Frontier's success in California, Florida and Texas hinges on not repeating Connecticut problems

When Frontier completes its acquisition of Verizon's (NYSE: VZ) wireline assets in California, Florida and Texas, a key indicator of early success for customers will center on two issues: minimizing network service disruptions and consistent pricing.

There's plenty at stake here for the telco, so it needs to get these things right when it completes the cutover in the first quarter of 2016.  

While Frontier has the requisite experience in making complex integrations of large multi-state wireline properties, Frontier's customers in Connecticut saw a series of hiccups when it completed the transfer of AT&T's (NYSE: T) wireline assets onto its systems last year.

Over 1,400 of the 5,500 written complaints to the Connecticut Department of Consumer Protection were related to the transfer of AT&T onto Frontier's network systems, according to a Stamford Advocate article.

To its credit, Frontier did issue $10 million in credits to its Connecticut customers. At the time it acknowledged that problems customers had with their former AT&T services were due to a number of technical issues and it did not have enough people to deal with customer issues at its call centers.

Local business Daley's Florist & Country Expressions, a Frontier customer, had to deal with no Internet access. This meant it could not take online orders or even complete credit card transactions.

But technical glitches were only one issue that rankled customers in Connecticut.

Frontier also implemented a series of pricing changes on the wireline U-verse services it took over from AT&T. Those changes had a rippling effect within the company as it reported that its residential customer base declined slightly year-over-year by 0.4 percent. It ended that quarter with a total of 3.2 million residential customers.

Frontier reported a $5 million decline in Connecticut revenues, a factor it anticipated due to those broadband pricing migrations. Since that time it has been scaling up its subscriber base while introducing a new 100 Mbps residential DSL speed tier.

With those issues in the rear-view mirror, the service provider says it is ready to attack all three markets by maintaining pricing similar to what Verizon already had in place for both DSL and FiOS. 

John Jureller, CFO of Frontier, told investors during the Wells Fargo 2015 Technology, Media & Telecom Conference that it will implement the same pricing and packages that are in place today.

He acknowledged that the "biggest lesson learned from Connecticut in late Q4 and in Q1 was the pricing migration that we allowed to happen."

By establishing a set of pricing and packaging in these markets, FiOS and copper-based DSL customers won't be met with sticker shock.

Maintaining these packages means that Frontier will be able to establish a sense of trust with customers who will be hit with promotions from cable competitors Comcast (NASDAQ: CMCSA), Time Warner Cable (NYSE: TWC) and new entrant Altice. In these properties, 46 percent of Frontier's footprint will overlap with Time Warner Cable, while Comcast and Altice (which purchased Suddenlink and Cablevision) will have 23 percent and 5 percent overlap, respectively.

Similar to Frontier's own efforts to attract disgruntled cable customers in its existing markets, it's likely that these cable providers will use any opportunity to say "I told you so" if glitches or dramatic price increases pop up.

At the same time, consumers and businesses, particularly those in underserved areas of those in rural areas, will be watching how the carrier keeps its promise of expanding broadband availability. Frontier announced that it had accepted $283 million annually in CAF-II support from the FCC to deploy broadband to more than 650,000 high-cost rural locations throughout its current 28-state service area.

Frontier also has an opportunity to upsell existing FiOS and DSL customers on higher speeds and bundles. In markets like Texas where FiOS is already well penetrated, Frontier could implement new technology to deliver a 1 Gbps tier. It could also leverage VDSL2 to offer higher speeds of up to 100 Mbps like it did in Connecticut over copper, but achieving those speeds depend on the distance of each premise to the nearest RT or CO and plant conditions.

But even with all of these plans in place, Frontier still has one more hurdle to leap in completing its Verizon wireline deal: gaining the California Public Utilities Commission's blessing. The CPUC previously launched an investigation into AT&T's (NYSE: T) and Verizon's management of copper networks, so Frontier could also face scrutiny when it takes over these lines.

The provider saw a light of hope this week when an administrative judge with the CPUC issued a favorable Proposed Decision (PD) recommending the deal be approved.

As the new provider in town for many of the business and residential customers in these markets, providing consistent pricing and packages as well as ensuring any issues are resolved in a timely manner is about establishing trust from the get-go. If Frontier violates that trust it could see customer churn rise in those markets -- something it can't afford to let happen.--Sean

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