As Frontier Communications (FTR +0.00%) tries to integrate the systems it recently purchased from Verizon (VZ +0.02%), it faces a big problem when it comes to customer retention.
The growing cable and broadband provider has come in dead last as an internet service provider on the 2016 American Customer Satisfaction Index (ACSI) Telecommunications report. That's not good news for a company that has borrowed heavily to finance its $10.54 billion acquisition of Verizon's wireline operations in California, Texas, and Florida. The acquired businesses include approximately 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million video subscribers.
Those are all customers in competitive markets -- places where consumers could elect to switch to another provider, which seems like a real possibility. Frontier not only ranked dead last as an ISP in the ACSI report, but it also posted the second-lowest score of any company ranked across all 45 industries the research company tracks.
How badly did Frontier do?
ACSI only ranks Frontier as an ISP since it doesn't have enough pay-television customers to be broken out on its own in that category (where it instead counts as part of "all others"). As an Internet provider, however, the company put up the lowest score, 56 out of a possible 100, in an industry that averaged a 64. That number not only secured last place in the category, but it also only barely beat out the worst performer -- little-known Mediacom scored 54 as a pay-television provider.
To make matters worse, Frontier also posted the biggest drop among ISPs, falling by 8% when perennial bottom-dweller Time Warner Cable, now part of Charter Communications, improved its score by 14%. Comcast, another company known for poor service, saw its numbers rise by 5%.
It would be easy to blame Frontier's problems on the Verizon acquisition, as that changeover has been fraught with problems, but the ACSI report was compiled from a survey that was completed March 31, before the company took over its new properties.
Image source: ACSI.
What does this mean for Frontier investors?
For Frontier to succeed, it needs to be a viable alternative to the cable and broadband companies people currently use. The problem is that it's hard to woo customers, or even keep them, when word of mouth suggests your service might be even more lousy than whichever Internet provider the person used previously.
"When you get that kind of dynamic where you have choice, but your choice is even worse, you're just not going to have really pleased consumers," ACSI Research Director Forest Morgeson said during a phone interview. "Frontier comes in at the bottom as an ISP, so it's not much of a choice. It's a non-choice."
For the company's shareholders, the low rating should be a major red flag. It's not enough to buy more users -- Frontier needs to hold on to them while also adding subscribers. Being the worst company in one of the two lowest-rated ACSI categories makes it seem unlikely that will happen.
