It is no surprise that Frontier arrived at its destination by its own hand. Warnings were provided by financial experts in 2009 when Frontier pursued purchasing landline properties from Verizon in 14 states for $8.5 billion. One such expert, Randy Barber, advised the Ohio Utility Commission to turn down the purchase in OH Case No.09-454-TP-ACO (https://dis.puc.state.oh.us/DocumentRecord.aspx?DocID=d69b70c7-30b5-458e-932f-72721fc458b2);
- Are you saying that Frontier’s business model is not sustainable?
- Yes, that is exactly right. Frontier’s business model is based on high dividend pay-outs,
financed by reducing the value of its assets. A company can support this business model
over the short-term by adding assets through new acquisitions. But such a model is not
sustainable over the long-term, particularly if the company takes on large debt to finance
the purchase. This is precisely what Frontier proposes to do in this transaction.
Frontier has consistently paid out much more to shareholders than it has earned in
net income. During 2008, Frontier paid out dividends equal to 173 percent of net income.
In the first two quarters of 2009, the payout has been 240 percent of profits ($156 million
in dividends, $65 million in net income). (See Schedule 4) The result is that Frontier’s
shareholders’ equity has declined steadily. It stood at almost $2 billion in 2001, but is now
less than $450 million (as of June 30, 2009).
And Further;
A fundamental result of Frontier’s practice of using depreciation-based cash flows
to fund dividends is an inevitable decline in its property, plant, and equipment. Even with
the 2007 Commonwealth Telephone acquisition of 434,000 access lines, Frontier’s net
property, plant, and equipment has declined by more than $1.2 billion dollars since its peak
in 2001. (See the previously referenced Schedules 3 and 5) Frontier’s business model is
based on failing to adequately reinvest in its network – in essence, cannibalizing its
network assets – to pay high dividends to shareholders.
As a witness to the turn of events these past nearly 10 years working at Frontier, the prophetic words of financial experts weren't heeded. Is it any wonder that so many state utility commission's like Minnesota, Ohio, West Virginia and others are investigating Frontier for poor network reliability and billing problems among other things?
The sad truth of the matter is that many Frontier executives, some who are no longer with the company, are/were paid handsomely in contributing to its demise without consequences. Many Utility Commissioners are just as culpable when they were warned NOT to allow Frontier to purchase landline properties in their respective states. California Public Utility Commission alone has 4 attorneys assigned to the bankruptcy case despite having 50 conditions on the CTF purchase in 2016. Many Labor Unions intervened as well and even now there are 2 IBEW attorneys assigned to the bankruptcy case. Meanwhile thousands of employees paid the price for Frontier's Senior Leadership Usury Teams (sl–s) poor decision making abilities by being laid off. Frontier Senior Executives took no pay cut while the company was declining; they just bailed! It really shows the character of a company who has no shame and doesn't care about anyone but their own self-interest. Even now, during bankruptcy, Frontier continues to offer Incentive and Retention Program, Performance LTI Program, Non-insider Retention Program, Relocation Program, Non-Director Employee Compensation and a reward to certain employees for the PNW Transaction;
"The prepetition employment contract of the Debtors’ Executive Vice President, Chief Transaction Officer, and Chief Legal Officer provides for a restructuring success fee totaling $1 million to be paid in two equal parts upon plan confirmation and the effective date."
"In connection with the closing of Pacific Northwest Transaction, six Employees
will separate from the Debtors .In total, this relief will impact six Employees, who will be paid an aggregate of approximately $188,000, if the requested relief is granted."
"For the avoidance of doubt, solely pursuant to the Final Order, the Debtors request authority to honor their obligation to remit a $250,000 severance payment to Daniel J. McCarthy, the Company’s former CEO, on the first regularly scheduled payroll date in June 2020. The Debtors also have an obligation to provide approximately $16,000 worth of COBRA subsidies to Mr. McCarthy over the next fourteen months."
Source (DEBTORS’ MOTIONFOR ENTRY OF INTERIM AND FINAL ORDERSAUTHORIZING THE DEBTORS TO (I) PAY PREPETITION EMPLOYEEWAGES, SALARIES, OTHER COMPENSATION, AND REIMBURSABLE
EMPLOYEE EXPENSES AND (II) CONTINUE EMPLOYEE BENEFITS PROGRAMS Chapter 11 Case No. 20-22476 (RDD)
The evidence is clear that Frontier's High Dividend Depreciation Harvesting business model coupled with continuous mistakes/poor execution instituted by Mary Agnes Wilderrotter in 2004 and then continued by Dan McCarthy were the primary reasons that led to Frontier's operational failure. Maybe the current CEO, Bernie Han, will make positive changes to their business model if they successfully emerge from bankruptcy or maybe not. One thing is for sure, several someones will be handsomely rewarded for it but thankfully I won't have to endure suffering under Frontier employment anymore.
Good luck to those remaining with Frontier!