As Frontier completes the integration of the Verizon wireline properties it purchased in April, the service provider’s immediate focus is to rebuild the FiOS subscriber base in its new California, Texas and Florida (CTF) territories.
Perley McBride, who recently took over the CFO position at Frontier, told investors during the recent Wells Fargo Securities Technology, Media & Telecom Conference that while it saw a slight uptick in FiOS subscribers in the third quarter, those numbers have not returned to a level it is satisfied with yet.
“Our critical item is that CTF FiOS customers must get back to pre-acquisition levels,” McBride said. “If you look at some of the charts we have, Verizon was operating at a certain level and come Q2 that level materially dropped in the FiOS markets.”
Since the FiOS network service is based on FTTH, it should have a near and long-term advantage in that the service provider can offer symmetrical speeds of up to 500 Mbps and 1 Gbps when ready.
Although Frontier saw a slight improvement in FiOS additions during the third quarter, McBride said “it is still not at pre-acquisition levels and the immediate issue we’re working on is to get our CTF FiOS customers back to net positive.”
Legacy churn, sales issues
Besides the CTF territories, Frontier also saw broadband subscriber declines in its legacy markets during the third quarter.
McBride said the lack of new broadband subscribers in Frontier’s legacy markets were related to two issues: a pause in new customer acquisitions and the fact that the third quarter is typically a slower season for new sales.
“There’s the selling piece and the selling piece was really influenced by the on-shoring of the calling centers in the third quarter,” McBride said. “While we on-shored our CTF call centers, our queues are nationwide and when that backlog happens all those queues spill over into the legacy queues which then means the legacy reps are solving CTF service issues and not actively selling on the legacy side.”
From a churn perspective at Frontier, the issues in the legacy markets were the result of new pricing actions.
“Churn also went up on the legacy side, but that was really driven by some revenue initiatives that we were undertaking,” McBride said. “I am firm believer in where we have a good product, we should be pricing it appropriately and so there are some things on the revenue side we did that impacted churn.”
In order to drive up more broadband subscribers in the legacy markets, Frontier is rolling out broadband to more customers via the FCC’s CAF-II program and offering Vantage IPTV.
Through the CAF-II program, Frontier plans to build out broadband service to over 650,000 rural locations that it could not economically reach before. The service provider can also access the $32 million in California and $17 million annual CAF-II funding in Texas Verizon conditionally accepted for Frontier prior to completing the sale of these assets.
“On the legacy side with CAF-II we’ll have 170,000 homes passed by the end of this year,” McBride said. “Then we have the Vantage product, which is really in places where there’s no video competitor so we do believe we’re making the right investments because you do have to compete with the network and products.”
All of the pricing changes and near-term struggles with network integration took a toll on Frontier’s overall broadband subscriber base.
After tightening its credit policies and establishing a call and support center in the United States, the telco lost over 99,000 customers during the third quarter.
The telco ended the third quarter with a total of 4.4 million broadband subscribers, down from 4.5 million in the second quarter.
Frontier said that the broadband results during the third quarter reflected the initiation of customer acquisition activities within the quarter from the California, Texas and Florida (CTF) markets it acquired from Verizon, but the service provider anticipates improved broadband customer additions in the fourth quarter.