Frontier is confident that by enabling a large portion of its copper-based homes with 50 Mbps broadband it can right the broadband subscriber ship, but the provider faces a near-term struggle in its new CTF (California, Texas, and Florida) territories and its legacy markets.
Frontier enabled over 1 million copper-only households with 50 Mbps and higher speeds over the course of 2016. The telco also added over 190,000 CAF-II households and 500,000 households in adjacent areas. Frontier also made progress in the business broadband arena, equipping 200,000 new copper broadband builds in its CTF business.
Dan McCarthy, CEO of Frontier, told investors during the quarter that by improving copper-based speeds and reigniting marketing efforts it has put itself on a path for future growth.
“We began to see improvements towards the back end of the quarter, as our operational performance accelerated and our marketing offers began to penetrate to targeted communities,” McCarthy said during the earnings call, according to a Seeking Alpha transcript. “We expect these trends to improve further due to the aggressive offer we recently launched and the improvements in key distribution channels we will be launching towards the beginning of the second quarter.”
McCarthy added that “we expect our net additions on key metrics in the CTF markets to continuously improve through the remainder of this year and expect to return to market share growth in the second half of the year.”
However positive the expansion of copper-based broadband expansion and operational improvements may prove to be over time, the service provider still lost 73,000 broadband subscribers. Frontier narrowed its CTF broadband losses to 65,000 and legacy broadband losses to 8,000.
Frontier attributed the losses to the telco’s effort to turn off nonpaying customers in the CTF markets. Taking out the cleanup of the delinquent accounts, Frontier said it saw improved underlying trends in broadband additions in its legacy and our CTF markets.
Jefferies said in a research note that while Frontier may have a good story to tell, it is doubtful broadband growth will return this year.
“Management appears confident that call center and field operations are in place to support more meaningful improvement, with hopes of share taking in 2H,” Jefferies said. “We see quarterly positive adds as unlikely in 2017.”
Enhancing CTF, legacy broadband
Besides improving broadband speeds, Frontier continued to enhance its operational capabilities at its contact center and within its technician workforce.
These efforts have enabled Frontier to focus more of its attention on luring new customers in the new CTF markets. After increasing marketing efforts in mid-November, McCarthy said the company started to see an uptick in broadband sales.
“During the fourth quarter, we continued to improve our operational performance in our contact centers and in field operations,” McCarthy said. “As a result, we felt we were positioned to launch an aggressive customer acquisition offer in the CTF market. This offer is coupled with rapid install commitment and we expect it to build momentum further over the coming months.”
McCarthy added that “we increased marketing efforts in mid-November, we saw an increase in sales and that has continued into the first quarter.”
On the customer side, the service provider launched a series of new bundled offers in all of the CTF markets and some of its other markets, including the Pacific Northwest, Indiana and Connecticut.
One of those offerings is a $60 a month entry level triple play bundle of broadband, voice and video services. Frontier also began marketing three other packages: a $55 video double play bundle, a $50 voice double play bundle and a $40 a month standalone broadband offer.
McCarthy says these offers are “combined with Amazon gift card and special intervals for installation and it really is a very competitive offer that's going to really sing in the marketplace.”
Cleaning up nonpaying customers
After completing the cutover of the Verizon wireline assets, Frontier began addressing overdue accounts in the CTF markets in July 2016. Frontier noted that resolving these overdue accounts accelerated to an above-normal pace during the fourth quarter.
In anticipation of closing the deal with Frontier, Verizon stopped the treatment of overdue accounts last February. As Frontier completed the cutover of the Verizon assets onto its own systems, the telco continued non-treatment of these accounts through July 20.
At the end of August and through the first quarter, Frontier began disconnecting nonpaying customers, a process it expects to be completed this month.
“CTF account cleanup had a $45 million impact on fourth quarter revenue and we estimate less than a $25 million impact in first quarter revenue,” McCarthy said. “We do not expect any further account cleanup impact beyond the first quarter and we’re now operating normally with respect to the acquired customer receivable.”
Here’s a breakdown of Frontier’s key metrics:
Broadband: During the fourth quarter, Frontier reported that data and internet service revenues declined to $1.04 billion, down from $1.05 billion in the third quarter. Frontier ended the quarter with a total of 4.27 million broadband subscribers.
Video: Video subscribers were 1.42 million, down from 1.5 million in the same period a year ago. revenue for the quarter was $365 million, down from $392 million in the third quarter.
Business Services: Business revenue of $439 million was down $17 million or 3.7% in the quarter. Frontier said that $9 million of the decline in business service revenues was due to delinquent account cleanup. During the quarter, the service provider lost 14,000 business customers to end the period with a total of 502 customers.
Financials: Frontier reported total fourth quarter revenues were $2.42 billion, down from $2.52 million in the third quarter. The telco noted that $45 million of the sequential decline in revenue was related to resolution of CTF accounts that were determined to be nonpaying following an effort to address overdue accounts.