Millions of Americans aren't satisfied with the television, internet, phone, and mobile services they get, and that presents a challenge for the companies that provide those services. For Frontier Communications (NASDAQ:FTR), now is a critical time for it to connect with customers, because its recent acquisition of extensive assets from Verizon (NYSE:VZ) in the major markets of California, Florida, and Texas has brought millions of new customers into its fold. However, in order to make the most of the chance to create good new relationships in those areas, Frontier will have to overcome what was its biggest failure so far in 2016: its industry-worst rating for customer satisfaction with its internet service.
Dealing with a bad grade
Earlier this year, the American Customer Satisfaction Index released a report on the perception among customers of the telecommunications industry. In that survey, Frontier finished last among companies in the internet service provider category, falling 8% from last year to 56. Even worse, Frontier's overall grade was the second worst across all categories in the telecom sector, finishing only above a little-known pay-television provider.
As if that weren't bad enough, Frontier's decline came amid a general uptick in customer satisfaction in the industry. After two straight years of declining scores, ACSI said that its index for the telecom sector climbed almost 2% to move back above 70 on its 100-point scale. All five of the services that ACSI tracks, including pay-TV, internet, landline, wireless, and cellphone hardware, showed improvements from year-ago levels.
Moreover, some of Frontier's larger competitors posted even more impressive results. Verizon's FiOS internet service jumped 7% to post the best-ever customer satisfaction rating in the industry at 73. Various cable-centered companies also improved their results substantially. In that context, Frontier's poor performance was even more disappointing.
What's at stake with Frontier's failure
The big problem with Frontier's customer service shortcomings is that they reflected the company's competitive situation before the Verizon acquisition was finalized. The survey therefore looked at what are now Frontier's legacy customers from other areas of its network.
Since then, Frontier hasn't exactly wowed some of its newly acquired customers. Early in the transition from Verizon to Frontier, customers had to deal with service outages, problems with billing issues, and an inability in some cases to access on-demand content. Some of those problems persisted for weeks after the switchover, and that led to large numbers of consumer complaints to the regulatory agencies charged with oversight of telecom services. For instance, in California, the state's Public Utilities Commission had gotten more than 1,600 complaints by mid-July.
Frontier shareholders had hoped that the company would avoid this level of onboarding difficulty. The telecom provider had encountered similar issues when it acquired wireline assets in Connecticut, and Frontier executives had asserted that they had learned a lot from the Connecticut experience that could help inform the process with these three much larger markets.
Why it matters for Frontier
In the end, what's most important for Frontier is for the company to do everything it can to build a more positive public perception of its service offerings. Frontier will resolve the problems it faced in serving its customers, but the impressions it makes during the process will shape the relationships it has with customers in its newly acquired territories for years to come. If Frontier can show customers not only that it addressed problems quickly but also did so in a way that resonates positively with the public, then it could finally put the telecom on the road toward getting a better customer rating.
Until that happens, Frontier will have to deal with the disappointment of being seen as a laggard in providing the customer service that the public demands. If it can't fix its reputation, then Frontier could eventually see increased customer defections that would make an expensive acquisition much less valuable from a long-term business standpoint.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.