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As Frontier Doubles in Size, It Must Avoid These Big Cable Mistakes

By Daniel B. Kline - Feb 8, 2016 at 3:30PM

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The telecom and cable company has a chance to become a serious player, but getting there will require avoiding these common industry pitfalls.

Later this year, perhaps as soon as March, Frontier Communications ( FTR ) will complete its $10.54 billion acquisition of Verizon's ( VZ -0.59% ) wireline, broadband, video operations, and FiOS networks in California, Florida, and Texas.

The deal, which follows a smaller, but similar, purchase the company completed in late 2014 of AT&T's ( T 0.39% ) former wireline business in Connecticut, fundamentally changes the small cable and Internet provider. Once it closes -- after all state and federal regulators have signed off -- it will double the size of Frontier's customer base.

This deal will add another  3.7 million voice connections, 2.2 million broadband connections, and 1.2 million FiOS video connections to Frontier's customer base, the company said in a press release. That's a major increase from the roughly 2.43 million broadband customers it had at the end of 2015's third quarter, and a big jump from the 560,000 video customers it had at that time.

Buying these Verizon operations may only make Frontier a mid-tier company -- they're not enough to make it one of the cable big boys -- but it will be big enough to receive much more scrutiny. That's why the company, which struggled to integrate the AT&T properties when it first took them over, must avoid falling into the traps which have tripped up other players in the pay television and broadband spaces.

Here are four things Frontier must either do if it hopes to hold onto the new customers it's paying Verizon so dearly for.

Put customer service first
When Frontier first took over from AT&T in Connecticut, it struggled with customer service problems that were reported to state regulatory groups, according to the The Hartford Courant. Between late October and early December 2014, Frontier consumers filed more than 900 complaints with the state Department of Consumer Protection, 200 with the state attorney general's office, and 240 with the state's Public Utilities Regulatory Authority, according to the Courant.

The company was even forced to give each of the 170,000 cable customers it purchased from AT&T a $50 credit because of widespread customer-service problems. More important than the money paid out was the fact that on a local level, the bad publicity undercut its extensive marketing efforts. Who would switch to a new, unknown player when the regional newspaper of record was full of reports of its misdeeds.

Frontier did eventually smooth out its service woes in Connecticut, but if similar problems crop up this time, they are likely to receive national media attention, not just local bad press.

Fix the price confusion problem
When Frontier first took over for AT&T in Connecticut, it ran an extensive ad campaign which included repeatedly mailing me a $99 offer for cable and Internet. At the time I first received those mass mailings, the company did not actually serve the condo complex where I live.

Once it actually did add my complex to its service area, a salesman showed up in my driveway. However, he explained to me that the $99 offer came with a pretty limited Internet connection and I did not want that. He was correct, but instead of offering me a clear price sheet, the salesman -- who was a very nice guy -- basically did a calculation on a napkin to tell me what my monthly cost would be, and even then, he admitted he couldn't tell an the exact number.

But if you don't want to talk with a salesman face to face, you can't just get a price from the Frontier website. You have to call and talk to a phone salesperson. It's a needlessly complicated experience that makes it feel like the company's hiding something. That's silly, because at least in my case, what I pay each month (an amount that's close to, but not exactly, what the salesman quoted me) was lower than what I paid my previous provider.

Frontier has good prices, and as a customer, I have no complaints about its service, but it should aim for pricing transparency.

Frontier shows "starting at" prices on its website, but won't let customers price their full service package. Source: Frontier

Avoid the temptation of hidden fees
One area where Frontier has done a good job -- at least from what I see on my monthly bill -- is in not tacking on a bunch of hidden fees or surcharges. A number of cable companies -- most of the major players -- have been guilty of advertising monthly prices for service that don't include mandatory fees for broadcast channels and sports packages.

That's a very deceptive practice because a fee or surcharge is really just part of the monthly bill if a consumer has no ability to opt out of it. Basically, big cable have used these semantic loopholes to advertise attractive lower prices that consumers won't ever actually get to pay.

It can be very tempting for a company to do this, because the public has shown a willingness to fall for the ruse. Ultimately though, if a business hopes to build its brand reputation, it's better off not lying to its customers right from the beginning. This tactic may have helped some cable companies boost their bottom lines, but ultimately, it will come back to burn them as people realize that advertised prices are not what they'll be charged on their bills.

Remember that it's about the customer
If Frontier wants to be a bigger cable and Internet provider with strong growth prospects, it needs to avoid the practices which have been the industry norm and instead put consumers first. That won't be easy to do, but this is not a company which holds a monopoly in any of its markets. It's an interloper trying to break into a club where most of the members have very bad reputations.

With its acquisition of the Verizon systems, Frontier has a chance to not only get bigger, but also to be better. How it acts and whether it can be honest with subscribers and potential customers will tell its story going forward. It's not enough to offer low teaser prices. To succeed in the long run, the company must do things differently while also offering fair prices, and putting people first.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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