Frontier: Nose to Grindstone After Q1 Declines
It wasn't an easy first quarter for Frontier.
Amid efforts to close on the acquisition of three Verizon Communications Inc. (NYSE: VZ) markets in California, Florida and Texas, the telco suffered both revenue and subscriber declines across its legacy footprint. All told, Frontier Communications Corp. (NYSE: FTR) reported $1.36 billion in revenue in Q1, down 4% from Q4 of last year. The company blamed the drop on voice subscriber losses, and on a bump in revenue that it gained at the end of 2015 from Connect America Fund Phase II payments.
Operating income was $58 million for the first quarter, with Frontier reporting a net loss of $186 million or $0.16 per share. Breaking the numbers down, the company earned $583 million from its residential business and $606 million in business services revenue, compared to $594 million and $613 million respectively in the fourth quarter of last year.
On the subscriber front, Frontier closed out the first quarter with just over 3 million residential customers, including 2.5 million broadband and 543,400 video subs. Those numbers represent a gain of 24,600 broadband customers sequentially, but a loss of 10,300 video customers. Average revenue per user was down $0.50 to $62.64.
At the end of March, Frontier also tallied a 1.7% reduction in total business services customers, bringing that number to 284,400. Average revenue for business customers was up less than 1% to $704.10.
The first quarter marks the last time that Frontier reports numbers that don't include the new Verizon markets acquired on April 1. (See Frontier Takes Over FiOS Tomorrow.)
The company has suffered some transition hiccups since then, with certain customers reporting difficulties during the changeover. However, Frontier President and CEO Dan McCarthy said in the quarterly earnings call that there shouldn't be much of a lingering impact going forward.
McCarthy did caution that it may take some time for Frontier to pick up new subscribers in the Verizon markets, as the company will minimize marketing efforts in the early months to give customer support teams a chance to familiarize themselves with Frontier's systems. McCarthy said he expects things to normalize moving into Q3.
McCarthy also referenced some of the opportunities ahead for Frontier in the new markets, noting that "we have several activities that are planned through the latter half of this year that will improve the synergies [of the combined businesses], but will have limited probable impact in 2016. It's more setting the stage for 2017."
On the video side, Frontier has also said it will expand its video services to 3 million new households over the next three to four years, and McCarthy added in the earnings call that the company has already decided on some of the initial markets it will target for these launches.
Regarding the commercial sector, McCarthy said he anticipates an opportunity to introduce more advanced services in the Verizon markets in the near future, pointing out that the network infrastructure is in good shape, and that Frontier simply needs to coordinate its distribution channels.
"It's about our marrying distribution strategy around capabilities and then executing," said McCarthy. "So we think that is a near-term opportunity."
— Mari Silbey, Senior Editor, Cable/Video, Light Reading