Frontier adds a record 29K fiber subs in Q3 as turnaround effort ramps

Frontier Communications more than quadrupled its fiber subscriber gains year on year in Q3 to hit an all-time company best of 29,000 net additions, with executives touting this figure as early evidence a multi-faceted turnaround strategy is resonating in the market.

On an earnings call, Frontier president and CEO Nick Jeffery said the “overwhelming majority” of its fiber broadband net additions in the quarter were new to the operator. However, he added Frontier has done a lot of work behind the scenes to simplify its fiber offerings and improve its customer experience to appeal to “all of the potential sources of new customers,” including cable subscribers, residents in new build areas and existing Frontier customers looking to upgrade speed tiers.

“Now, I don’t want to overstate that that work is complete. It is very far from complete because the team that’s been doing it has really only been there for a few months, a quarter at most and many of them much less,” he stated. “So, this is really very much early green shoots rather than us declaring victory and much more work still to come on that. But the goal is to make us more attractive across all of the segments.”

Cable operators recently flagged a slowdown in move activity which impacted customer additions. But Frontier Executive Chairman John Stratton said such activity is just one of several switcher catalysts it sees in the market. He and Jeffery pointed to trends among cable customers reevaluating triple play bundles and DSL customers seeking faster speeds as two other key gross add opportunities it can capitalize on going forward.

All told, Frontier’s fiber customer base grew 5% year on year in Q3 to nearly 1.39 million. Thus far, Jeffery said it’s seen a “muted” response to its efforts from cable competitors but explained that’s likely because even though it’s building fiber aggressively Frontier is still “much smaller” than its cable rivals.

Frontier built fiber to a record 185,000 new locations in the quarter, compared to 9,000 in the year-ago quarter, raising its total number of locations passed to 3.8 million. Jeffery said this puts its year-end target of 4 million total locations “well within reach”.

CFO Scott Beasley said Frontier expects a large increase in capital expenditures in Q4 as it accelerates its fiber build plan heading into 2022. Jeffery said it’s keeping a wary eye on overbuilders as it moves ahead, adjusting the location and pace of planned deployments to account for competitive intensity and other factors. Within existing markets, he added it has the ability to dynamically adjust pricing and marketing thanks to its partnership with Red Ventures.

“It lets us be much more digitally agile in terms of where we target and what propositions we target with, to do active A/B testing on a very localized basis and simply move faster than the competition,” Jeffery said.

Metrics

The operator generated $1.58 billion in revenue in Q3, down 6.1% year on year, as a 14.6% increase in consumer fiber revenue failed to offset declines in its video, voice and wholesale segments. Overall consumer revenue fell 4.2% to $800 million, while business and wholesale revenue dropped 6.5% to $693 million. Net income of $126 million was up year on year from $15 million.

Beasley said a cost savings program initiated by the company is on track to deliver $30 million in cost savings this year, as the company works toward a goal of achieving $250 million in gross run rate savings by its fiscal 2023.

Analysts from MoffettNathanson said the financial results were a “stark reminder of the amount of work that will be required to stabilize the business. It’s simply too soon to see the impact of management’s efforts in the overall financial results, at least in any material way.” However, they concluded the company’s metrics overall were “a good set of results.

Earnings matter, as we noted earlier, and overall financial results were a bit shy of expectations, but choppiness is to be expected given the number of changes to the business currently being implemented.”