The new frontier: Company retools structure to prepare for fiber network

In a year that saw Qwest Communications garner much attention as it built out its nationwide fiber network and introduced retail services, another more established player quietly prepared for its own nationwide network's completion.

Frontier Corp., a nearly 100-year-old company that was known as Rochester Telephone Co. until 1995, began a serious restructuring campaign in 1997.

Publicly traded Frontier, after a few disappointing quarters in which earnings did not meet analysts' expectations, decided to reorganize to play to its strengths and prepare to make the most of its nationwide fiber network. Qwest is actually building the network to Frontier's specifications.

The changes were initiated by Joseph Clayton, Frontier's president and CEO who came aboard Aug. 20. By Oct. 14, Clayton outlined his plan to get the company back on track financially and operationally, and steps had been taken before the end of the year toward meeting his goals.

"We're focusing on things we know how to do well," said Randal Simonetti, Frontier's communications vice president. "We're focusing on core businesses, core attributes."

One step in Clayton's plan is divestiture of business units that don't fall into the core group. To that end, Frontier finalized the sale of its retail prepaid calling card business in December and agreed to sell Minnesota Southern Cellular Telephone Co.

The sale of certain business units, particularly the prepaid calling card business, doesn't indicate that Frontier is completely out of that business, Simonetti said. Instead, he explained, Frontier is "maintaining the platform and network capability" for calling card traffic; it just is no longer in the sales and marketing side of the business. It will instead serve as a network provider for companies that sell the cards.

Another initiative undertaken by Clayton is to consolidate certain business units with similar functions. In his Oct. 14 plan outline, Clayton said that Frontier would eliminate some 700 jobs during restructuring. Those changes are the result of numerous Frontier acquisitions over the past few years, Simonetti said. In some cases, acquisitions had not been fully integrated into Frontier or with each other, resulting in duplicate operations at subsidiaries with similar businesses.

"We need to consolidate more quickly, get on a central billing platform," Simonetti said.

The key for Frontier is preparing to make the most of the new fiber network. Frontier already has turned up the network in certain markets, but it has no set date for network completion, although it will be this year. Having its own network will mark a significant change for Frontier as well as a chance to maximize earnings as never before.

Frontier has had nationwide coverage for some time, but it was via a network that was almost 90% leased, Simonetti explained. Putting traffic on that network cost Frontier a little more than 2.5 cents a minute on average. On its fiber network, that cost will drop to slightly more than 0.5 cents a minute.

With its local, competitive local exchange and wholesale businesses, Frontier is focusing now on "driving traffic onto that network," Simonetti said.

Locally, Frontier willconcentrate on small and medium-sized businesses. Having its own fiber network also will allow Frontier to better capitalize on the growth in data traffic, which is growing at about a 30% rate, compared with only about 10% growth for long-distance, Simonetti said.