Regional telecommunications company Frontier Communications (FTR +0.00%) started fiscal 2014 on a negative note. Frontier's first-quarter results weren't impressive as it missed analysts' expectations on both revenue and earnings.
However, the company did offer some positives to investors on the conference call that could lead to improvements in the future. With competition from the likes of Windstream (WIN +0.00%) and CenturyLink (CTL 3.99%) getting stronger, though, will Frontier be able to get its business back on track? Let's check.
Beyond the weakness
Frontier saw a decline of 4.3% in revenue and a sizable drop of 18% in earnings from the prior-year period. However, the company has been making investments to accelerate growth in the long run, so investors should look beyond one bad quarter. Frontier saw record broadband net additions of 37,158 customers in the first quarter, helping the company gain market share in 91% of its markets.
In addition, Frontier managed to achieve a 50% improvement in the residential customer loss rate as compared to 2013, hence reducing the churn. This was the company's lowest customer loss in more than five years. Going forward, Frontier will try to sustain this momentum in an effort to retain as many customers as possible.
In addition, Frontier's new secure broadband bundles saw strong sales, with a significant improvement being seen in small business bundles. Moreover, the company is also excited about its new Internet of Things (IoT) products that it plans to roll out in the ongoing quarter.
Positives worth noting
Frontier is focusing on its product initiatives to drive growth going forward. It is excited about its new product lines such as the Frontier Secure Platform, which is now getting Internet of Things capability with Dropcam. The company also plans to sell monthly premium tech support service for each product at an extra cost. This move will result in incremental revenue for the company.
Apart from this, the company also expects to benefit from solutions such as the New Frontier Anywhere Hosted Business Telephone System. This service was introduced last quarter and has experienced robust success so far. It has also announced its new suite of Frontier Secure products that are designed to offer better services to small and medium-sized businesses with greater security, protection, and control. The company also offers advanced, low-cost, and low-maintenance solutions such as Computer Security Pro for PCs/Macs and Mobile Security Pro for Android OS-based mobile devices that will protect small and medium businesses and residential customers from cyber threats.
The company also seems to be making good progress with its AT&T Connecticut acquisition. Frontier had acquired AT&T's Connecticut operations in December last year for $2 billion, gaining access to 415,000 data, 900,000 voice, and 180,000 video residential connections. Conversion, integration and regulatory approval activities related to the acquisition are in progress. Going forward, this smart acquisition will help Frontier expand its reach in the residential and small and medium business segments.
What are peers up to?
Frontier had a difficult time in the first quarter, but there's no doubt that the company could improve going forward. However, investors should watch out competition from the likes of Windstream and CenturyLink.
Windstream is investing to expand its broadband network. The company is looking to enhance its presence in the rural market driven by this expansion. Windstream is also rolling out data centers to support cloud-based services, and this should help the company improve its financial performance in the future. In addition, Windstream is also boosting its surfing speed, and it is also ramping up FTTT construction. The company is on track to add 75,000 new broadband connections this year, improving its growth prospects.
CenturyLink, meanwhile, is seeing rapid growth in its high-speed Internet and Prism TV customers. In 2013, CenturyLink added 14,000 HSI customers and 69,000 Prism TV subscribers. Looking ahead, CenturyLink's growth will also be driven by fiber-connected towers that are gaining good momentum. CenturyLink saw a 30% jump in the deployment of fiber-connected towers in 2013, a move that has strengthened its network capabilities and should help it compete more efficiently with rivals going forward.
Bottom line
The first quarter can be considered as a short-term hiccup for Frontier. The company is making good progress in the business, and its long-term prospects also look strong due to the expected growth of the Internet of Things and the increase in broadband additions. As such, it would be a smart move on investors' part to capitalize on Frontier's post-earnings weakness.
