Things have not been going all that well for Frontier Communications (FTR). The company has been losing subscribers and has yet to prove that its $10.45 billion purchase of Verizon Communications' (VZ 3.29%) wireline business in California, Texas, and Florida (CTF) will turn out to be a good idea.
But just because the company has underperformed does not mean that it's doing everything wrong. Frontier had some hiccups when it took over the Verizon customers, but those issues were addressed with surprising speed. In addition, while the cable, internet, and phone company lost customers overall while also dropping in business, video, and even broadband categories (where its rivals are generally all gaining customers), there are some positive signs that CEO Daniel McCarthy may yet turn things around.
Frontier has not done everything right, but it's a well-managed company that's doing two things very well. First, McCarthy himself has been a strength -- partly because he addresses problems quickly, but largely because he does not back away from accepting blame. Second, Frontier has done an excellent job controlling its expenses, which won't bring subscriber counts up, but will extend the company's runway to execute its plans.
Frontier has been losing cable subscribers. Image source: Getty Images.
The CEO tells it like it is
While "he tells it like it is" can be a euphemism for "he's a blowhard," in McCarthy's case it's refreshing. Too many earnings calls and press releases put out by companies with obvious problems either gloss them over or don't address them at all. McCarthy can't be accused of doing that. He's willing to talk about the elephant in the room -- and even take it around and introduce it to people.
McCarthy addressed the company's issues bluntly in its third-quarter earnings call. His remarks were refreshingly honest, which actually makes it easier to believe him when he tells you how he plans to address the issues Frontier is facing.
"Important aspects of our third-quarter financial results are disappointing and illustrate how much further we have to go," he said. "I wanted to assure you that I'm focused on addressing and resolving the issues hindering our performance. I'm fully aware that the third-quarter results underscore the urgent need for our expanded business to perform at the higher level, where I know it can and should. And you have my personal commitment that we will do so."
During the call McCarthy also laid out steps Frontier is taking to realign its business to reflect its new size in the wake of the Verizon deal. It's hard to know whether a restructuring of its operations will help turn the subscriber numbers around, but this was clearly a case where the old system was not working.
Frontier is saving money
Part of the logic behind buying the CTF properties from Verizon is that being bigger would allow Frontier to operate more efficiently. That has been the case, as the company raised its saving projections in its Q3 earnings release.
"Frontier's annualized cost synergy target is now $1.4 billion, up from the $1.25 billion target outlined in the second quarter earnings report," according to the release. "Yet-to-be attained cost synergies of $400 million are anticipated to be achieved by mid-year 2019, including $250 million anticipated to be achieved by mid-year 2017."
That type of saving is significant for a company which only had about $6.5 billion in revenue through the first nine months of its fiscal year.
What's next for Frontier?
Having a decisive, honest CEO and being efficient in running its operations gives Frontier a fighting chance. That does not mean the company will succeed in stabilizing its customer base. The company still faces an uphill battle, given that it's very much a smaller player in cable and internet.
Ultimately being well-managed may not be enough to make Frontier a player. It may, however, enhance the company's value as an acquisition for one of its bigger competitors.
