Frontier Q4 revenues decline to $1.23 billion on subscriber losses

Frontier (Nasdaq: FTR) reported on Thursday that Q4 2012 revenues reached $1.23 billion, down sequentially from $1.25 billion in Q3 2012 due to decreases in the amount of residential and business customers, and lower switched and non-switched revenue.

Frontier investor presentation slides

Click here to view selected slides from Frontier's investor presentation.

Maggie Wilderotter, CEO and chairman of Frontier, attributes the revenue decrease to "a decline in voice revenues as customers chose unlimited residential voice packages and standalone Simply Broadband options."

Wilderotter added that the ILEC saw continued improvement in its residential consumer customer retention strategies and an increase in the average revenue per business customer.

Here's a breakdown of their key metrics:

Voice services: Frontier reported local and long distance voice revenues were $542.5 million in Q4 2012, down sequentially from $556.3 million in Q3 2012. Daniel McCarthy, President and COO of Frontier, said during the earnings call that "the continued shift of customers away from traditional landline service and this was anticipated." As of the end the year, the ILEC had a total of 2.9 million residential customers. Despite the expected drop in voice subscribers, Frontier saw an uptick in subscribers that purchased unlimited phone packages and its Simply Broadband service. "We did see that many of our voice customers adopted to purchases unlimited phone packages and those packages produce lower revenue than the plans based on preeminent usage rates or in some cases a start for rise in packages," he said. "Also sales of our Simply Broadband service, which have been robust that are important to Frontier's customer strategy, come with lower monthly revenue than for customers who take broadband in a bundled with voice."

Broadband and video: The service provider continued to see modest gains in broadband and video subscriptions, adding 5,300 and 20,900 satellite TV customers, respectively. As of the end of Q4, the ILEC had a total 1.8 million broadband and 346,600 video customers. However, as seen in previous quarters, it lost 2,800 FiOS video customers. On the broadband side, Frontier increased the coverage of its 20 Mbps service, increasing coverage by 18 percent to reach 40 percent of its footprint. Wilderotter said the ILEC plans to "increase 20-meg service to 50 percent of the homes in its serving territory by the end of 2013." Likewise, it increased the coverage of its 12 Mbps service by six percent to reach 51 percent of its footprint, while expanding its 6 Mbps service by 10 percent to reach 74 percent of its footprint. To complement its wireline broadband offerings, Frontier also signed an agreement with Hughes Satellite to extend broadband into areas it can't reach with its traditional wireline-based DSL products.

Business and wholesale services: While business services represented 53 percent of its customer revenues, business revenues declined to $574 million due to a decline in customers. Throughout 2013, Frontier plans to push fiber deeper into its network to expand its growing retail and wholesale Ethernet services portfolio. McCarthy said that it is "expanding our new voice capabilities for business and are also continuing to invest in Ethernet capabilities, which now cover 71% of our commercial customer locations with speeds up to 1-gig." While it is making progress with retail business services, Frontier is being no less aggressive on the wholesale side. The service provider recently introduced its Ethernet Virtual Private Line (EVPL) Silver service that it will sell to other service providers that are trying to fulfill off-net Ethernet service opportunities for their multi-site business customers. In addition to wholesale Ethernet for service providers, Frontier will continue to ramp up its Fiber to the Cell tower projects. "We have fiber product sales that we are also planning on leveraging along the backhaul route from the projects that we've done bringing fiber to the sell-side, and we are working on five or six specific vertical offers for small business," Wilderotter said.

The service provider also continued to make strides on the integration of the assets it purchased from Verizon (NYSE: VZ) in 2010. During the quarter, it incurred about  $13.5 million in integration costs 2012, up from the $4.5 million in Q3 2012, but down from the $42.2 million it reported in Q4 2011.

"We completed all of the system conversions, achieved cost savings of over $650 million, dramatically improved our network's speed and capacity and have identified additional cost reductions of $140 million for achievement in 2013 related to continuing operational streamlining which will be partially offset by investments in growth initiatives," Wilderotter said.

For the full year of 2013, the company has forecast capital expenditures between $625 million and $675 million, and free cash flow between $825 million and $925 million.

Shares of Frontier were listed at $3.96, down 0.06, or 1.49 percent, on the Nasdaq stock exchange.

For more:
- see the release
- Seeking Alpha has the earnings call transcript (sub. req.)

Earnings roundup: Wireline telecom earnings in the fourth quarter of 2012

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