Frontier's declining service revenues eat into Q4 results

A continued drop in revenues and a dividend cut were hallmarks of Frontier Communications' (Nasdaq: FTR) fourth quarter 2011 earnings announcement. The provider saw the continued declines in both its residential and business units take their toll on Q4 revenues, which declined to $1.28 billion from $1.29 billion in Q3 2011 and $1.35 billion in Q4 of 2010.

Frontier Q4 2011 slides

Click here for selected slides from Frontier's investor presentation.

After taking out Verizon (NYSE: VZ) network integration costs and severance and early retirement costs, net income attributable to common shareholders for the quarter was $69 million or $0.07 per share, beating analyst forecasts of $0.05 per share for the quarter.

The service provider also made the decision to lower the quarterly dividend to $0.10 per share, a move that appeared to only slightly faze investors. Stocks dropped 5.61 percent from $4.46 at close to $4.21 in after-hours trading following Frontier's closing-bell earnings announcement, but rose again to around $4.70 in initial Friday morning trading.

Maggie Wilderotter, Frontier's CEO and chairman, said that lowering the quarterly dividend would "enable Frontier to reduce debt, improve our leverage, have ample cash to invest in the network and other strategic initiatives, and to provide a more sustainable shareholder return through a lower dividend payout ratio."

Here's a breakout of the service provider's key metrics:

  • Landline loss: As of the end of 2011, the company had 3,103,800 residential customers and 309,900 business customers. In total, it had 5,266,916 access lines, down from the 5,373,859 it had in Q3 2011.

  • Broadband services: Frontier saw some growth in broadband services, adding 9,300 new customers during the quarter. As of the end of the year, the service provider had 1,764,200 broadband DSL customers. In 2011 overall, it enabled an additional 415,000 new households with broadband service.

  • Video: Although it pledged to continue to support FiOS, Frontier's video business continued to see the effects of its decision to increase installation prices on its FiOS service. During quarter, it added 1,000 video customers during the fourth quarter of 2011, a figure that includes 6,900 net additions of satellite TV customers but a net loss of 5,900 FiOS video customers. At the end of the year, Frontier had a total of 557,500 video customers.

Despite the losses, Frontier reported that it has been making continued progress with the integration of the Verizon's network assets into its own fold. The service provider said that it completed a four-state conversion and began preparation to convert an additional nine states in March 2012.

Looking forward to the rest of 2012, Frontier has forecast capital expenditures and free cash flow, excluding integration expense and integration capital expenditures, between $725 million to $775 million and $900 million to $1 billion, respectively.

For more:
- see the earnings release

Special report: Wireline in the fourth quarter 2011

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