Frontier's Q2 residential revenues rise slightly to $497M

Frontier Communications reported that despite seeing a dip in overall revenues, residential revenue rose slightly by 0.2 percent sequentially to $497 million, up from $496 million in the first quarter.

Consumer growth was largely driven by the gains in its broadband and video segments.

Over the past year, the service provider has added 177,100 net broadband customers, ending the quarter with a total of 1.93 million broadband customers. It also added 3,600 net video customers during the quarter. As of the end of June, the service provider had 393,900 total video customers.

Dan McCarthy, president and COO of Frontier, said during the earnings call that the company saw an uptick in subscribers purchasing higher speed broadband services.

"This quarter 33 percent of our sales were in our higher speed tiers," McCarthy said, according to a Seeking Alpha transcript. "This is up nicely from Q1 and up over 60 percent higher than Q2 of 2013. We believe our network investments have been instrumental and enabling this mix change and we see substantial opportunities with our customer base since over 80 percent are still on our basic tier."

Although the company did not reveal a specific timeline, McCarthy added that Frontier will introduce expanded speed offerings in select markets, including 50 megabit and 100 megabit services.

During the quarter, the service provider lost 31,800 residential customers as compared to 9,600 customers in the three months ended March 31, 2014, and 16,300 customers in the three months ended June 30, 2013. Overall residential customer losses increased by 22,200 in the second quarter of 2014 as compared to the first quarter of 2014, primarily due to fewer gross customer additions.

Interestingly, residential average revenue per customer (ARPC) increased 1 percent year-over-year due to what Frontier said was greater emphasis on bundles and less standalone emphasis in the second quarter.

In the business market, revenue was $516.3 million, down 2 percent sequentially from $525 million in the first quarter of 2014. The company reported that as of the end of June, it had a total of 264,000 business customers.

During the quarter, the service provider narrowed its sequential business customer decline by 51 percent, losing nearly 2,200 customers, down from the 4,400 customers it lost in the first quarter. However, the average monthly business revenue per customer was $648.71, or 0.4 percent lower than the first quarter of 2014 and 0.5 percent lower than the second quarter of 2013.

Despite the overall decline, Frontier is seeing new growth opportunities to expand its Ethernet and Wi-Fi access products for businesses.

Earlier this year, the service provider enhanced its Ethernet portfolio by adding a new QoS capability that enables traffic prioritization capability based on user-defined applications and two new Ethernet Virtual Private Line (EVPL) service tiers.

"We are seeing very good momentum with our Ethernet offerings, with more 34 percent growth relative to last year second quarter," McCarthy said. "Ethernet is the cornerstone of our growth strategy on commercial, and we are investing more capital to expand Ethernet to new areas as well as upgrading our MPLS switching platforms."

In the Wi-Fi arena, the service provider is also gaining momentum by winning large accounts such as American Tobacco Campus in Durham, N.C. Looking forward, it said that the FCC's recent E-Rate ruling to allocate $2 billion over the next two years to equip more schools and libraries with Wi-Fi connections could drive new opportunities to pursue in local school districts.

"This quarter brought some high-profile successes, including the American Tobacco Campus in Durham, North Carolina," McCarthy said. "We see the FCC's decision regarding E-Rate for schools as a catalyst for new Wi-Fi opportunities for us in the education segment. We plan to aggressively pursue those opportunities and leverage our local engagement relationships to facilitate Wi-Fi deployments throughout our footprint."

In the wholesale segment, Frontier continues to see revenue headwinds due to its wireless operator customers migrating off of TDM-based T-1 circuits to fiber-based Ethernet. It expects this trend to continue into the first half of next year.  

"We are working with all wireless carrier partners on the timing of their tower conversions to fiber," McCarthy said. "As a result, we may see some tower conversions move into 2015. This would be a positive for revenue in the short-term, but may extend the timing of revenue headwinds to the first few quarters in 2015."

Total company revenue was $1.15 billion, down 0.6 percent, or $6.8 million sequentially, from $1.15 billion in the first quarter of 2014 and by 4 percent, or $43.3 million, from $1.19 billion in the same period a year ago.

Shares of Frontier closed at $6.81, up 27 cents or 4.13 percent, at the end of Tuesday trading on the Nasdaq stock exchange.  

For more:
- see the earnings release
- and the earnings transcript (sub. req.)

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

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