turnaround plan might play out in Connecticut. Frontier declines to answer questions about whether and where any of the new spending on fiber would be invested in the state. However, in its investor presen- tation, the company said it planned to target the 3 million households that have "attractive economics for new fiber builds," as well as rural locations that qualify for federal subsidies for broadband upgrades. Acting Connecticut Consumer Counsel Rich Sobolewski says he is interested to see whether any of that new spending will be in Connecti- cut. His office, which represents state utility customers, has been a vocal advocate for expanded access to high-speed internet in parts of the state that are presently un- derserved, such as the Northwest corner. He says he's hoping for an upside to the company's bankruptcy filing this spring. "It seems like they'll have a stronger financial position going forward, but we'll have to see," Sobolewski says. So far, CWA's Weidlich likes what he sees in Han, who he says seems committed to remedying past mistakes. He told New Haven BIZ in an April interview that the new CEO has been visiting work locations and is addressing some of the "glaringly obvious problems" he has discovered. "I'm optimistic that he's engaging our employees for ideas on how to improve the network," Weidlich says. n

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