Frontier snags 27K new broadband subscribers, but sees 3Q seasonal churn rise

Frontier may be seeing its broadband base continue to grow, but the service provider saw churn rise during the third quarter due to seasonal trends and customers dropping voice services and moving out of territory.

Broadband continued to be a factor in the third quarter as the telco added 27,200 net broadband customers, ending the period with a total of 2.43 million broadband customers.

It was able to attract more broadband customers by using a number of its partner channels.

"On our channel mix, we tried some different things this summer," said Dan McCarthy, president and CEO of Frontier, during the earnings call. "Historically we tried to target a mix that was more heavily based on inbound calls to our call centers and we tried to meet customers in a different place by relying more heavily in our partners in our alternate channels."

Another interesting trend for Frontier is that as voice-only customers drop service, it is replacing them with higher priced ones that purchase either a double or triple play broadband bundle. It estimated that about 91 percent of its gross broadband adds during the third quarter were either a double or triple play customer. Customers are also purchasing its Frontier Secure computer service products.

"One of the nice things we're seeing is the continued trend to have close to a third of our activations have Frontier Secure to give us an ARPC lift of about $10," McCarthy said. "We do see an uptick in some customers purchasing a double or a triple play as they move so during that period we do see a higher uptick in customer losses, but the general trend we see [is] lower end customers leaving and replacing them with broadband customers that are taking broadband services."  

Despite the broadband gains, Frontier saw churn rise during the quarter due to customers moving to areas outside of its ILEC territory.

"The third quarter is seasonally a high level for churn," McCarthy said. "We saw good results in controllable churn and we saw higher moves out of territory and we did see an uptick mostly in the legacy properties."  

The company has taken a number of strategies to improve churn at its customer contact centers where it interacts with customers.

"We do have a number of different strategies to battle some of the seasonal churn that occurs during that period," McCarthy said. "In the fourth quarter we absolutely see churn come back down and it usually occurs after October so November and December is when we see the biggest drops."

Overall customer revenue was $1.22 billion, down 1.1 percent from $1.24 billion in the second quarter of 2015 due to declines in its residential and business segments. Residential revenue declined sequentially from $615 million to $606 million for the third quarter. Likewise, business revenue was $617 million for the third quarter, down from $621 million in the second quarter of 2015.

However compelling the broadband additions were, the service provider reported that it lost 0.9 percent of its residential customers. It ended the third quarter with a total of 3.14 million residential customers. Average monthly revenue per customer was $63.83 in the third quarter of 2015, a decrease of 60 cents, or 0.9 percent, compared to the second quarter.

The telco also continued to see its video customer base decline in the third quarter as it lost 9,600 video customers, including 6,900 satellite video subscribers. As of the end of September, Frontier had a total of 560,000 video customers.

Frontier reported similar challenges in the business segment where customer losses rose to 1.7 percent. On a slightly brighter note, the average monthly business revenue per customer was $693.58, an increase of 0.6 percent over the second quarter, as the business customer decline was primarily from the small business customer set.

The provider posted revenue of $1.42 billion in the period, falling short of forecasts. Five analysts surveyed by Zacks expected $1.43 billion in revenue. Frontier also reported operating income of $207 million and a net loss of $14 million, or 1 cent per share.

Subsidy revenue improved by $71 million during the third quarter due to what Frontier said was incremental funding from the CAF-II program. During the third quarter, the $264 million in revenue attributable to its Connecticut operations was unchanged from that reported for the second quarter.

For more:
- see the earnings release
- listen to the earnings webcast (reg. req.)

Special report: Tracking wireline telecom earnings in Q3 2015

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