The Communications Workers of America (CWA) and The Utility Reform Network (TURN) filed comments with the FCC on Thursday that raised concerns that Frontier may split off its fiber assets, among other items, as part of its restructuring plan.
Frontier Communications filed for bankruptcy on April 14 to kick-start a prearranged $10 billion debt-cutting proposal backed by its bondholders. Frontier announced it had entered into a Restructuring Support Agreement (RSA) with bondholders representing more than 75% of its $11 billion outstanding unsecured bonds. Frontier's goal was to reduce its debt by more than $10 billion. Frontier filed in the U.S. Bankruptcy Court for the Southern District of New York.
The CWA represents 8,000 Frontier employees, most of which are technicians and call center employees.
The CWA and TURN raised red flags with the FCC that the some of the shareholders are trying to spin off of the more profitable fiber assets as part of a "virtual separation" plan.
"Frontier’s application asserts that there will be no change in control of the company. However, a group of shareholders who have been publicly identified as owning close to 50% of Frontier bonds have been closely coordinating in negotiations with the company and share legal representation in the bankruptcy process," the CWA and TURN said in Thursday's press release. "This group, which includes vulture fund Elliott Management and Franklin Resources, may continue to coordinate post-bankruptcy and exert control over the decisions of the company."
Frontier didn't respond to emails Friday morning that asked what "virtual separation" meant. Earlier this year, Frontier blamed a lack of investment in fiber as one of the main reasons it was under financial duress
The letter to the FCC said splitting off Frontier's fiber assets from its legacy, copper-based assets would lead to upgrades in the former, but not in the latter areas. The CWA and TURN acknowledged in their letter to the FCC that the "virtual separation" mentioned in Frontier's Fourth Amended Plan wasn't clearly defined, "but could result in significant changes to Frontier's operations."
"This is appears to refer to a separation of Frontier’s fiber deployment from its non-fiber operations, including perhaps provision of retail services such as broadband and routine operations in the company’s 'legacy' or copper areas," CWA and TURN said in their letter to the FCC. "CWA and TURN are concerned that 'virtual separation' could have an effect on the quality and reliability of service received by Frontier’s customers, as well as Frontier’s ability to achieve the Commission’s broadband goals.
"To better understand this term, and its effects on Frontier’s operations and customers, CWA and TURN believe it would be necessary for the Commission to review numerous documents that were not filed with the Commission."
Frontier’s April 15 Restructuring Term Sheet, dated April 15, 2020, which was not filed with the Commission, included a footnote concerning “virtual separation.”
"Within 14 days after the RSA Effective Date, the advisors to the Company Parties will provide to the advisors to the Consenting Noteholders (on a professionals’ eyes only basis) a detailed timeline with respect to the Virtual Separation and will provide updates to the advisors to the Consenting Noteholders (on a professionals’ eyes only basis) not less frequently than monthly as to progress with respect to the Company Parties’ efforts in connection therewith.”
The letter to the FCC from CWA and TURN said: "The virtual separation appears to set up a structure through which Frontier could seek to capture the revenues from fiber deployments for investors, potentially depriving retail operations of necessary cash flows, personnel, and other resources."
"The Commission should obtain all copies of analyses or timelines that the Applicants have provided to agents of the Consenting Noteholders. Only by obtaining these documents (on an ongoing basis) can the Commission develop insights into the potential outcomes of Applicants’ 'virtual separation; plans."
While CWA and TURN don't know what "virtual separation" means, they said it was important "to understand the implications of such a separation on Frontier’s participation in the federal broadband deployment programs including the Rural Digital Opportunity Fund (RDOF) auction."
Frontier filed its Third Amended Plan of Reorganization with the bankruptcy court on June 29. The Third Amended plan was approved by Frontier's senior noteholders during a vote in July. On Aug. 17, Frontier filed its Fourth Amended Plan, which the CWA and TURN said made "significant changes in financing and other arranges to incorporate terms of a settlement reached with Frontier's secured creditors."
The Fourth Amended Plan was scheduled to be reviewed during a Friday hearing in the bankruptcy court.