Net broadband subscriber adds the 'new normal' at Frontier, CEO saysNet broadband subscriber adds the 'new normal' at Frontier, CEO says

Fueled by its aggressive fiber network buildout, Frontier Communications added a record 54,000 fiber broadband customers in the first quarter of 2022, a 20% gain over the previous record set in Q4 2021.

That fiber momentum, aided by record low churn of 1.19%, enabled Frontier to offset copper losses and add 20,000 net broadband subs for Q1 2021, a record nearly two times higher than that set in the prior quarter. Frontier ended the quarter with 1.38 million residential fiber broadband subs, up 11% YoY.

Figure 1: Frontier unveiled its brand refresh in April.
(Source: Frontier Communications)

"Positive net adds is the new normal," Nick Jeffery, Frontier's president and CEO, declared on Friday's earnings call.

Frontier's broadband subscriber momentum enters the picture as the company progresses with its plan to expand its fiber-to-the-premises (FTTP) footprint to 10 million locations by 2025 – a figure that includes the company's "Wave 1" and "Wave 2" builds. Frontier built fiber out to another 211,000 locations in the first quarter of 2022, and says it's on track to add more than 1 million FTTP locations for all of 2022, and another 1.6 million in 2023.

Figure 2: Click here for a larger version of this image.
(Source: Frontier Communications Q1 2022 earnings presentation)

Frontier, which recently launched a 2-Gig fiber speed tier, still hasn't determined what it will do with a "Wave 3" footprint that includes another 5 million locations that might be built using supplemental government funding and partnerships, potential divestments or system swaps. John Stratton, executive chairman of the board at Frontier, said the company is still assessing its plans for a Wave 3 buildout as the company assesses the better-than-expected returns it's seeing in the current Wave 2 build.

Penetration rates ride the fiber wave

Frontier, which emerged from Chapter 11 bankruptcy just over a year ago, also provided an update on penetration rates it's seeing in its "base" fiber footprint as well as the newer fiber expansion areas.

In the base fiber footprint, penetration rates rose to 42.45% in the quarter. That's providing penetration targets for its expansion fiber footprint, where it expects to reach penetration rates of at least 45% over time.

In the expansion areas, Frontier saw a penetration rate of 12% at the 12-month mark in its 2021 fiber build cohort – within its target range of 15%-20%. In the 2020 FTTP build cohort, Frontier is seeing a 44% penetration rate at the 24-month mark, outperforming its target range of 25%-30%.

Jeffery said Frontier's fiber-powered services are taking share from incumbent cable operators, but didn't elaborate on how much damage Frontier is inflicting.

He also acknowledged that fixed wireless access (FWA) could present an attractive option in rural areas where fiber isn't present. But Jeffery also believes fiber represents "a fundamentally different proposition" over FWA, given current data usage trends. In March, the average Frontier fiber subscriber consumed about 900 gigabytes of data, up 30% from pre-pandemic levels, with a portion consistently consuming more than 1 terabyte per month.

Brand refresh

Frontier recently launched a rebrand that retains the name but features a new logo and general look and feel.

Citing research that included about 12,000 customers and brand-positioning testing across about 4,000 customers, Jeffery said the company's brand "struggled in some copper markets" but saw gains in areas where fiber is being built out.

"This is critical because we know our future is fiber and fiber customers are the ones that will drive our growth in the years to come," said Jeffery, a former Vodafone UK exec who took the helm of Frontier in March 2021

Meanwhile, Frontier is still fighting off the mistakes from its past. Ars Technica reported that the Federal Trade Commission and Frontier agreed to a $8.5 million settlement in California over allegations that the operator lied to consumers and charged for Internet speeds (mostly via DSL) it failed to deliver. Frontier said the FTC's complaint "included baseless allegations and disregarded important facts," but nevertheless "settled the lawsuit in good faith to put it behind us so we could focus on our business."

Financial snapshot

Frontier posted consolidated revenues of $1.45 billion, down 10.7% from the year-ago period, due to a drop in subsidy funding (CAF II funding expired at the end of Q4 2021) and declining revenues from video, voice and wholesale services. Frontier posted Q1 EBIDTA of $509 million, beating the $498 million expected by analysts.

Business and wholesale revenues dipped 7%, to $666 million.

Consumer revenues of $776 million dropped 4.9% year-over-year, again due to declines in video and voice. Consumer fiber broadband revenues rose 12%, to $254 million, and fiber broadband average revenue per user (ARPU) climbed 2.3%, to $62.10.

"Attaining and sustaining total revenue and EBIDTA growth is our most critical milestone," said Stratton. He views Frontier as a "turnaround story" that's uncomplicated, but needs to execute in order to achieve its goals.

Company CFO Scott Beasley said Q1 2022 is expected to be a "low point" for subsidy revenues. Frontier expects subsidy revenues to increase sequentially to the tune of $15-$20 million per quarter by the end of the year, driven by the commencement of funding from the Rural Digital Opportunity Fund (RDOF).

Frontier said its current long-term contracts for materials and labor continue to keep the company ahead of supply chain constraints that have become pervasive in the broadband industry. As such, it reiterated fiber buildout costs of $900 to $1,000 per location. Frontier said it has $2.7 billion of liquidity on hand to fund its fiber buildout plan.

For full 2022, Frontier is targeting adjusted EBIDTA of $2 billion to $2.15 billion, and capital expenditures in the range of $2.4 billion to $2.5 billion.

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