Frontier keeps supply-chain constraints in check as fiber build broadens
While supply-chain issues forced AT&T to reduce its fiber buildout target last year and have impacted vendors far and wide, Frontier Communications believes it remains in solid position as the company plows ahead with a plan to add 1 million fiber-to-the-premises (FTTP) locations in 2022.
Under the plan, Frontier expects to expand its FTTP footprint to 10 million locations by 2025, up from about 4 million today.
"We've got good supply resilience. We've expanded the number of vendors in every category, and we've got good forward cost visibility as well," Nick Jeffery, Frontier's president and CEO, said Wednesday on the company's fourth quarter 2021 earnings call.
But he acknowledged that Frontier, which has taken on a "fiber first" posture, was "lucky," in that the company started to accelerate its fiber build ahead of many other telcos and cable operators.
"We're in relatively good and insulated position because, frankly, we got there first and we signed up the terms before anyone else had a chance to do so," Jeffery said.
Supply chain constraints didn't slow Froontier's fiber build in Q4 2021, as the company added a record 192,000 FTTP passings in the period, improving on the 185,000 new fiber passings built in Q3 2021.
Last month Frontier pre-announced that it added a record 45,000 fiber broadband subscribers in the fourth quarter of 2021, beating its prior record in Q3 2021 by more than 50%. That was also enough to overtake subscriber losses from Frontier's legacy copper broadband business, as the company posted a Q4 net gain of 14,000 consumer broadband subs. Frontier ended 2021 with 1.33 million fiber broadband customers, up 8% year-over-year. About half of Frontier's consumer broadband sub base is now served by fiber.
Frontier, which launched a symmetrical 2-Gig fiber service on February 22, is seeing solid penetration in its existing "base" FTTP markets and positive signs in newer fiber buildout areas. Penetration in Frontier's relatively mature base-fiber footprint rose to nearly 42%, and the company expects that to eventually increase to 45%.
In the FTTP expansion cohort, Frontier is seeing penetrations of 22% at the 12-month mark, expecting that to rise to 25% to 30% at 24 months. In later years, the company expects the percentage to jump to a terminal penetration of 45%.
"We're now, I believe, gaining market share in all of our fiber markets against every single one of our competitors," Jeffery said. "That is not a moment in time or an aberration. That's the result of strong operational execution across many different dimensions, and I think we'll see that carry forward into the future."
Frontier said its fiber-related net promoter score (NPS) went positive for the first time in November 2021, while fiber churn dropped to 1.32% in Q4 2021, improved from 1.56% in the year-ago quarter.
Fiber revenues expected to improve
However, fiber-related revenue growth has yet to match up to recent fiber subscriber and NPS gains. Frontier reported Q4 2021 fiber revenues of $675 million, down from $684 million in the year-ago period.
The main culprit was a decline in video and voice revenues. Frontier stopped marketing its own pay-TV product early in 2021 as it instead shifts its focus to the co-marketing of YouTube TV and DirecTV Stream. That decision contributed to the revenue decline but had a minimal impact on profits due to high content costs associated with pay-TV, according to Scott Beasley, Frontier's CFO.
Beasley said Frontier expects fiber revenues to reach positive territory as 2022 progresses, driven by the growth of its consumer fiber segment and a stabilization of the company's business and wholesale units.
"The Frontier investment thesis is one that requires taking a long view. Large scale network upgrade projects take years to complete," Nick Del Deo, analyst with MoffettNathanson, said in a research note following Frontier's Q4 results. "By our estimates, it will be about a decade before Frontier’s potential will be fully realized."
Frontier's plan to bring FTTP to 10 million locations by 2025 includes what the company calls Wave 1 and Wave 2 builds. Wave 3 includes another 5 million locations that might be built out using supplemental government funding and partnerships, or could be tied to potential divestments or system swaps. Frontier's analysis of the Wave 3 section continues, and the company should have some specific guidance in the coming months, said John Stratton, Frontier's executive chairman of the board.
Meanwhile, Frontier is staying engaged with opportunities that may come from the broadband piece of President Biden's infrastructure bill. Notably, Q4 2021 was the last quarter in which Frontier received subsidy revenues from the Connect America Fund (CAF) II program.
"It's complicated," Stratton said with respect to government stimulus funding, noting that Frontier expects to be an active participant in the new infrastructure bill. "The rules of engagement, both at the federal and state level, are still being worked… Our thought process is that this a 2023 and onward in terms of it becoming something that starts to scale."
Even as Frontier sees its NPS numbers climb, it's not yet clear if the company will push forward with a major rebranding.
The NPS improvements and early results from Frontier's broader efforts to improve its operations, suggest "that the brand is repairable and is indeed repairing quite rapidly," Jeffery said, noting that Frontier's 2-Gig launch this week was paired with an update to the company's brand with respect to color palette and font.
"We'll be monitoring that very closely as we come to the wider decision on what do we do with the brand and the name in the future, and that's a decision we'll be taking to our board in coming quarters," Jeffery added.
— Jeff Baumgartner, Senior Editor, Light Reading
A version of this story first appeared on Light Reading.
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