After a 29-year career, Dan McCarthy has stepped down as Frontier Communications' president and CEO, and has left the company's board of directors. Frontier's board unanimously appointed Bernie Han as McCarthy's successor across all three positions at the company.
“It has been an incredible experience leading Frontier over the last four years, and I leave knowing the Company is in great hands with Bernie at the helm of this skilled and dedicated organization," McCarthy said in a statement. "I remain a firm believer in Frontier’s future. I look forward to cheering the team on, and I want to thank everyone I have had the pleasure to work with and learn from during my time with Frontier.”
Wall Street reacted positively to McCarthy's announced departure with the company's stock up to almost 7% Wednesday morning.
Rumors of McCarthy's possible departure started to boil to the surface last month after Frontier reported weak third quarter results. Frontier lost 1,000 fiber customers in the quarter, which was a slightly lower loss from the previous quarter. While most of the major telecom operators are posting increased broadband subscribers every quarter, Frontier lost 71,000 broadband subscribers in the third quarter quarter.
Frontier cited a seasonal 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. After previously stating that its fiber build would lead to a turnaround, Frontier is still bleeding out broadband subscribers.
In the third quarter, 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 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.
Frontier's demise 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.
Frontier was plagued by integration issues in the former AT&T and Verizon properties, and its customers have been vocal about service issues. Frontier is saddled with a $17.5 billion debt load ahead of a possible restructuring.
While Frontier said McCarthy stepped down from his positions, he may have not had a choice. Last month Bloomberg reported that some of Frontier's creditors had 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. It seems likely that Elliott and Franklin pushed for McCarthy's departure.
While he'll have his hands full righting the ship, Han brings more than 30 years of experience to Frontier, including more than 11 years at Dish Network, as well as an extensive background in finance. At Dish, Han served as CFO, COO and as executive vice president for strategic planning. In those roles, Han was responsible for a broad portfolio including assessing new strategies and markets, operations, customer service, retention marketing, information technology, as well as financial functions consisting of accounting, treasury, tax, financial planning and analysis, investor relations and SEC reporting.
Han was brought on board to Frontier's finance committee as an advisor in October, and has been working to improve the company's financial position since then.
In Frontier's press release, Pamela D. A. Reeve, independent chairman of Frontier’s board of directors, cited Han's turnaround efforts at Dish, which led to increased profitability and reduced churn.
"The finance committee and entire board are confident that, as CEO, Bernie will further Frontier’s efforts to drive operational improvements in our business while continuing to evaluate the company’s capital structure," Reeve said in a statement. “As we continue to take action to improve Frontier’s operational, financial and strategic position, now is the right time to transition leadership. We thank Dan for his nearly three decades of service to Frontier and tireless commitment to customers and employees and wish him the best in the future.”
Han previously worked as chief financial officer at Northwest Airlines, and chief financial officer and chief marketing officer at America West Airlines. Earlier in his career, he worked in financial planning and analysis for American Airlines and as a systems engineer for Hughes Aircraft Company.
He received his Master of Business Administration, Master of Electrical Engineering and Bachelor of Science degrees from Cornell University. Han currently serves on the Board of Directors of Frontier Airlines.