Frontier Communications (NASDAQ:FTR) has a big challenge ahead of it.
The relatively tiny company has plans to become a much bigger player in the cable and Internet service space. It already taken over a system from AT&T (NYSE:T) in Connecticut, and it's in the process of closing out a much bigger purchase of Verizon's (NYSE:VZ) wireline operations in three states. That $8.6 billion deal, which has already cleared all regulatory hurdles, should close around March.
Once it happens, Frontier will be a bigger player -- about triple its current size -- and it will be set to serve as an alternative to big cable companies including Comcast (NASDAQ:CMCSA), Time Warner Cable (NYSE:TWC), and Charter Communications (NASDAQ:CHTR). With operations in 28 states, the company will have a chance to compete, but to do so, it will need to avoid the problems that have plagued the industries it operates in.
If Frontier is to succeed, it will do so by casting itself as an outsider, an alternative to the poor customer service, lousy billing practices, and consumer-unfriendly practices big cable has long been known for. To be more than a minor player buying market share, which it will have trouble holding on to, Frontier needs to avoid these three problems associated with its industry.
1. Customer service needs to be solved
The cable and Internet industries -- most specifically Comcast and Time Warner Cable -- have become synonymous with poor customer service. The industry has long operated like the monopoly it once was (and still is, in certain markets), treating people like they have no choice but to remain customers.
In some cases, Frontier will be the choice, the alternate to the traditional providers. It might be able to lure new subscribers in the territory it bought from AT&T and the one it will be buying from Verizon with low-price teaser deals, but keeping those customers will require more than a cheap price. The company will have to treat people well and be responsive to their needs.
While until recently, the bar for good customer service from a cable and Internet provider was set pretty low, both Comcast and TWC have committed major resources to improving theirs. Frontier did not get off on the right foot when it launched in Connecticut, according to The Hartford Courant, but the ship has laregely been righted.
If the company has any hopes of being a major player, though, it has to be more than OK in customer service. It has to actually set the standard, and that needs to start as it integrates the Verizon properties.
2. Billing must be transparent
The cable and Internet industries have both been guilty of deceptive billing practices. In the case of both, they advertise enticing rates -- $39.99 for cable -- but those prices do not include mandatory hidden fees. Many cable companies charge broadcast fees (which help cover the costs of carrying the major network affiliates) and sports fees (which offset what the cable companies pay to carry major sports networks). On the Internet side, the most common extra charge is charging for a modem rental each month without telling the customer her or she could just buy it.
In Connecticut, where I am a Frontier customer, the company has been good about not charging unexpected fees. However, it has been less forthcoming in communicating its pricing.
The company has ads and mailers touting $99 cable and Internet deals, but that price only pays for a fairly slow, cut-rate package. Determining what I would pay was literally worked out on a piece of paper by a salesman in my driveway. He used a formula involving my desired Internet package, number of TVs, and desired channels.
It seemed overly complicated, and the company would be better off simplifying and being fully transparent. The company also needs to put its prices clearly on its website rather than requiring interaction with a salesperson.
3. Service has to be convenient
The cable industry has been infamous for its four- and even eight-hour appointment windows, which chained consumers to their homes while they waited for a technician to show up between noon and 4 p.m., only for the tech to arrive late. There was nothing consumers could do, and this practice was the standard for most of the history of the business.
In recent months, however, this has begun to change. Comcast, for example, has an app that allows consumers to track where their technician is, alerting them when his arrival is imminent. This practice is slowly becoming the norm, and it erases an area where, until recently, Frontier would have had an opportunity to be disruptive.
Now, Frontier has to make sure it at least keeps pace. It needs to keep appointment windows tight and communicate well with customers. It would also do well to follow Comcast's lead and create a tracker app that provides total transparency to consumers.
This is an uphill battle
The biggest problem facing Frontier is that it's not an outsider trying to upset the status quo. It's a small cable and Internet company trying to get bigger.
If it wants to become a major player, Frontier needs to cast aside the lessons learned from the industry's current leaders. Focus on customers, be honest, be transparent, and perhaps most importantly, be on time.
Editor's note: A previous version of this article misstated the terms of Frontier's latest deal with Verizon. The current deal covers wireline operations in three states, in contrast to its previous 2009 acquisition of Verizon assets in 14 states.The Fool regrets the error.
Daniel Kline has no position in any stocks mentioned. He once had a wired cable box with a button for each channel. 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.