Frontier takes another step toward CTF growth, but legacy challenges remain

Frontier appears to be finally turning a corner in its troubled California, Texas and Florida (CTF) markets, narrowing its fourth-quarter broadband losses and reducing churn after several quarters of deep declines.

But the bigger challenge that remains is turning its fortunes in the Legacy markets around. 

Dan McCarthy, CEO of Frontier, told investors during the fourth-quarter earnings call that the telco reached stable Fios broadband net additions and in two CTF markets it has seen positive net additions.

Frontier's McCarthy Image: Frontier
Dan McCarthy

“We continue to make progress in the consumer business and we believe stabilization is on the horizon,” McCarthy said during the earnings call, according to a Seeking Alpha earnings transcript. “Churn and net additions improvements within our CTF Fios markets have been the main driver of improvement and are a direct result of our extensive efforts to refine and enhance customer retention.”

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Indeed, during the fourth quarter Frontier only lost 2,000 Fios broadband customers. This is an improvement over the 11,000 it lost in the third quarter and 60,000 during the same period a year ago following its acquisition of Verizon’s wireline properties in the CTF territories.

Overall, the service provider lost a total of 62,000 broadband subscribers, with most of the losses coming from its legacy territories. The service provider ended the quarter with a total of 3.94 million broadband subscribers.

McCarthy said that by realigning its pricing structure, Frontier drove up average revenue per customer (ARPC) and reduced churn.

“During the quarter, we augmented our pricing to reflect the value we are delivering to our customers and to offset the escalating cost trends in content pricing,” McCarthy said. “This initiative was positive for ARPC and we were also able to improve churn sequentially simultaneously.”

The telco noted that is seeing success with its new acquisition offers, which include speeds starting at 100 Mbps, and traction from its new marketing campaign.

“Although it's early in the process, the consumer team led by John Maduri is bringing a more balanced approach to pursuing profitable growth by identifying opportunities to leverage all assets across the entire network,” McCarthy said. “For example, in Q3, we launched a new Fios acquisition offer with speed starting at 100 megabits. We plan to capture more value across our entire footprint by utilizing the technologies previously deployed in both acquisition and retention scenarios.”

Legacy market challenges continue

While CTF is seeing signs of growth, Frontier continues see struggles in its legacy consumer business segment, where the telco lost over 44,000 broadband and 3,000 traditional video customers.

Frontier says it will enhance broadband subscriber penetration in the legacy markets by enhancing speeds over its copper networks and driving growth in low-density markets associated with the CAF-II program.

“As part of our initiatives to improve broadband gross additions in legacy, we are planning to introduce new offers and capabilities by the end of Q1 and anticipate the benefits starting in Q2 and increasing in the second half of 2018,” McCarthy said. “Our goal is to improve product penetration with renewed focus on legacy markets, especially our low-density markets associated with the CAF-II program.”

The service provider is also implementing methods to rework the bundled offerings gained through its acquisitions of Verizon’s rural assets in 14 states and other purchases over the years, an effort that will continue through the first quarter. Additionally, Frontier is implementing new bundled construction with the Pega and Sigma platforms it began deploying in the third quarter.

Frontier also made improvements to its technical support processes to improve troubleshooting and the overall customer experience. Frontier said the rollout of customer acquisition offers using its new systems improved call center and channel execution, along with simpler billing.

McCarthy said that these efforts are starting to show up on the customer retention side.

“I do think that as we get into Q1, we'll see some improvement to the legacy metrics,” McCarthy said. “But the real benefits will start to add up once we get the gross adds moving substantially in a different direction and that will really take through the end of Q1 and into Q2.”

Narrowing quarterly losses

During the fourth quarter, Frontier’s story was about stabilizing and narrowing losses across its consumer and business segments.

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

Consumer: Consumer segment revenue was $1.09 billion, down $16 million sequentially, an improvement over the $22 million sequential decline in the third quarter. Frontier said the improved trend was driven by a stronger performance in both Legacy and CTF revenue.

Customer churn improved to 1.98% (1.83% for Frontier Legacy and 2.22% for CTF operations) compared to 2.08% for the third quarter of 2017 (1.92% for Frontier Legacy and 2.33% for CTF operations), with CTF FiOS and Legacy contributing to the overall improvement.

Combined Average Revenue Per Customer (ARPC) of $81.61 ($65.11 for Frontier Legacy and $107.35 for CTF operations). Each measure of ARPC improved sequentially, despite the benefit to third quarter ARPC associated with the Mayweather vs. McGregor fight.

Commercial: Commercial segment revenue was $941 million, down $17 million sequentially versus the $24 million sequential decline in the third quarter. Frontier said the decline was mainly driven by carrier/wholesale revenue. As of the end of the quarter, Frontier had a total of 453,000 commercial customers compared to 463,000 during the third quarter of 2017. Meanwhile, SME (Small, Medium, & Enterprise) revenue was roughly stable sequentially.

Financials: Consolidated revenues for the fourth quarter 2017 were $2.22 billion. Within consolidated revenue, consumer revenue was $1.09 billion, commercial revenue was $941 million and regulatory revenue was $190 million. Consolidated revenues for the full year 2017 were $9.13 billion.