Frontier sheds another 100K broadband subscribers due to legacy DSL losses but stabilizes CTF Fios churn

Frontier

Frontier continues to be stuck in a broadband subscriber loss rut, dropping a total of 101,000 subscribers during the second quarter due to higher-than-expected legacy DSL losses.

The service provider attributed the decline to what it said was voluntary churn due to seasonal moves.

Overall, legacy broadband declined by 33,000, down from the 26,000 it added last year as voluntary churn rose in these markets. As of the end of the quarter, Frontier had a total of 4.06 million broadband subscribers.

Frontier's McCarthy Image: Frontier
Dan McCarthy

“With regard to our Legacy operations, churn and average revenue per customer (ARPC) stabilized compared to the first quarter of 2017, which was offset by lower-than-expected broadband gross adds primarily due to DSL,” said Dan McCarthy, CEO of Frontier during the earnings call, according to a Seeking Alpha transcript. “Given our ongoing commitment to refine and enhance our retention tactics, as well as the improved seasonal trends, we expect to see improvements in these metrics in the second half of the year.”

RELATED: From AT&T to Zayo: Tracking wireline telecom earnings in Q2 2017

Additionally, legacy customer trends were impacted by the one-time automation process, which accelerated deactivations of nonpaying customers. This process started in in the first quarter and ended in April, affecting the second quarter results.

In order to offset future broadband losses, Frontier plans new subscriber promotions. However, it did not provide any specific details about what those promotions will consist of.

“When you look at what's necessary to get the train back to positive growth on the Legacy side, I think there are a couple different things,” McCarthy said. “One is the different ways that we're going market and pricing and offering our products. So we've invested a fair amount of resources around being able to provision broadband differently in a much more flexible manner.”

In the immediate term, Frontier plans to focus on marketing to the new homes that will be enabled through the FCC’s CAF-II rural broadband program, as well as marketing to more consumers via its call center operations.

“We have a laser focus on the CAF homes that we're going to be opening up” and “are going to take advantage of the speed upgrades that we really put into the market over the last year,” McCarthy said. “And now that we have the rhythms back from our largest sales channel, which is our call centers both internally and externally, I think we're going to see better and better performance from that, which is really our largest channel.”

Jefferies said in a research note that while Frontier saw improvement in July churn and expects an improvement in the second half of the year, “we now take a more cautious view on Legacy broadband given evident DSL pressures.”

Stabilizing CTF markets

One area where Frontier says it is seeing churn improvements is in its California, Texas and Florida (CTF) markets.

Now that it has gotten through the trials of integrating the CTF assets, the telco saw improvement in Fios churn during what is traditionally a slow time.  

McCarthy said that Frontier made some marketing decisions, including a series of new speeds, to help ease the seasonality issues that happen every second quarter.

“We're back in the market with new offers, slightly higher speeds, and we feel pretty good about that,” McCarthy said. “Those offers launch really this week, and we're expecting to see continued voluntarily churn reduction, as well as an uptick in gross adds, and the combination of the two is where we see improvements in net as we get into this quarter.

However, the service provider still lost 23,000 DSL and 44,000 Fios subscribers in CTF during the quarter.

Average revenue per customer within Frontier’s CTF markets was consistent with the prior quarter, coming in at $106.25. As a result, Frontier’s combined ARPC of $80.38 for the quarter was also consistent with the level of recent quarters.

Perley McBride, CFO of Frontier Communications
Perley McBride

“We are very pleased that we were able to overcome the challenging seasonality in CTF and achieve a sequential improvement in both voluntary and involuntary churn for CTF Fios and an improvement in the CTF net add trends across all products in CTF while maintaining stable ARPC,” said Perley McBride, CFO of Frontier.

At the same time, Frontier said it made progress with its field operations in the CTF markets. That includes California, despite being impacted by challenging weather conditions during the first quarter.

Automating Fios installations

Besides realigning its legacy markets promotions, the service provider hopes that a Fios self-installation effort could give its FTTH business a boost.

The FTTH footprint continues to grow. Frontier currently has passed 4.5 million households with FTTH services.

Like other service providers, rolling trucks to consumer homes is expensive and time consuming so it makes sense that a provider of Frontier’s size wants to enhance the process.

“We remain on track to roll out our consumer-friendly FiOS self-installation process in the second half of the year, which we expect will improve customer satisfaction by providing customers the ability to complete FiOS installation on their own schedule,” McCarthy said.

McCarthy added that “we expect this process to increase efficiency and improve internal resource utilization by reducing our reliance on contractors.”

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

Consumer: Consumer revenue was $1.12 billion, down from $1.16 billion for the first quarter of 2017. During the quarter, Frontier said its customer churn improved to 2.24% (1.95% for Frontier Legacy and 2.69% for CTF operations) compared to 2.37% for the first quarter of 2017 (1.95% for Frontier Legacy and 3.01% for CTF operations).

The combined ARPC of $80.38 ($63.65 for Frontier Legacy and $106.25 for CTF operations) was consistent with the first quarter of 2017.

Commercial Business: Commercial business revenue was $982 million. Taking out the partnerships business, which was sold on May 31, commercial revenue was $967 million and consistent with the first quarter of 2017.

However, Frontier had a total of 473,000 commercial customers, down from 484,000 during the first quarter of 2017. The company said this reflects improved sequential churn within our small business customers.

Financials: Consolidated second-quarter revenues were $2.3 billion. Within consolidated revenue, consumer revenue was $1.12 billion, commercial revenue was $982 million and regulatory revenue was $198 million.