Frontier broadband subscribers climb to 1.8M as business customer churn slows

Frontier Communications' (Nasdaq: FTR) no-frills broadband pricing had an effect in the second quarter as it gained 29,500 new customers. As of the end of June, the service provider had a total of about 1.8 million broadband customers.

"Our bundled $19.99 broadband basic offer and our standalone Simply Broadband product at $29.99 continue to meet with positive customer acceptance," said Maggie Wilderotter, chairman and CEO of Frontier, during the earnings call. "Customers love the simplicity, the value and the long-term certainty of honest straightforward pricing without the surprises of add on fees and [sticker shock] that follows the end of short-term promotional pricing offered by our competitors."

The telco's broadband gains were higher than the nearly 28,200 broadband customer net additions it had in Q1 2013 and the total 23,400 net additions for the entire year 2012. Interestingly, this was also first quarter where the sequential increase in data revenue surpassed sequential declines in voice revenues.

Besides the new pricing structure, the service provider expanded its distribution channels to sell its broadband services to customers.

Dan McCarthy, president and COO of Frontier, said that in the second quarter, "those channels contributed 30 percent of gross additions," up from 20 percent in Q1 2013.

Having already enabled over 50,000 new homes with broadband service in 2013, it expects to build out services to an additional 55,000 homes using federal Connect America Fund phase I (CAF-1) funding by the end of the year. Frontier is now in the process of applying for up to $70 million in Phase 2 CAF funding during the third quarter.

It also saw an uptick in video subscribers, adding about 15,200 video customers during the quarter. It ended the quarter with about 380,200 video customers.

With revenues declining only 0.4 percent in Q2 to $546.4 million due to a decline in wireless backhaul revenue, the story in the business unit was about reducing customer churn. Frontier narrowed customer losses to about 2,900 in the three months ended June 30 and completed the quarter with a total of 278,100 business customers.

In Q3 and beyond, Frontier will focus on extending its Gigabit Ethernet product to more large business customers and looking for new opportunities to sell its service bundles to small businesses. As of the end of the quarter, the GigE product was available in 83 percent of its Central Offices.

Demand for new services from its larger business customers in its legacy and acquired properties from Verizon (NYSE: VZ) varied.

McCarthy said that although it saw "good performance" for its enterprise segment in its legacy segments, in the acquired properties Frontier "had seen some slowdowns on some of the major players who are doing ARPUs and deciding whether they want to change from their incumbent provider today and we're in the fight for that, but it's a slow sales process."

One area where Frontier says it sees near-term potential is in the medium-sized and small business segments.

"We've adjusted our strategies around those two segments to try and take advantage of the opportunities as we go into the back half of the year," McCarthy said. "For instance, in the small space we've redesigned our small business bundle to actually create a very strong win back opportunity to make it more flexible and we're seeing great results initially as we've offered that and that's going head-to-head with the cable competitors."

Average monthly business revenue per customer rose 1.1 percent sequentially to $651.39, or 1.1 percent higher than the first quarter of 2013.

In the wholesale segment, Frontier reported that wireless backhaul revenue declined as more of its customers migrated from legacy TDM-based T1 circuits to Ethernet. McCarthy said that the telco expects that "the annual impact of this migration to be $25 million to $30 million, which has been occurring throughout this year and is included in our 2013 guidance."

Overall company revenue declined slightly to $1.19 billion from as compared to $1.21 billion. Frontier attributes the revenue decrease to a decline voice revenues and lower switched and non-switched access revenue, which was partially offset by increases in data services revenue.

Shares of Frontier were listed at $4.61, up 5 cents, or 1.10 percent, at the end of day trading on Thursday on the Nasdaq stock exchange.

For more:
- see the release
- here's the earnings transcript (sub req.)

Earnings roundup: Wireline telecom earnings in the second quarter of 2013

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