Frontier Cuts Dividend, Seeks Salvation

Still smarting from its botched takeover of three Verizon wireline systems last year, Frontier slashes shareholder dividend as it aims to reduce its heavy debt load.

Alan Breznick, Cable/Video Practice Leader, Light Reading

May 3, 2017

3 Min Read
Frontier Cuts Dividend, Seeks Salvation

Still struggling to find its way out of the financial wilderness, Frontier is taking major steps to reduce debt, cut customer churn and drive new customer and revenue growth.

Frontier Communications Corp. (NYSE: FTR) -- which has already resorted to massive staff layoffs and sizable capital spending reductions to recover from its botched takeover of three large Verizon wireline systems last year -- announced late Tuesday afternoon that it is chopping its shareholder dividend in more than half to pare back expenses and devote more resources to trimming its hefty debt. Company executives said the quarterly dividend cut -- from 10.5 cents per share to 4 cents per share -- will enable them to realize another $300 million to $400 million in annualized savings over the next couple of years and accelerate their paydown of debt. (See Frontier Lops Off 1,000 Jobs in Big Overhaul.)

Currently, Frontier's leverage ratio is nearly 4.4 times debt-to-equity. Company executives aim to cut that ratio to a more manageable 3.5x by the end of 2021.

Although Frontier had been expected by analysts to reduce, suspend or even eliminate its dividend because of its financial woes, the news still did not please shareholders. The company's stock price on the Nasdaq exchange plummeted as much 15% in after-hours trading yesterday and early-morning trading today before recovering somewhat. As of 12 noon ET, the price stood at $1.73 a share, down more than 10% from a day earlier.

Besides slashing its dividend by 62%, Frontier also announced steps to cut customer churn on both the video and broadband sides of its business as it scrambles to keep more subscribers from defecting. Despite improving its gross subscriber additions in the first quarter, the company still racked up net losses of 107,000 broadband and 80,000 wireline video subs during the winter. Largely as a result, it recorded a $51 million drop in customer revenue from the previous quarter, with its total dipping to $2.16 billion.

Acknowledging the severity of the churn problem, the large telco plans to roll out a "consumer-friendly" Fios self-installation system in its new California, Florida and Texas (CTF) properties this summer to boost customer satisfaction rates and reduce its reliance on third-party contractors. It also intends to invest in a "Pega platform" to improve its customer care, retention and acquisition efforts.

"We are highly focused on customer acquisition and retention," Frontier President & CEO Dan McCarthy declared on the company's earnings call yesterday. "We've made good progress on the gross additions front." Now, he said, the company's priority is to "improve the customer experience and churn."

For more fixed broadband market coverage and insights, check out our dedicated gigabit/broadband content channel here on Light Reading.

Significantly, Frontier officials, who view Charter Communications Inc. as their biggest cable competitor, made no mention of any OTT video plans on the earnings call. Less than two months earlier on the company's fourth-quarter 2016 earnings call, officials discussed the idea of launching their own streaming video service or licensing a skinny bundle service like DirecTV Now or Sling TV from another provider. (See Frontier Eyes OTT Video Options.)

Frontier did announce another type of new initiative on the broadband end, though. The company said it will start deploying over its copper lines to MDU properties, after piloting the technology in its Connecticut system. "We're pleased with it," McCarthy said.

— Alan Breznick, Cable/Video Practice Leader, Light Reading

About the Author(s)

Alan Breznick

Cable/Video Practice Leader, Light Reading

Alan Breznick is a business editor and research analyst who has tracked the cable, broadband and video markets like an over-bred bloodhound for more than 20 years.

As a senior analyst at Light Reading's research arm, Heavy Reading, for six years, Alan authored numerous reports, columns, white papers and case studies, moderated dozens of webinars, and organized and hosted more than 15 -- count 'em --regional conferences on cable, broadband and IPTV technology topics. And all this while maintaining a summer job as an ostrich wrangler.

Before that, he was the founding editor of Light Reading Cable, transforming a monthly newsletter into a daily website. Prior to joining Light Reading, Alan was a broadband analyst for Kinetic Strategies and a contributing analyst for One Touch Intelligence.

He is based in the Toronto area, though is New York born and bred. Just ask, and he will take you on a power-walking tour of Manhattan, pointing out the tourist hotspots and the places that make up his personal timeline: The bench where he smoked his first pipe; the alley where he won his first fist fight. That kind of thing.

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