Frontier has added cable customers by buying them, but broadband may be more important to its future. Image source: Getty Images.
Frontier Communications (FTR +0.00%) has been in the midst of a major upheaval.
The company spent $10.54 billion buying Verizon's (VZ 1.05%) former wireline customers in California, Texas, and Florida. That more or less doubled its size giving it 3.3 million new voice connections, 2.1 million added broadband connections, and another 1.2 million FiOS video subscribers.
It was a difficult transition -- one of the biggest ever switches of its kind -- but now Frontier has owned its new markets and customers since April. CEO Daniel McCarthy spoke at the recent Goldman Sachs Communacopia 2016 event (free registration required), where he updated the audience on how the acquisition was going and shared his thoughts about the future.
Work remains to be done
"We're two months, I'm sorry two quarters, almost into the integration of the two properties and there's a lot of things at this point that I think are going quite well," he said. "When I look at the normal return to operations, whether that's around service orders, trouble tickets, how customers are interacting with our centers, all that's going really, really well."
He noted there were "still some challenges" around bringing some of its culture to the newly acquired properties. That includes on-shoring (bringing to the United States from overseas) some of its call centers. He also said that he expected better results when it comes to signing up new customers.
"We're still seeing a ramp on some of our marketing," he said. "We started the marketing in July and saw a lot of headwinds in the summer. We're expecting to see a lot more improvement based on seasonality as we get into the fourth quarter."
It's all about the financials
Frontier, like the rest of the cable and internet industry, can't control customers signups, but it can manage the bottom line. That's especially important for a company that has taken on billions in debt to finance the Verizon purchase.
"We're laser-focused on financials," McCarthy said, noting that the company expected to deliver about $1 billion in EBIDA. "And when you look at Q4 it should be sequentially better than that." He reconfirmed that the company plans to deliver over $4 billion from an EBIDA perspective in 2017.
The company needed a new CFO
Earlier in September, Frontier made a change at CFO with John Jureller stepping down to be replaced with R. Perley McBride. McCarthy explained that the move was in consultation with Jureller and it was done in part because his skill set was suited for the mergers and acquisitions the company had spent the last three years on, but may not have been as good a fit for the changed work needed from the position going forward.
"We both decided it was the right time to make a change," he said. "I was looking for a CFO who really was very operational, someone who understood telecom intimately, who could bring a view externally to us, but still wasn't going to be a long ramp as far as intimacy with Frontier."
That brought him to McBride, who spent much of the first half of his two-decade career at Frontier before leaving for top roles at companies, including his most recent stint as CFO at Cable & Wireless Communications Plc.
"Perley McBride is the perfect person for us," the CEO said, explaining that during his previous tenure at the company he was extremely involved in the "nitty-gritty" of Frontier's finances. "He brings an intimacy with our systems and our processes, and with the people, most of the management team still knows Perley. He's as close to an internal candidate as you can find bringing in an external candidate."
Broadband will be key
Frontier plans to upgrade over 1.5 million homes to faster broadband in the next year, which will bring about 40% of the company's footprint to 50 Mbps service. That makes sense because the internet side of the market has been steadily growing while pay television has been shrinking.
"We're seeing the sweet spot being between 20 and 50 (Mbps)," said McCarthy. He noted that customer demand for bandwidth tends to be related to how many devices they have in their homes. "You have concurrent video streams that might be happening, but we see customers at a 20 meg or 25 meg service that are perfectly happy."
McCarthy added that most sales have been in the higher speed buckets, which is why the company plans to add to its capacity. In many cases, he noted, the improvements are being made in markets where Verizon had stopped improving service.
"We're picking very dense areas where we can go in with very low capex and transform the market," he added.
