Frontier Communications Corp. (OTCMKTS: FTRCQ) says its reorganization plan related to its Chapter 11 filing received approval from the U.S. Bankruptcy Court for the Southern District of New York. However, aspects of that plan – and how much its execution could be influenced by activist investors – have led the Communications Workers of America (CWA) to join with consumer advocacy group The Utility Reform Network (TURN) to file comments with the Federal Communications Commission (FCC) requesting an investigation into whether Frontier’s plan is in the public interest.
Frontier filed for Chapter 11 protection this past April to help execute an agreement to reduce its debt to bondholders (see “Frontier Communications files petition for Chapter 11 bankruptcy”). The communications services provider says the move will reduce its debt load by more than $10 billion. The plan also will provide the financial flexibility to invest in its network, Frontier adds.
“Today’s confirmation marks the beginning of a new and exciting path forward at Frontier,” said Bernie Han, Frontier’s president and CEO. “With a significantly stronger financial foundation, Frontier will be well positioned to accelerate our transformation, invest in infrastructure and drive efficiencies to better serve our customers. At a time when our network services have never been needed more, our entire team has remained steadfast in their commitment to serving our customers, ensuring they are connected and informed. Looking ahead, we have a strong vision, one where we will win in the current competitive environment and create a better customer experience.”
Frontier says it has won “regulatory approvals or favorable determinations” of its plan in 6 of the 14 states in which it operates. However, while the CWA and TURN are in favor of Frontier’s overall goals – “The bankruptcy plan relieves Frontier of $10 billion in debt, a necessary step that will allow Frontier to make the investments needed to provide the service that its customers want and deserve. In addition, Frontier’s plan protects the benefits and collective bargaining agreements of frontline employees, whose hard work has kept the company afloat through years of mismanagement,” said the CWA in a statement – the union and TURN have concerns about the direction the execution of that plan may take.
In particular, according to the comments filed with the FCC, the two organizations fear what they called a “’virtual separation’ plan that could split the company between areas that will receive investment in fiber and those that won’t.” While admitting that they’re unsure of the details of the “virtual separation” structure, such a plan could negatively affect service to non-fiber areas as well as endanger jobs, the two groups warn. Along these lines, the CWA and TURN request that the FCC require Frontier to commit to network investments and a pledge not to reduce its workforce as the restructuring plan is enacted.
The two groups also point out that the plan states that there will be no change in ownership of the company. However, the comments note that two of the bondholders are activist investors Elliott Management (which was labeled a “vulture fund”) and Franklin Resources, whom the CWA and TURN fear could combine to “exert control” over the company’s activities, given how much of the reorganized company they would own in aggregate.
The CWA and TURN stopped short of suggesting the FCC should disapprove of the plan. But they requested that the FCC investigate it in detail before the Commission rules on it.
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