Frontier Q2 revenue down from Q1, but Verizon line integration process is on track

With one year since the acquisition of Verizon's (NYSE: VZ) rural lines now under its belt, Frontier Communications (NYSE: FTR) reported that while revenue in the second quarter of 2011 dipped  to $1.3 billion, that figure was up from $516.1 million in Q2 2010.

Frontier attributes the year-over-year revenue increase to the $825.3 million in revenue it got from the Verizon line acquisition.

However, Frontier's revenue gains were offset by a $19.2 million drop in its legacy operations.

"The one year anniversary of Frontier's transformational acquisition demonstrated a solid turnaround in operations and improved profitability," said Maggie Wilderotter, Chairman & CEO of Frontier. "Our broadband network has now been expanded to 466,000 new homes, a rich opportunity that we're only beginning to penetrate, and our business revenue pipeline is solid across all market segments. We have achieved $424 million of annualized cost savings and are increasing our target to $600 million."

Here is a breakdown of Frontier's key performance metrics:

  • Landline Losses: As expected, Frontier saw its share of access and business line loss. During the quarter, the service provider lost 119,102 access lines, ending the quarter with over 5.4 million lines.
  • Broadband Services: Although it added fewer broadband subscribers in Q2, broadband continues to be a growth driver at Frontier. During the quarter, Frontier only added 7,400 net new DSL subscribers, but lost 4,900 FiOS data customers, which is likely attributable to the rate hikes it implemented in both its Indiana and Washington state markets where it offers FiOS. As of the end of June, Frontier had over 1.7 million broadband customers. The service provider recently launched the next phase of its broadband expansion effort to bring DSL service to at least 85 percent of this customer base by 2013.
  • Video Services: Like broadband, Frontier added about 7,800 new video subscribers in Q2, but it also lost 13,700 FiOS video customers. As of the end of June, Frontier had 554,200 video customers.
  • Business Services: Although the service provider continues to see a payoff from offering new Ethernet over Copper and fiber-based Ethernet services, Frontier's business revenue declined slightly from $595,765 to $592,888. The service provider reported in its Q2 call that it has been gaining market share in medium and larger businesses with higher monthly recurring revenue in addition to seeing greater success in the SMB space.

Looking forward to Q3 and the rest of 2011, Frontier's ongoing focus will continue to be on three key areas: network integration of the former Verizon properties, expanding broadband, and finding a way to stem FiOS losses due to its desire to opt out of the TV business in Indiana, Oregon and Washington.

From an integration point of view, the service provider reported that its first four states are on track to be completed by the end of this year and have begun the planning process to convert the remaining nine states in 2012.

For more:
- see the release

Special Report: Wireline in the second quarter 2011

Related articles:
Frontier employs ADTRAN for next phase of its broadband expansion effort
Frontier's lofty goal: Put West Va. in top 5 for broadband access
Maggie Wilderotter, Frontier Communications: Wireline's most powerful people
Frontier's Q1 revenue rises 29 percent, but it takes hit on legacy operations

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