with Maggie Wilderotter, CEO & Chairman of Frontier Communications
As one of the only woman CEOs of a major wireline telco, Frontier Communications (Nasdaq: FTR), Maggie Wilderotter is in a unique place. She made the biggest move of her nearly nine-year tenure with the telco in leading its acquisition of Verizon's rural telephone assets in 2009 and integrating those assets into its fold. Sean Buckley, senior editor of FierceTelecom, speaks with Wilderotter about the role of women in telecom and the industry's broadband and business services growth.
FierceTelecom: You participated in the Women in Leadership panel at the TIA 2013 trade show. Can you talk about the opportunities and challenges for women leaders in what has been a very male dominated industry?
Maggie Wilderotter: I have been at Frontier coming on 9 years in November. I am still the only woman CEO running a communications service company that's in the Fortune 500 or even in the Fortune 1000. It's not an industry that has a tendency to lend itself for a lot of women in senior level positions. I come from a different point of view because I happen to be the gender, but 50 percent of the people we serve in our markets are women. I think having diversity in your leadership and in your ranks allows you to make better decisions on behalf of the customers you're serving. I think Frontier has proven that that works.
At the senior level in our company there are seven top people, including me and my six direct reports, four of which are women. If you look at our four regions, 50 percent are run by men and 50 percent are run by women. In our senior level positions, between 40-50 percent of all our senior VPs and above are women. We have continued to promote from within and bring great women from the outside and give them opportunities to prove themselves and to move forward within the organization. I am also pushing others in the industry to be more open to that and I think we're starting to see on the boards of directors a lot more senior women on AT&T's (NYSE: T) board and on Verizon's (NYSE: VZ) board.
FierceTelecom: Let's switch gears and talk about broadband, a segment where you added nearly 30,000 new subscribers in the second quarter. Do you anticipate that growth will continue?
Wilderotter: We had several years of active integration and conversion work on the Verizon acquisition properties where in the legacy Frontier markets we had strong market share for broadband because we had been building capability for years. We knew we could take that formula and apply both our local engagement model, our upgrades of those networks and access in the acquired markets, and put leadership in those general manager positions throughout those 14 states. We had probably somewhere between 15-25 percent share of the broadband market in those markets. If you even look at our internal goal over the next couple of years to get to an average of 40 percent share, we have 10-15 percent share of growth to get there. We think that's doable and the plans we put in place that let us hit the ground the first of 2013 with all the conversions and integrations behind us has proven well. In the first quarter, we had higher net growth than all of 2012, and the second quarter was even better than the first quarter. We all know that the third quarter is a seasonality quarter, but despite the headwinds of seasonality we are still seeing that momentum continue.
FierceTelecom: Would you say that the Frank the Buffalo promotion and the $19.99, $29.99 deals is driving broadband progress?
Wilderotter: One of the things that we did with coming up with a brand essence, no different than what Geico has done with the Gecko, is to have a memorable character who can portray a set of values that resonate with customers and allows them to pay attention and cut through the clutter. I think when you have a talking buffalo it does give someone pause for thought and they listen to what the buffalo has to say, especially when the voice is like a Jerry Seinfeld.
What we also found is with propensity testing based on what the buffalo said and with our $19.99 and $29.99 broadband simplicity offers that there would be a propensity for a percentage of cable company customers to switch. By watching the Frank brand essence campaign, they liked Frontier better, it opened them up to switching, and a lot of them don't like [their] cable provider anyway. You could go after the low-hanging fruit if they were looking for alternatives. I think it has been very successful for us. We have used Frank to refresh the messaging without having to change the offers, so we have gotten really good at conversion rates and selling these offers. Frank just helps keep it fresh.
FierceTelecom: In broadband one of the key battles with cable centers on speeds. Do you think you have what it takes to compete head-on with cable, and what can we expect this year and into 2014?
Wilderotter: When we look at our network build, we look at two different components. One is called the middle mile, which connects directly to the Internet from the last mile. The way I describe it to the lay person is that's the freeway and the last mile is your on- and off-ramps to that freeway. You have to have a lot of capacity in the middle, which is where a lot of your congestion can be. Even if you take the last mile, which everybody seems to focus on to improve speeds and capacity, if it gets into the traffic jam in the middle mile you're still going to have very slow response.
In 2011 and 2012, we basically upgraded our middle mile throughout the company to take it to a fiber-based ROADM network, which gives us not just capacity for today, but capacity for the next several years. We added and doubled the lanes on the freeway. Then we went to the DSLAM technology and the last mile technology to upgrade that capability to make sure that we could start to offer personalized speeds and capacity in neighborhoods.
In the past, the way our networks were built is you'd have a 3 Meg or 6 Meg market. Now you can have a 3 Meg, a 6 Meg, a 20 Meg, and a 40 Meg household all on the same street and we can dynamically offer speeds and capabilities based upon the collective capability we can deliver to that neighborhood from a speed and capacity perspective.
We see speeds today on DSL of 40-50 Mbps, and we believe in the next 12 months it will be 100 Mbps. In the labs, some of our vendors are getting 300 Mbps. When you translate that back to usage, 80 percent of our customers still choose 6 Mbps today even though 40 percent of our market can get 20 Mbps. They're still picking six because six is just fine to watch Netflix movies, Web browsing, e-mail, and social media. It's not until you get into the heavy usage--whether you're a gamer or you're doing VPN. That's where you are going to push into the 12 or 20 Mbps solutions.
FierceTelecom: Frontier continues to expand its IP service portfolio for business and wholesale customers. Given that you serve businesses and carriers in smaller markets, what are customers looking for?
Wilderotter: Commercial business makes up 50 percent of our revenues. If you think about that 50 percent it's almost evenly split: a third is carrier and wholesale, a third is medium enterprise, and a third is small business. When you think about the actual number of customers, about 90 percent of the total business customers we have are small. We have 100 carrier customers, and then we have 7,000 or 8,000 medium and enterprise customers in our market. Their revenue is big in each category and the total numbers we serve in those categories are very different.
We're still a leader in wireless backhaul in the markets with the wireless carriers so that's an ongoing revenue stream. We have had some headwinds as we have converted fiber to the cell from TDM to Ethernet, but we think by the middle of next year we're through all that. We've been public that it's been $25 to $30 million this year in headwinds. However, we have been making that up in the small, medium and enterprise space where we decentralized our sales teams to our regions and we have also brought on new distribution for local agents, national agents and online agents for small business. This has really helped stabilize the number of customers we have in business and stabilize churn.
On the network side, we have rolled out metro Ethernet. We're probably at 80-85 percent of the country at this point and hope by the end of the year we'll be complete on Ethernet availability. We simplified our small business bundles, taking a page out of what we did in residential at the beginning of the year. In July, we launched small business bundles that are competitive on the price point, but also on the voice and data capabilities in those bundles. We have seen the highest conversion rates in small business sales in four years over these last several months.
FierceTelecom: Have you seen other benefits in the FTTT services you provide?
Wilderotter: One of the positives we're now just starting to exploit is when you deliver fiber to the tower, you can to start selling fiber-based services to businesses along that route to any commercial business in those areas. We think that in addition to multiple players on the tower and maximizing the infrastructure that's there you also have the opportunity to maximize the infrastructure to get to the tower.