Frontier Communications (FTR) has been in freefall since April 2016, when it spent $10.54 billion buying Verizon's wireline, FiOS, and broadband businesses in California, Florida, and Texas (what the company refers to as its CTF assets). That deal brought Frontier an additional 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers, more than doubling its size.
It seemed like a good idea at the time. The company was making a play to increase its size in order to spread expenses over more customers. That part worked: Frontier has reached $1 billion in cost-synergy savings, and it expects to achieve another $350 million this year.
That's the only good news the company has experienced in over two years, however. Despite having strong management that has done a good job managing cash to buy it time, Frontier has a very difficult future ahead of it.
1. It keeps losing customers
Frontier paid billions for customers that it can't hold onto. It has not seen a dramatic drop in any one quarter, but its losses have been slow and steady, with no sign of stopping.
In one year Frontier has gone from 5.22 million customers to 4.76 million. From the fourth quarter of 2017 to the first of 2018 it lost 74,000 subscribers, slightly less than the 89,000 it lost in the previous quarter.
For a while, CEO Dan McCarthy had plausible reasons for the drop. Now he has stopped making excuses and focused more on revenue improvement from the company's remaining user base. Eventually, squeezing more money from fewer people won't be enough, and the company has shown that it can't stop losing customers.
2. It has stopped paying dividends
For a long time, the most attractive thing about Frontier was its dividend. In May of 2017, the company cut its dividend from $0.105 per share, where it had been for over two years, to $0.04 per share. More recently, in February, the company completely suspended its dividend, and its cash position suggests it's very unlikely that it will ever come back.
3. Its technology is wrong
Cable (a category that includes cable, satellite, and cable-like digital subscriptions) has been a shrinking business since 2013. Those losses have accelerated in recent years. After roughly tripling in 2015, numbers doubled each of the past two years.
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Some cable companies have made that up by increasing their broadband internet base. The problem for Frontier is that consumers have flocked to internet providers that offer service over cable lines. Frontier offers DSL-based internet service, and has lost broadband customers as well.
Frontier wanted to buy its way into being a bigger player. Instead, it purchased customers that it can't hold onto.
It's very unlikely that this stabilizes or turns around anytime soon, if ever. Frontier is doing a good job managing its debt to keep the doors open, but it has little hope of doing much more than just holding on.