CenturyLink, Frontier, Windstream's Q3 broadband, consumer results face cable’s 1 Gig push, says analyst

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When CenturyLink, Frontier and Windstream release their respective third-quarter earnings in the coming weeks, the key metric on investors’ minds will be broadband subscriber performance, particularly as customers churn to cable operators like Comcast that are offering competitively priced 100 Mbps to 1 Gbps services.

Cowen and Company said in a research note that cable’s aggressive 1 Gbps rollouts will continue to have an impact on these telcos' consumer and residential results.

“We expect continued challenges in Consumer/Residential as 3Q17 saw aggressive 1 Gbps offers from cable, a problem that isn’t going away any time soon,” Cowen and Company said in a research note. “Altice and Charter remained aggressive in the quarter, and clearly impacted AT&T’s lackluster video/broadband pre-announcement.”

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The financial analyst firm said that these factors “could delay Frontier’s CTF churn to “legacy levels” and CenturyLink’s timing for broadband unit stability.”

CenturyLink has enhanced its broadband position by debuting a Price for Life program. Launched in September, the program offers High-Speed Internet (HSI) service with a monthly rate that stays the same if customers keep their same internet service plan and remain at the same address. Under this program, the broadband price is locked in and does not change unless a subscriber changes their services, including change of address, and/or signs up for a different promotion.

CenturyLink rolled out Price for Life in several markets, including its legacy CenturyLink and Qwest markets.

While Price for Life is an "effective defense against cable," the analyst firm said, it may not help much in the legacy Qwest footprint. "The launch delay within its remaining (Qwest) markets will result in outsized unit losses.”

Rolling out Price for Life comes at a time when CenturyLink has continued to see broadband subscriber losses. In the second quarter, CenturyLink lost 65,000 subscribers, a trend it said reflects efforts by large cable MSOs such as Charter, Comcast and Cox to deliver 1 Gbps over their existing HFC plant. CenturyLink ended the second quarter with a total of 5.9 million broadband subscribers.

For Frontier, which will release its third-quarter earnings on Nov. 1, Cowen says the key metric to focus on its California, Texas, and Florida (CTF) market churn.

“We expect in-line revenue and slight downside EBITDA results driven by seasonal opex costs partially offset by materializing CTF synergies,” Cowen and Company said. “The key will be CTF churn, posting 2.69% in 2Q17 as the carrier hopes to return to historical FiOS levels (eventually 1.7-1.8%).”

Windstream, while also seeing broadband declines, will see a slight boost in third-quarter results from its now completed Broadview acquisition. Broadview gave Windstream an enhanced set of Unified Communications as a Service (UCaaS) capabilities it can market to small and medium-sized businesses.

“For Windstream, we expect the company to report slight upside 3Q17 results, however mostly due to the Broadview acquisition, which closed on July 28 (now included in our model) and we suspect not largely reflected in Street estimates,” Cowen and Company said.