CenturyLink, Frontier and Windstream to narrow broadband losses in Q1, says analyst

CenturyLink, Frontier and Windstream—three service providers that are in the middle of the wireline ILEC pack—will see broadband fortunes start to turn slightly in the first quarter with a smaller amount of subscriber losses. 

While these service providers won’t report their first quarter earnings until later this month and in May, the ILEC industry segment has continued to trail the cable industry, which has consistently added subscribers for the past several quarters. Cable continues to enjoy a nice lead in the broadband addition race, a factor related to MSOs' ongoing DOCSIS 3.1 build-outs. That trend will likely be seen in the first quarter results.

In 2017, the top cable operators added a total of 868,000 new broadband subscribers, according to LRG Research. Telcos, alternatively, reported that they lost about 625,000 subscribers in 2017.

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Jefferies in a new research report laid out its first-quarter expectations for these providers. The research firm said that while each of these providers will probably report more broadband losses, they will be narrower than the fourth quarter.

CenturyLink, which has been mired in a series of lawsuits over subscriber issues, is expected to report about 35,000 broadband subscriber losses. Jefferies noted that while its estimate is higher than Wall Street’s 25,000 estimate, that is an improvement from the loss of 105,000 subscribers in the fourth quarter of 2017. Further, Jefferies said it expects “churn from lower speed subscribers to begin to improve, while Price for Life could drive incremental activity.”

With many of Frontier's integration issues of its CTF properties behind it, Jefferies forecast that Frontier will lose about 51,000 subscribers, an improvement from the 63,000 subscribers the telco lost in the fourth quarter. This will be driven by an improvement within legacy markets and what the research firm says is “modestly better performance in CTF FiOS markets.”

Finally, now that Windstream has executed on its Project Excel broadband initiative, the provider can now offer higher speeds of 25 Mbps and above in more markets.  Windstream increased the penetration of broadband speeds of 25 Mbps and greater by another 300 basis points sequentially to 24% in 2017. The service provider said that by the end of 2018, it expects the penetration of the higher-speed tiers of 25 Mbps or greater to be 36%.

“Within Consumer, we forecast broadband net losses of 3k with trends improving given availability of faster speeds — we do not expect the recent DirecTV partnership to have a meaningful impact on subscribers in the near-term,” Jefferies said.

Jefferies said overall that it is remaining neutral on this group of service providers “given bloated balance sheets and challenging revenue/operational trends.”

However, Jefferies added that “CTL is the most intriguing to us given expectations for synergy-driven EBITDA growth, though risk to the FY revenue outlook and integration challenges keep us sidelined.”