Frontier's Jureller: We can improve Verizon's broadband service without large investments

Frontier Communications says that as it moves to complete the integration of the Verizon (NYSE: VZ) assets it is buying in California, Florida and Texas, the service provider won't need to make a large capital investment in the networks to deliver higher DSL-based speeds.

Speaking to investors during the Goldman Sachs 24th Annual Communacopia Conference, John Jureller, CFO of Frontier, said that the backbone has enough capacity to support higher speeds so it's a matter of upgrading last mile technologies.

"What we have found as we have gotten deeper and deeper into our integration, it has got a well enabled network backbone that might have been built out with DSL at one point with technology that might have been two generations ago," Jureller said. "You might have a market like Santa Barbara, Calif., or Palm Springs, Calif., that might only have 7 Mbps of speed and with slight change in equipment and electronics we think we can transform into a 50 Mbps product."

Jureller added that "we see really nice opportunities like that where some additional care and feeding can promote additional long-term opportunities for us."

One of the other benefits that Frontier will gain when it completes the Verizon deal is an additional $50 million of funding from the second phase of the FCC's Connect America Fund (CAF-II) in California and Texas.

While Verizon turned down $144 million of CAF-II funding for the rest of its territory, the service provider accepted money for these two markets.

"Verizon has opted to take CAF-II money for California and Texas and that's going to be held to the side on the condition of California regulatory approval by the end of December, closing our transaction and that CAF-II is about $50 million a year for those two states," Jureller said.

Jureller added that these are not FiOS markets, but rather those "where there is no broadband availability, so we're excited about that because there are a lot of rural markets in Texas and California that we'll be able to build to with the CAF-II money."

Frontier itself accepted $283 million in annual CAF II support from the FCC that it says will enable it to build out broadband service to over 650,000 rural locations that it could not economically reach before.

From an overall broadband speed perspective, Frontier continues to increase speeds of its DSL offerings. Interestingly, 75 percent of Frontier's broadband customers are still on a 6 Mbps connection as of the end of the second quarter despite the fact that 73 percent of its markets are capable of delivering 12 Mbps or better.

"We're seeing customers opting to begin to transition to higher speeds and we allow them to do that at their choice and at their pace," Jureller said. "When they do it is obviously more revenue for us and it creates a better customer experience, but we give them that flexibility."

With its broadband market share being in the mid-20 percent range in its markets, the goal is to have 40 percent share--something it has achieved already in some of its legacy and FiOS markets.

"Our chairman Maggie Wilderotter talks about having the divine right of being at 40 percent and it's a great aspirational goal and we will clearly not be there next quarter, but it's a target we're driving to every day," Jureller said. "We have 40 percent-plus share in many markets today where we are the embedded service provider, in some of our FiOS markets we have great share and have opportunities as we go forward to continue our pace from that average of the mid-20s."

Part of increasing its market share will be to increase speeds on the existing copper network and on FTTH facilities. In its traditional copper-based markets, the service provider plans to increase speeds by using a mix of ADSL2+ and VDSL2+ technology. These technologies are allowing it to deliver up to 100 Mbps over existing copper.

Now that it has launched 100 Mbps in the Connecticut market, the service provider is looking at other regions where it could offer that service.

"In our copper markets like Connecticut, we're rolling out 100 Mbps over copper and you're going to see us do this in other markets," Jureller said. "Changes in technology and as we think about where we place our equipment in the market are really enabling us to drive speed and capacity and nobody will come back to us and I can't choose you because you don't have the capabilities."

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Related articles:
Frontier takes $283M in Connect America Funding to bring broadband to 650,000 unserved sites
AT&T, Frontier, other telcos' rural broadband boosted by $255M in CAF-I grants
Frontier will gain revenue benefits from CAF-II program, says Jefferies