Frontier's McCarthy: We won't expand U-verse

Frontier Communications enhanced its video service capabilities when it purchased AT&T's (NYSE: T) Connecticut operations, a deal that gave it the telco's U-verse platform, but for now the telco has no immediate plans to expand it into new markets anytime soon.  

Dan McCarthy Frontier president COO

McCarthy

Daniel McCarthy, president and COO for Frontier, told investors during the fourth-quarter earnings call, according to a Seeking Alpha transcript, that the service provider plans to see how it can leverage elements of the U-verse systems, including the OSS system, while conducting trials of U-verse in some markets.

"We have no major plans to expand U-verse widely across the country but we do think that there [are] low cost alternatives in ways to leverage this system, the OSS, the content ingestion, the TV Everywhere, all of those components of it, to take advantage of all the broadband expansion and all the next-gen equipment that we've installed around the country, quite frankly," McCarthy said. "So you'll see us probably take a look at selectively trials in different markets but there is no wholesale expansion plans at this point."

McCarthy added that the immediate focus is to expand the availability of U-verse broadband and IPTV services to more customers inside Connecticut.

"On the U-verse expansion, I would say that after three months or four months we have become very comfortable with the U-verse platform," McCarthy said. "In fact, we're making upgrades even as we speak here in Connecticut to the platform. It does offer probably the best platform for providing a video product over copper that's out there on the market today."

The service provider also provided more clarity about the state of its 1 Gbps fiber-to-the-premises (FTTP) offering. Frontier has been one of the emerging groups of U.S. telcos to jump on the train with launches in six states, but the service provider admits it is going to take time to understand how big of an impact this higher speed will have on its broadband growth plans.  

The company is still in the early days of learning about what impact gigabit has in each one of these markets. "We've only recently launched it," McCarthy said. "I would say that, similar to others in the industry, we've seen more take rate on other speeds than the gigabit speed, but I think that's a good thing. And I think our plan supports all of the varieties of those speeds in the markets where we've launched."

While it does not break out specific subscriber numbers, Frontier has launched 1 Gbps FTTP service in Illinois, Indiana, North Carolina, Oregon, South Carolina and Washington.

Whether its 1 Gbps or DSL service, Frontier sees broadband services as a key revenue driver, a trend that continued into the fourth quarter with the company reporting that it gained residential broadband market share in nearly 80 percent of all of its local markets.

The telco saw broadband gains rise in both the fourth quarter and for the year 2014. Taking out the impact of its acquisition of AT&T's Connecticut assets, Frontier added 21,900 and 108,700 net broadband customers during the fourth quarter and full year of 2014, respectively.

As of the end of 2014, Frontier had 2.4 million broadband customers, which includes 398,600 customers added due to the AT&T Connecticut acquisition.

Maggie Wilderotter, CEO and chairwoman of Frontier, said in the earnings release that this was the "eighth consecutive quarter of strong broadband net additions."

Being a provider that targets mainly rural markets, the service provider also increased broadband availability to 24,700 harder-to-reach customers via the first phase of the FCC's Connect America Fund during the fourth quarter. Out of that mix, 9,500 were customers that were new broadband customers, while another 15,200 were upgraded. Frontier said that it is beginning to plan for the implementation of CAF-2.

Video service growth continued to be a challenge for Frontier as the telco reported it lost 5,700 customers during the quarter. However, the company added 196,400 customers as a result of its AT&T Connecticut purchase to end the quarter with a total of 586,600 video customers.

Growth of the broadband and video base will continue to ramp as Frontier moves ahead with its $10.5 billion acquisition of Verizon's (NYSE: VZ) wireline properties in California, Florida and Texas. Set to close early next year, the deal will increase its residential broadband, including new FiOS markets, and business services reach.

Due to gains in broadband and additional $116 million in additional revenue from the AT&T Connecticut acquisition, Frontier's residential revenue was $601 million in the fourth quarter of 2014, up 21 percent sequentially from $498 million in the third quarter of 2014.

Frontier also reported that it saw gains in the business services side, with total business revenue rising 16 percent sequentially to $601 million, including additional revenue of $90 million as a result of the AT&T Connecticut acquisition. As of the end of 2014, Frontier had 304,700 business customers, which includes 48,800 customers added due to the Connecticut acquisition.

Looking toward the rest of 2015, the company expects free cash flow of $785 million to $825 million and for capital expenditures for Frontier business operations is $650 million to $700 million.

From an overall financial perspective, Frontier reported fourth quarter 2014 revenue of $1.3 million and operating income of $173 million.

Shares of Frontier closed at $8.19, up 1 cent, or 0.12 percent at the end of Thursday trading on the Nasdaq stock exchange.

For more:
- see the earnings release

Special report: Wireline telecom earnings in the fourth quarter of 2014

Related articles:
Frontier battles identity theft, fraud with new security service bundle
Frontier enhances wireline footprint with $10.5B Verizon purchase, but integration concerns remain
Report: Verizon to sell $10B in wireline assets to Frontier
Frontier taps LeVan to lead video, content delivery efforts
Frontier's Q3 revenue decline eased by gains in residential, business

This article was updated on Feb. 20 with additional information from Frontier. 

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