Frontier's fiber build is ahead of schedule, but it's not raising its 2023 target - yet

The second-largest fiber-builder in America is officially at the halfway mark of a plan to reach 10 million homes by 2025, but its progress hasn’t come without challenges this year. Speaking at an investor conference on Wednesday, Frontier Communications’ SVP of Investor Relations Spencer Kurn noted “Building fiber is actually really hard, especially in this type of challenging supply chain environment and macroeconomic backdrop.” He added “I never thought it would be this challenging almost two years ago when we developed this plan.”

According to Kurn, despite pain-points in capital access and workforce turbulence in 2022, the operator’s construction pace has increased six-fold. The pace of builds actually increased by 10% to 20% in 2022 from a goal of one million locations to a new target of 1.1 million to 1.2 million. “What you're seeing now is a team showing the ability to accelerate builds and do so at cost, even in the face of a tightening labor market and a higher cost of capital,” said Kurn. While Frontier began their build in a handful of states in 2021, it expanded to 12 states in 2022 and will extend their reach further into a total of 15 or 16 in 2023, he added. In May 2022, Frontier raised $1.2 billion dollars in capital that provided enough liquidity to keep building into the mid-2024. The organization is not interested in issuing equity at these levels to keep funding past that deadline. “We’ll [continue to] build through a combination of debt, government subsidies and non-core asset sales,” said Kurn. He stated that Frontier is indeed eyeing its fair share of the $42-plus billion in government grants coming down the pike through the BEAD Program in the next few years. Additionally, since the organization started their build they’ve captured $444 million dollars of grant funding.

Though 2022 will end with Frontier ahead of schedule, Kurn stuck with the operator’s previously stated annual targets for the next three years ranging from 1.6 million to 1.7 million passings. While there may be opportunities in the future to accelerate, the organization isn’t in a position to fully commit to that yet, noted Kurn.

Once a fiber build in a given market is complete, Frontier is anticipating that within twelve months, they should reach 15-20% market penetration. Within 24 months, that projection is slated to climb to 25-30%. The organization plans to achieve 40% market share within five to six years of build completion.

Looking ahead to how the organization is planning to receive a return on their investment, the Frontier team is looking to achieve annual ARPU growth of 3-4% through a combination of modest annual price increases and the core decision, from the consumer, to choose faster-speed broadband tiers once they become available. “What’s encouraging to me when I think about ARPU is the demand we’ve seen for 1-gig or higher speeds," Kurn said.

Even as Frontier makes strides, that doesn’t mean that cable competitors are taking the market challenge lightly: It’s still a constant battle for customers. Even so, Kurn remained confident in Frontier’s ability to win out. “We’ve actually gained share against every one of our competitors in every geography that we compete in in the last few years,” said Kurn.

Beyond core broadband services, Kurn acknowledged that there may be opportunities to create bundled mobile and video services in the future, but Frontier hasn’t encountered the need to introduce bundles to the market just yet when the terms of building fiber are so profitable. The current goal, according to Kurn, is to funnel as much capital into building out fiber as possible instead of pivoting into offering bundles that have a lower return on investment.