Frontier stabilizes SME revenues with new products, but wholesale transitions remain a drag

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Frontier says it is turning the revenue corner in its SME segment, but wireless operators' migration to TDM remains a key challenge. (Getty/Ijeab)

Frontier says its small to medium enterprise (SME) business segment is showing signs of revenue progress as it implements new sets of services and methods to reduce service activation times.

But the service provider continues to see revenue decline pain from its wholesale customers migrating off of TDM to IP services. 

CEO Dan McCarthy told investors during Frontier's fourth-quarter earnings call that while SME revenues declined again, he expects growth in the next few quarters.  

Frontier's McCarthy Image: Frontier
Dan McCarthy

“The SME portion was nearly stable sequentially and within SME, the enterprise medium and higher-end of small, as a group was roughly stable overall, and we improved the sequential decline in the small office, home office portion,” McCarthy said during the earnings call, according to a Seeking Alpha transcript. “The majority of declines in commercial came in wholesale, which reflects continued pressure in wireless backhaul and technology transitions to higher capacity transport.”

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McCarthy said that Frontier has also made it easier for customers to order products like Ethernet, which saw signs of new ports coming on line during the quarter.

“The tools that we have deployed enabling real-time quoting for Ethernet, paired with operational initiatives to reduce installation intervals, are contributing to results,” McCarthy said. “And we have seen sequential growth in circuit installations.”

Enhancing products, channels

Frontier is ramping its SME segment revenue potential by selling its solutions directly to customers and finding partners that can bring additional value-added services to the fold for customers.

Frontier began offering SME customers Datto’s Total360 Business Continuity & Disaster Recovery Service across its national footprint, for example. Total360 converts data directly from servers into virtual machine-readable files that can be recovered from a web interface, hypervisor or virtual machine monitor.

“Total360, powered by Datto, is an innovative way of storing data and allows for instant onsite or offsite recovery and helping organizations to minimize downtime in the event of a digital or physical disruption or disaster,” McCarthy said.

McCarthy said Frontier is also enhancing its direct sales force in key markets and establishing new channel partners.

“We are in the process of expanding our direct sales staff by 20% in high-potential territories across our network footprint, which we will accomplish by rebalancing resources,” McCarthy said. “We are also working to improve alternate channel sales by building strategic partnerships and implementing tools that make doing business with Frontier easier.”

Wholesale challenges remain

Despite the gains Frontier is making with its SME customers, the wholesale channel remains a key challenge as more of its customers ditch legacy TDM circuits and migrate to higher speed IP-based Ethernet services.

Like other wireline providers, the revenue pressure Frontier is seeing in its wholesale segment is coming from its wireless operator customers.

“We expect to experience continued pressure from wireless backhaul migrations from select carriers and transitions to higher capacity services from older TDM technologies,” McCarthy said. “These pressures are consistent with our experience in previous years. And we have launched a series of carrier-specific initiatives to capitalize on unique opportunities to help offset these pressures.”

While McCarthy said he does not expect any major uptick in the wholesale segment during the first quarter, the service provider is moving to improve the way it interacts with carrier customers.

“As we look at the carrier wholesale business, we continue to work to make it easier to do business with Frontier, rolling out our qualification tool to reduce time to quote and reducing installation intervals,” McCarthy said. “We also are focusing on leveraging fiber-connected buildings and cell towers to develop creative solutions for our carrier customers.”