Frontier Communications (NASDAQ:FTR) has been in steady decline. It has lost customers in every quarter since it spent $10.55 billion in April of 2016 to buy Verizon's (NYSE:VZ) wireline business in California, Texas, and Florida.
That deal was supposed to give the company the scale it needed to compete with the bigger players in pay television and broadband. The purchase gave the company approximately 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers.
On the positive side, the Verizon purchase did give Frontier added operational efficiency. The company has created over $1 billion in operational efficiencies due to being bigger. Unfortunately for shareholders, Frontier has not been able to hold onto those customers and that's something it can't seem to fix.
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What's happening with Frontier?
The Verizon purchase happened before cord cutting had become as significant a trend as it has grown to. Still, at the time of the purchase, it was clear that people leaving cable for streaming services was indeed happening.
In addition, Frontier has suffered because it offers telephone line-based DSL broadband service which has proven less popular with consumers compared to cable-based service. That has meant the company has not been able to make up for its cable losses with broadband gains.
The losses -- both in customers and cash -- forced Frontier to cut its dividend as of the first quarter of its fiscal 2017. It dropped the quarterly payout from $0.105 per share, where it had been for over two years, to $0.04 per share. The company also, at roughly the same time, conducted a 15-1 reverse split of its stock. That move was made to keep shares above the $1 threshold required to maintain its listing.
More recently, the chain has fully suspended its dividend. That's a move needed to conserve cash, but it's not likely to be well-received by investors.
What Frontier has to say
CEO Dan McCarthy has remained a relentless cheerleader for his company. His comments in Frontier's fourth-quarter earnings release match his optimism from previous reports.
"Our fourth quarter results highlight the ongoing progress on our key initiatives to improve customer retention, enhance the customer experience, and align our cost structure," he said. "We are pleased with continued improvement in subscriber trends and churn in our California, Texas, and Florida (CTF) markets, and the continued operating efficiencies achieved in the fourth quarter."
Is Frontier Communications a buy?
McCarthy has been very good at lowering expenses and manipulating debt to keep the company afloat. Suspending the dividend creates another $250 million in operating capital.
That would all make sense if the company had a clear path toward reversing its subscriber losses. It does not. The company is operating in a market that's shrinking and there's no sign that will reverse itself or even level out any time soon.
Frontier isn't a buy because it has no path to growth. An optimistic view would be that the company can bottom out and find a way to operate profitably at the current level. Even that scenario is unlikely simply because customers are leaving cable in general and that number is likely to increase for years to come.