Updated: Frontier Communications (Nasdaq: FTR) is moving ahead with its plans to bring broadband services to 85 percent of its markets in both its existing markets and those it entered through its acquisition of Verizon's (NYSE: VZ) rural lines.
To assist in this effort, Frontier will leverage the $71.9 million in Connect America Funds-I (CAF-I) to build out wireline DSL broadband services to 92,000 homes over the next two to three years. The CAF plan provided $775 per each home. This year, Frontier will use the CAF-I funds to extend DSL services services to about 67,000 homes.
Speaking at this week's Goldman Sachs TMT Leveraged Finance Conference 2013, Robert Starr, senior vice president and treasurer at Frontier, outlined the telco's expansion plans for 2013 and beyond.
"Once you build out to those folks, it's up to us to go and sell services," Starr said.
In the majority of its legacy territories, its broadband market share is greater than 50 percent, which refers to customer penetraion, while in the acquired territories it entered through the Verizon acquisition it's less than 50 percent.
Meanwhile, in areas where it has done a buildout over the past three years Starr said it saw "percentage rates south of 20 percent."
A key territory that Frontier gained when it purchased the Verizon was West Virginia, which immediately became its largest market.
"We have done the best in West Virginia because in part it was converted right at the time of acquisition," Starr said.
Consumer speed wars
As cable operators up their consumer broadband speeds over their existing DOCSIS 3.0 networks, Frontier is updating its speeds to stay competitive.
In Q4 2012 it expanded coverage of its 20 Mbps service, increasing coverage by 18 percent to reach 40 percent of its footprint. It has set a goal of reaching 50 percent of its footprint with the 20 Mbps service.
Despite being able to offer 20 Mbps in more markets, Starr said that they "have a lot of customers that stick with 6 Mbps."
Starr added that "we are seeing a fair amount of people upgrading a bit, but they are going from 6 up to 12 Mbps and some going to 20 Mbps."
In choosing where to upgrade speeds, Starr said they had to spend a good deal of capital to upgrade speeds in the territories it acquired from Verizon.
"When we talk about enhancing speeds in our territories it's not a uniform spend across our territories," he said. "We take a look at the competitive market, the demand for higher speeds, and when we find a pocket of congestion we want to go to work on that very quickly to provide higher speeds."
While Frontier recognizes that it needs to be competitive on the speed front, the reality that the telco faces, especially in its rural markets where a 3 Mbps connection is sufficient for daily activities such as web surfing and e-mail.
"Cable have really won the speed battle in the court of public opinion that speed is so critical, and there certainly are those customers where it is, but for those that operate on lower meg speeds," Starr said. "If you're doing web surfing, e-mail and watching over-the-top video a lot of that can be done with speeds lower than what is being marketed today."
One way that Frontier is trying to attract and retain more consumers is by offering its no-contract, $20.00 6 Mbps DSL service.
Users that are in areas where it has upgraded their COs with IP DSLAM equipment, it can deliver 12 Mbps for an additional $10 a month.
SMB broadband battles
Outside of the consumer space, Frontier is waging a battle on the SMB front to battle cable operators who are expanding their business service reach.
Comcast Business (Nasdaq: CMCSA), for instance, offers two competitively priced bundled voice and data bundled offerings for SMBs: a Starter package with 16 Mbps of broadband, security and 1 voice line for $89.90 and a Premium package with 27Mbps of bandwidth and two voice lines.
During the fourth quarter, Frontier did see a number of cable operators such as Comcast offer higher speed services at similar price point for business customers.
"We did lose market share to the cable companies, particularly in the small business market, in about 12 to 14 of our markets," Starr said.
To offset cable losses it launched its Tandem service, a four-to-ten line managed IP telephony service that it bundles with broadband.
"What we did was price it attractively relative to what the cable operators are providing, and it was an opportunity for us to win back share," Starr said. "Since that time, we have seen some of the cable operators back off with those higher speeds at similar price points."
Updated: We incorrrectly reported that broadband availability would be 50 percent. It is actually about 85 percent.
For more:
- hear the webcast (reg req.)
Earnings roundup: Wireline telecom earnings in the fourth quarter of 2012
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