Frontier Communications may have a solid plan to scrub its base of nonpaying customers and increase profitability, but the effort resulted in a near-term decline in first-quarter broadband subscribers.
During the quarter, Frontier lost a total of 102,000 broadband subscribers, a factor it attributed to customers coming off of pricing promotions. Specifically, the service provider lost 64,000 in the California, Texas and Florida (CTF) region, while losing 28,000 in its legacy regions, due to new collection processes.
Dan McCarthy, CEO of Frontier, said during the earnings call that while Frontier does not like losing customers, the service provider wants to attract stickier customers that purchase higher priced service bundles.
“I hate to lose any customers, but we had a significant segment of the customer base that was on deeply discounted offers,” McCarthy said during the earnings call, according to a Seeking Alpha earnings transcript. “We've been focused on improving the profitability of the segment, and in the process, we naturally lose some customers.”
McCarthy added that “we still feel good about stabilization of the FiOS customer metrics, and a lot of that is really going to be about improving churn in the back half of the year.”
Jefferies said in a research note that Frontier’s move to implement new initiatives to improve gross ads and reduce churn “could be effective, they may take time to reach full potential.”
Customer retention focus
Now that it has cleaned up most of the nonpaying customers in its legacy and CTF properties, Frontier plans to implement a number of customer retention processes and initiatives to improve overall customer satisfaction.
“Our focus now is on improving our customer retention, enhancing customer experience, and continuing to improve our cost structure over the coming months,” McCarthy said. “With these initiatives, we are on path to subscriber and revenue stability and improved EBITDA later this year.”
During the third quarter, Frontier plans to introduce a Fios self-installation system. While the service provider did not provide many details about what the installation entails, McCarthy said the system could enhance the customer experience by not having to wait for an installer to show up at their home.
“This will improve customer satisfaction by providing customers the ability to complete Fios installations on their own schedule,” McCarthy said. “The introduction of this system will also increase efficiency and improve internal resource utilization by reducing reliance on contractors.”
The service provider is also going to implement Pegasystems’ on-premise and cloud-based apps to automate functions like customer field services, sales automation and customer service. The Pega platform’s customer service app will allow Frontier to manage its mix of geographies, products, customer segments, and channels to streamline processes and reduce customer service costs.
“We have a range of initiatives that will be implemented on the Pega platform that together will transform the customer experience, improve customer care, increase retention, and drive higher customer acquisition, all while reducing marketing expense,” McCarthy said. These tools will result in more consistent outcomes because they will make business processes easily repeatable.”
Upping copper speeds
While deepening its Fios FTTH footprint in the CTF and other markets is important, Frontier remains committed to enhancing the speeds available on its copper-based networks.
Over the course of 2016, Frontier enabled over 1 million copper-only households with 50 Mbps and higher speeds, a trend that continued into the first quarter. The telco also enabled 27,000 households with broadband via the federal CAF II program, plus another 82,000 households in adjacent areas.
McCarthy said that Frontier “will continue to execute on our copper upgrades, as well as make select upgrades in markets around the country on our copper plan.”
Following fellow service providers CenturyLink and Windstream, Frontier revealed that it will start rolling out G.fast in multidwelling units (MDUs), but did not provide a specific timeline for wider deployment.
“We will be deploying G.fast technology in MDU applications, providing a highly competitive offering for that segment,” McCarthy said. “Our first application was in Connecticut, and we are pleased with the performance and looked at to move that more widely into production in attractive markets.”
Frontier’s overall first quarter results were once again a mixed bag as it dealt with near-term broadband and business services churn
Here’s a breakdown of Frontier’s key operating metrics:
Broadband: Frontier’s data and internet service revenues were $993 million, down from $1.01 billion in the fourth quarter. Residential service revenues were $1.16 billion, down from $1.19 billion in the fourth quarter of 2016.
Frontier said it achieved a third consecutive quarter of growth in broadband gross additions in its CTF markets, which was driven by the first full quarter of robust marketing.
Video: Video service revenues also declined to $347 from $365 million in the previous quarter. The service provider lost 80,000 video subscribers, ending the first quarter with a total of 1.07 million subscribers. It also lost 8,000 Dish Network satellite video subscribers to end the quarter with 266,000 customers.
Business: Business services revenues declined from $1.01 billion to $995 million in the quarter. Similar to other wireline operators, Frontier continues to see revenue pressure in the business segment as more customers migrate from TDM to IP-based Ethernet services.
Financials: Frontier reported first-quarter revenue of $2.36 billion, down from $2.41 billion in the fourth quarter of 2016. Operating income was $271 million. The company reported $75 million net loss.