Frontier Communications says it’s on track 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. 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.
“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 4th 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 Frontier’s fiber build in Q4 2021, as the company added a record 192,000 FTTP passings in the quarter, improving on the 185,000 new fiber passings built in Q3 2021. Last month Frontier 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 22nd, 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 its FTTP expansion effort, 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.
Scott Beasley, Frontier’s CFO, 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.
MoffetNathanson analyst Nick Del Dio had this to say in a research note to clients:
“Large scale network upgrade projects take years to complete. Achieving targeted levels of penetration once the network in a given geography has been upgraded takes years, too. By our estimates, it will be about a decade before Frontier’s potential will be fully realized.”
“Frontier’s operating metrics continue to move in the right direction. Total consumer broadband net adds were positive for the first time in many, many years; copper losses were stable, while the company gained fiber subscribers in both new and existing markets. Fiber gross adds and churn both improved in Q2. Frontier’s fiber NPS scores have improved dramatically over the past year, going from -24 in January 2021 to +9 in December 2021, a 33 point swing, with NPS scores associated with new customers better than those associated with old customers. The company expects continued strength in fiber and better churn in copper in coming periods. Consumer fiber broadband ARPU declined about $1 sequentially, which management attributed to promoting autopay adoption and giving gift cards for new customers.”
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.
Q4 2021 was the last quarter in which Frontier received subsidy revenues from the Connect America Fund (CAF) II program. Yet they hope President Biden’s infrastructure bill passes and directs revenues to telcos to help them build out their networks.
“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.”