3 Things Frontier Communications' CEO Wants Investors to Know

The company continues to lose customers, but there are some positive signs.

Daniel B. Kline
Daniel B. Kline
Mar 5, 2019 at 7:26AM
Technology and Telecom

Frontier Communications (NASDAQ:FTR) has gone from being a dumpster fire to more of a tire fire. That may sound like a negative, but it's actually an accomplishment for management, which has prevented the company from burning out quickly and moved it into a more controlled decline.

Of course, that's not to say the company is doing well. It continues to see drops in subscribers and lost $219 million in the fourth quarter. Still, while there's plenty of bad news to report, CEO Daniel McCarthy continues to speak optimistically about the future. 

McCarthy may tend to shade things in a more positive light, which is common for CEOs during an earnings call, but he has stabilized his company. Frontier is in slow decline and that at least gives its chief executive time to turn things around.

Check out the latest earnings call transcript for Frontier Communications.

A person pointing a remote control at a blurred-out television.

Cord-cutting has caused problems for Frontier. Image source: Getty Images.

1. Revenue is stable

McCarthy has relentlessly cut expenses since Frontier completed its $10.54 billion purchase of Verizon's wireline business in California, Texas, and Florida (CTF). That deal was a bid to gain economy of scale, and it worked to a point as the company has been able to shed over $1.5 billion in costs.

The problem is that the CTF deal happened right before the cable industry began seeing cord-cutting become a steadily growing phenomenon. That put Frontier in a position where it has continually lost customers, but as McCarthy noted during the fourth-quarter earnings call, it has been able to stabilize its revenue. "We achieved revenue of $2.12 billion, which was stable sequentially," he said in regards to the Q4 numbers. "This was driven by an increase in consumer revenue and a decline in commercial. Consumer churn improved sequentially, as well as relative to the fourth quarter last year [and] consumer ARPC increased sequentially."

2. Focused on broadband

Many larger cable companies have offset their pay television losses with gains in their broadband business. Though that has not been the case for Frontier, it's been working to address that problem. The company lost 67,000 broadband customers in Q4, similar to its Q3 loss of 61,000. For the year, however, Frontier cut its broadband customer loss from 333,000 in 2017 to 203,000 in 2018.

"These results reflect the benefit of improved churn, offset by a more disciplined approach to gross additions," McCarthy said. "Our transformation program is focused on both improving churn, as well as a more efficient approach to demand generation and attracting new customers to our platform. Our view is that focusing on acquiring customers who are less likely to churn will over time result in further churn improvement while reducing the cost associated with adding customers that have higher propensity to churn."


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3. Continued investment

The biggest challenge facing Frontier, aside from the general trend of cord-cutting, may be that the CTF markets offer DSL internet. That technology has fallen out of favor with consumers, forcing companies that use it to invest in new products. McCarthy noted during his remarks that despite its problems, Frontier continued to have teams working on new products and product enhancements.

"For example, yesterday, we announced Simply Wi-Fi Secure, a product which we expect will bring a number of benefits to small business customers," he said. "In 2019, we will be deploying the capability for 10GB fiber service across our FiOS footprint for commercial customers, as well as for 5G backhaul capability."

That expansion, he added, "will only require capital spending of approximately $50 million, reflecting the ease with which our fiber capabilities can be expanded."

A road forward?

Frontier has shown some improvements, but it still faces immense challenges. McCarthy has not been able to curb the loss of customers and he no longer even promises a return to growth. He has also been unable to stop losing money even with careful cost cuts and asset allocation.

Still, McCarthy has shown that he can juggle debt, appease lenders, and show small but real progress. That's not in any way a guarantee of survival, but it's a chance to live to fight another day and, perhaps, provide a road forward for the struggling cable and internet provider.