Frontier Expects Successful Chapter 11 Exit Despite Delay
A California snag could keep Frontier Communications from emerging from bankruptcy until mid-April, though the carrier said it needed to close by the end of March. It got OK from the California Public Utilities Commission last week and is trying to resolve disagreement with the agency over an eleventh-hour revision to the telco’s settlement with public advocates and a union (see 2103190031). The commission’s “last minute change upset the settlement apple cart,” and the agency and parties must resolve differences “promptly given the looming bankruptcy deadlines,” said former CPUC and FCC Commissioner Rachelle Chong Thursday.
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A CPUC administrative law judge promised to propose a decision Monday “and asked the parties to stipulate to a shortened comment period, in hopes of being able to place the Proposed Decision on the CPUC’s April 15 Voting Meeting agenda,” an agency spokesperson said Thursday: “The parties have all so stipulated.” Frontier scheduled a Tuesday virtual meeting with an aide to Commissioner Martha Guzman Aceves to discuss the imminent proposal, said a filing in docket A.20-05-010.
“Frontier expects to emerge successfully from Chapter 11 shortly after an appropriate resolution is reached with the” commission, a spokesperson emailed Thursday. That's after the carrier told the CPUC it needed to close by March 30 to emerge from bankruptcy under its court-approved plan, including here and here. The reorg plan mentions a possible aggregate cash payment of $7.5 million, “which shall be distributed on the Effective Date, on a Pro Rata basis to each Holder of Allowed Term Loan Claims as of the Effective Date," only if the effective date is March 31 or later, "which payment shall not be subject to disgorgement or recharacterization.”
The new condition “pushed the financial commitments ... to the absolute limit, and further commitments would likely force Frontier to leave the California operating companies in Chapter 11 bankruptcy rather than pursue the reorganization under such financially onerous and operationally crippling terms,” Frontier said in a separate filing about a virtual meeting Wednesday with the Guzman Aceves aide. The company said Chief Legal Officer Mark Nielsen and other officials discussed their objections to the agency's revising its commitment that the provider build fiber-to-the-premise to 150,000 locations to specify that those locations should be only in places where the telco is the only service provider, with at least 10% in rural areas.
“This new provision materially modified” the settlement and was added in a March 16 revised proposed decision “during the ‘quiet period’ imposed by the Commission’s ex parte rules, which prevented the parties from raising their concerns about the revision until after the Commission’s formal vote on the Decision,” Frontier said. The change would “dramatically increase the costs and complexity of the fiber deployment by forcing Frontier to identify and deploy in isolated, cost prohibitive areas that are likely to continually change due to ongoing expansion by other providers,” it said. Frontier officials said they would accept requiring that either (1) at least 10% of the planned fiber buildout be in locations where Frontier is the only fixed broadband internet access service provider, or (2) at least 10% be in rural areas. The carrier said it prefers the second.
The CPUC doesn’t “usually disrupt parties' settlements, but it might if it feels aspects of the settlement are not in the public interest,” said Chong, who works with the California Emerging Technology Fund. “Commissioners were expressing important concern about rural areas of the state getting adequate broadband speeds, but ... apparently did not realize how difficult and expensive” it is for Frontier to build fiber to 150,000 rural households where it’s the only broadband provider, she said. “California has been working on rural infrastructure upgrades since 2006; the low hanging fruit is gone.”
The Utility Reform Network and other settlement parties “hope to work with the Commission to address their concerns, but still keep the important balance of build out priorities in the settlement,” emailed TURN Managing Director-San Diego Christine Mailloux. “We were surprised that the Commission attempted to supplement the build out requirement in such a substantive and potentially damaging way. This provision will not only change the business model calculus for Frontier, but potentially leave out a substantial part of Frontier’s territory that has sub-par and expensive broadband access including communities of color and low income communities, even if there is another provider.”