Frontier sees Q3 improvement in CTF broadband subscriptions, but legacy markets lag

Frontier Communications (Frontier Communications)
Image: Frontier

Frontier is turning a corner in its California, Texas and Florida (CTF) markets as the company saw broadband additions return to pre-acquisition levels. However, its legacy markets continued to be challenged by a lack of meaningful broadband subscriber additions.

Dan McCarthy, CEO of Frontier, told investors on its third-quarter call the improvement service provider is aggressively marketing the advantages of its FTTH-based Fios network against cable.

Frontier's McCarthy Image: Frontier
Dan McCarthy

“During the quarter, we enhanced our marketing campaign which had a favorable impact across all Fios markets, in both broadband sales and improved video attachment rates,” McCarthy said during the earnings call, according to a Seeking Alpha transcript. “Longer-term, we believe further improvements in several sales channels will have a favorable impact on gross add trends.”

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McCarthy added that despite only starting the fourth-quarter, “we have seen a continuation of the positive trends in the CTF and Legacy Fios markets and are pleased with the momentum we have built to-date.”

A key part of the improvement in the CTF broadband markets, Frontier says, is the continued deployment of the Pega support platform in its technical support division. The Pega platform will enable Frontier to provide customers with self-help and installation service, which will then deepen market penetration while reducing per order costs.

McCarthy noted that the Pega platform is starting to improve the customer experience.

“Since launching in Q3, we have seen a significant improvement in service order processing and new product order simplicity,” McCarthy said. “We expect to utilize this platform to provide automated customer interactions and provide enhancements to our business processes in customer care, field operations and network operations.”

Financial analysts are taking note of Frontier’s efforts to improve the customer experience.

“The new platforms/systems that are now launched following the integration will enable channels to launch smarter, more surgical offers in the marketplace, effectively competing with cable in the 50-100 Meg sweet spot,” Cowen said in a research note. “With gross adds and churn trending in the right direction, we look for CTF FiOS unit growth in early 2018.”

Despite the CTF improvements, Frontier still lost 63,000 broadband subscribers, ending the quarter with a total of 4 million.

In the legacy side of the business, Frontier continues to see challenges in increasing gross additions. Like the CTF markets, Frontier reconfigured its systems for pricing and quoting as well as implementing the Pega platform on how it introduces offers into its existing channels as well as its channel partners.

McCarthy said these efforts haven’t completely gelled yet.

“As we did that, it's just taking us a little bit longer to get that constructed and into the market,” McCarthy said. “So, I think that we will start to see some benefits on the gross adds. I think it's later in this quarter but it'll have much more profound impact as we come into the first quarter.

Seeking FioS growth

The service provider continues to see an opportunity to enhance its Fios customer base, particularly in the CTF markets. Today, Frontier says it is 40% penetrated in its Fios markets, giving it a greater runway for growth.

Out of the three CTF markets, McCarthy said Florida is a market where it can build a larger subscriber base to battle cable, while Texas is more mature and California is still developing.

“I'd say, we'll see the most growth probably in the Florida market because of the lower penetration, as well as organic growth that's occurring from a household perspective,” McCarthy said. “I think all three have good opportunity and we're starting to see the benefit of it right now.”

Interestingly, the service provider said its PON-based FTTH network in Florida enabled it to maintain uptime following the recent area hurricanes.

“We tried to take advantage of some of the issues that some competitors had following the storms, specifically in Florida,” McCarthy said. “We got a lot of kudos from customers because of the passive optical network and how we deliver Fios and we didn't see any real churn impact with the storm in Florida.”

McCarthy added “we saw gross adds continue to accelerate to the point where we see service hours at the highest levels that we've seen in those markets all year.”

Triple play, retention has an effect

Besides implementing systems like Pega to better work with customers, Frontier also focused on developing new triple-play promotions during the quarter. The telco said that these promotions were focused on driving video attachment rates.

Specifically, Frontier ran a $80 a month triple-play bundle that included various amenities: free installation, HBO, a free router and 100 Mbps broadband speeds.

While not revealing any specific new plans, McCarthy said that “we're looking to identify any of the objections that we might be able to tweak and make it a little bit more value added in CTF, and see if we can take the gross adds even higher in a number of different channels.”

Looking forward, McCarthy said that Frontier plans to look at other customer retention efforts.

“As we get into the coming quarters, we're going to explore additional retention offers as well as how we move forward on managing the price escalation off promotion expiration a little bit more thoughtfully,” McCarthy said. “And I think in both cases we get to pick up a little bit of a benefit on the churn side, and you couple that with a very nice uptick in gross adds and that really got us to the net for the quarter.”

Here’s a breakdown of Frontier’s key metrics:

  • Consumer revenue was $1.1 billion, down $22 million sequentially versus the $40 million sequential decline in the second quarter. Frontier said the improved trend was entirely driven by a stronger performance in the CTF markets.
  • Commercial revenue was $958 million and regulatory revenue was $191 million.
  • Frontier reported consolidated revenues of $2.25 billion. Net loss for the third quarter of 2017 was $38 million. Net loss attributable to common shares was $92 million for a diluted net loss per common share of $1.19.