Frontier Communications Filing Bankruptcy No Surprise to Many

Frontier Communications filing bankruptcy came as no surprise among those in the channel who work with the company.

XaaS1’s Rick Beckers

In fact, Rick Beckers, CEO of XaaS1, said it was fully expected from the time Frontier Communications purchased AT&T‘s copper networks in various states around the country years ago. Frontier Communications is a XaaS1 partner.

Frontier Communications purchased the copper infrastructure knowing it was only going to last so long, he said. The time would come when it would be too costly or the consuming customer would migrate to something with more “bang for their buck” if they could, he said.

Frontier Communications filing bankruptcy last week was part of its restructuring support agreement to cut its debt by more than $10 million. The U.S. Bankruptcy Court for the Southern District of New York OKed the company’s “first day” motions to support business operations.

Frontier is the latest company in the channel to file Chapter 11 bankruptcy, following Windstream, Fusion Connect and Sungard AS.

Frontier’s restructuring support agreement is supported by 75% of its bondholders. The company also received $460 million in debtor-in-possession (DIP) financing.

Subject to court approval, Frontier’s liquidity will total over $1.1 billion, including the DIP financing and more than $700 million cash on hand.

“We are pleased to have received approval of our first-day motions, which will allow the business to continue operating, providing important services to our customers without interruption and maintaining our long-standing relationships with our vendors and business partners,” said Robert Schriesheim, who chairs the finance committee of Frontier’s board of directors. “Our comprehensive restructuring plan will result in a recapitalized balance sheet with a $10 billion reduction in our debt on an expedited basis, which will substantially enhance our financial flexibility and facilitate our ability to reposition Frontier and accelerate our broad-based strategic transformation.”

“This bankruptcy filing is likely because they’ve reached that point in time where the scales are finally tipped against the continued operation of the copper network,” Beckers said. “It doesn’t make financial sense anymore. And I assume the bankruptcy filing is their attempt to jettison the debt that was built up over time from maintaining that old network. They should have been preparing for the final shift away from plain old telephone service (POTS) and DSL.”

Frontier’s future depends on whether it has adequately diversified or will be able to shift gears fast enough to stay profitable, Beckers said.

“When they lose the revenue from the old POTS and DSL, they will have to replace it with something,” he said. “They will have to retract from the areas where this was their primary source of revenue because it will come to an end. In my humble opinion, they will retract to a smaller company that depends on the fiber buildouts that they have been able to do thus far. It might also depend on them acquiring other fiber networks to increase their footprint. Who knows, they might branch out into a wireless technology.”

Public sector monies may play a part in Frontier’s future, Beckers said. It could profit from federal agencies funding projects to improve public internet, he said.

“The future of our nation as it relates to internet infrastructure is very fluid and volatile,” he said. “The front runners are those that have staked their future in fiber, cellular and satellite technologies.”

Telarus’ Adam Edwards

Adam Edwards, Telarus‘ CEO, said Frontier notified the master agent of the pending bankruptcy several months ago.

“We don’t anticipate any impact to our commissions,” he said. “Frontier has expressed [that] the channel is a priority and we believe this will play out in much the same way that the Windstream and Fusion bankruptcies have played out, meaning they’ll restructure their debt and will focus aggressively on growing revenue afterward. The channel is critical to future sales growth and we look forward to playing a role in Frontier’s growth post bankruptcy.”

Other master agents declined to comment.