Frontier's Northwest Buyer Aims to Be 'Different'; Some Stakeholders Hopeful
The acquirer of Frontier Communications’ northwest network is weathering a global pandemic and the seller’s bankruptcy as it seeks to be “a different kind of company,” Ziply Fiber CEO Harold Zeitz said in an interview Monday. The rebranded Northwest Fiber is upgrading Frontier’s core network and plans to extend fiber further into rural areas where economical, he said. Whether Ziply finds success is “all about execution,” Moody’s analyst Neil Mack told us.
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Ziply started rolling out fiber to 13 small rural markets in its four-state territory, comprising Idaho, Montana, Oregon and Washington, the company said May 13, about two weeks after closing the buy. The selected towns mostly had DSL from Frontier. Ziply bought infrastructure company Wholesail Networks.
COVID-19 hit the Kirkland-based company’s home state of Washington hard. “We closed our office and had people working from home from the beginning of March,” Zeitz said. Ziply developed a contactless installation process. Zeitz attributed an uptick in demand for services and speed upgrades to the pandemic.
Frontier’s bankruptcy delayed closing by about a month, but “I can’t say it materially affected us,” said Zeitz. The buyer knew Frontier bankruptcy was possible when signing, he said. The U.S. Bankruptcy Court for the Southern District of New York dismissed the matter from the bankruptcy proceeding immediately before May 1 closing, Northwest Fiber notified the FCC Monday. The bankruptcy judge who reviewed the deal was “very fast in understanding it would impact customers if there was delay,” so it was one of the first things to get through the process, the CEO said.
Frontier faced transition troubles when it acquired Verizon assets in California, Florida and Texas (see 1605090043). Ziply sought to avoid integration issues by cloning Frontier back-office systems, Zeitz said. Frontier didn't comment Wednesday.
“It’s hard to get to a stand-alone operating point” in network carveouts, but Ziply “took out a lot of that risk,” said Mack. The company prepared well for the takeover and is starting from a good position, the analyst said. “It’s a question of overbuilding portions of the network that’s copper-based with fiber and then connecting more residences” and businesses, said Mack. “Delivering on the pace that they have planned for is critical.” COVID-19’s impact is unclear but could hamper the company if it limits access to customer premises for installations, he said.
Consumer advocates hope Northwest Fiber’s buy of Frontier wireline, video and long-distance operations will lead to better rural broadband (see 1910040023). The Oregon Citizens' Utility Board is “encouraged” by fiber deployments Ziply announced in underserved areas, but “the digital divide in Oregon (like most other states and the country on the whole) remains pronounced,” emailed CUB Outreach Manager Samuel Pastrick.
The rebranded telco plans to expand fiber to about 85% of locations passed over three years, up from about 32% today, said Zeitz. And it plans to improve service in remaining areas where it’s unlikely to build fiber, he said. Ziply committed to spending more than $500 million.
State or federal grants could encourage expansion into uneconomical areas, the CEO said. Ziply will finish Connect America Fund work started by Frontier, and “will look at” but hasn’t decided whether to seek FCC Rural Digital Opportunity Fund support, he said. Zeitz supports one-touch, make-ready and other policies that ease deployment and reduce costs.
Zeitz said he has heard the complaints about Frontier service quality and plant maintenance. “We did our own inspection plus third-party inspection,” and found the network to be “in reasonably good shape," he said. Ziply is redesigning and upgrading the network to improve reliability and add capacity, he said. A first step is adding redundancy in the core network to prevent fiber cuts from causing outages, he said. When copper is in bad shape, it sometimes makes most sense to replace it with fiber, he said.
Ziply will respond to outages sooner than many of its peers would, the CEO promised. It’s responding to customer calls in about two-thirds less time than Frontier, he said. More call-center staff increases costs short-term but should mean fewer calls long term, he said.
The Frontier assets -- formerly Verizon’s -- have “good bones” but were “undermanaged” and suffered from underinvestment, said Mack. “That’s possibly due to the capital constraints that a highly leveraged Frontier Communications had to deal with."