CenturyLink, Frontier and Windstream will be reporting their fourth-quarter 2017 earnings in the coming weeks and analysts are expecting narrow broadband losses for these providers as cable continues to expand their DOCSIS 3.1 footprints.
Jefferies said in a research that while it does not expect any major surprises, the overall “sentiment clearly remains negative, and we do not anticipate fourth-quarter results or initial 2018 guidance to provide a catalyst.”
Each of these service providers faces different challenges on the business and consumer side—two trends that will be reflected in their upcoming earnings reports.
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At CenturyLink, Jefferies said it expects that while the service provider will again report more broadband losses, they will be better than what was reported in the third quarter as promotions like Price for Life take hold.
“Within Consumer, we forecast 60k broadband losses, below the Street (but better than the 101k decline in the third quarter) as we anticipate churn from low-speed customers to continue, somewhat mitigated by the benefits from broad availability of the Price for Life offering,” Jefferies said.
Overall, CenturyLink, which completed the Level 3 acquisition during the middle of the quarter, will be facing a set of rocky financial results.
“We expect the fourth quarter to be messy given the mid-quarter closing of the LVLT transaction,” Jefferies said. “Our estimates reflect a full quarter of LVLT results, though Street estimates vary in approach, making comparability less useful. As such, we expect share performance to be dictated by the initial 2018 guidance, which will likely include adj. EBITDA, free cash flow and capex, but not revenue.”
Like CenturyLink, Frontier will also see lower broadband losses due to lower Fios churn in the CRF markets and its legacy markets. The service provider has been implementing new customer service and pricing promotions.
“We forecast broadband losses of 53k, an improvement from 63k last quarter, driven by better FiOS churn in CTF markets as well as a modest improvement within legacy markets from recent elevated declines,” Jefferies said.
Still, the fourth quarter could be a catalyst time for Frontier to show investors they are improving their financial status. The provider has struggled with revenue and growth following its tumultuous acquisition of Verizon’s CTF properties.
“In our view, the fourth quarter is critical as the company must demonstrate stabilizing/improving EBITDA trends amid ramping cost synergies and improving CTF performance,” Jefferies said. “We largely maintain our revenue ($2.22bn) and adj. EBITDA ($919mn) estimates, both narrowly above the Street, though at the midpoint of the fourth-quarter EBITDA guide.”
Finally, at Windstream, which completed its Project Excel VDSL2 roll out late last year, Jefferies expects the service provider to lose another 8,000 broadband subscribers.
“Within Consumer, we modestly lower our broadband net losses to 8k, down from our prior 5k loss estimate, as we see volume trends stabilizing following the promotion-driven improvement in the third quarter,” Jefferies said.
But the bigger narrative that Windstream will be touting in the fourth-quarter call will be how it is enhancing its business service portfolio transformation with new services like SD-WAN and UCaaS following its acquisitions of EarthLink and Broadview. Like its ILEC compatriots, Windstream continues to face challenges from legacy business and wholesale service revenue losses.
“While we expect positive commentary on new initiatives (i.e. SD-WAN and UCaaS), we believe the relative contribution and growth is not enough to offset legacy declines,” Jefferies said. “Windstream is expected to introduce new segmentation, likely in February, which could provide better visibility into the ramp of these services.”