Frontier Communications Parent, Inc. (“Frontier”) reported impressive 4th quarter and full-year 2022 results today. The fiber facilities based carrier added a record 76,000 fiber subs in the last quarter, more than two times what it added in the year-ago quarter. The bulk of those fiber subscriber gains are coming from cable competitors, execs said.
Frontier ended 2022 with 1.7 million fiber customers, a figure that represents the majority of its total base of 2.8 million broadband subs. Frontier also built out a record 381,000 new fiber locations in Q4, ending 2022 with 5.2 million fiber locations. That gets Frontier past the halfway point toward a goal of building fiber-to-the-premises to 10 million locations by 2025.
Total revenues were down year-over-year, but consumer fiber revenues rose 7.7% to $436 million versus the prior year period, offsetting declines in video. Consumer fiber broadband revenues surged 15.5%, to $283 million.
“We ended the year strong with another quarter of record operational results. We now have the fiber engine we need to power our growing digital infrastructure business. This is how we advance our purpose of Building Gigabit America,” said Nick Jeffery, President and Chief Executive Officer of Frontier.
“This year, we will accelerate our fiber build and give customers more reasons to choose the un-cable provider. The team is fired up and ready to return to growth in 2023.”
Frontier expects to accelerate its fiber build to 1.3 million homes in 2023 – about 20% faster than its 2022 pace – and end the year with 6.5 million fiber locations. Frontier is also exploring fiber builds beyond its initial goal of 10 million. The company has identified 1 million to 2 million copper locations where it can upgrade to fiber cost-effectively. There’s another 3 million to 4 million locations in its footprint that remain financially unattractive but could get over the hump with government subsidies or partnerships.
Even with its faster build pace, Frontier expects 2023 capital expenditures to reach $2.8 billion, essentially flat versus 2022’s $2.74 billion. Frontier anticipates its fiber buildout costs will stay in its envelope of $900 to $1,000 per location passed.
Frontier believes it’s set to grow its average revenue per user (ARPU) by 2% to 3% in 2023. Tied in, it’s updating its pricing and looking to upsell customers to higher speeds (more than half of new subs are choosing speeds of 1-Gig or more) while also reducing its reliance on perks such as gift cards.
Source: Frontier Q4 2022 earnings presentation
On the wholesale side, Frontier has fiber tower deals with AT&T, Verizon and T-Mobile and recently inked an expanded deal with AT&T to connect it to Frontier’s central offices. Company President and CEO Nick Jeffery suggested that the same model could apply to the likes of Amazon, Microsoft and other cloud companies that are distributing data and could make use of cache locations where data is being consumed.
But that handwork with wireless network operators has yet to drive Frontier toward deals that could enable it to add mobile services to the bundle, and follow the path being taken by major cable operators such as Comcast and Charter Communications.
Jeffery reiterated a position that Frontier is keeping close watch on potential MVNO partnerships but that no such agreement is imminent. Such a deal could be a “distraction of our capital,” he said.
“For the moment, we don’t see the need to launch with an MVNO and bundle with our core broadband offer,” Jeffery explained. “We think it’s something we could spin up relatively quickly and efficiently if we needed to.”
Full-Year 2022 Highlights:
- Built fiber to 1.2 million locations, bringing total fiber passings to 5.2 million by the end of 2022 – more than halfway to our target of 10 million fiber locations.
- Added a record 250,000 fiber broadband customer net additions, resulting in fiber broadband customer growth of 17.5% from 2021.
- Revenue of $5.79 billion, net income of $441 million, and Adjusted EBITDA of $2.08 billion.
- Capital expenditures of $2.74 billion, including $1.52 billion of non-subsidy-related build capital expenditures and $0.06 billion of subsidy-related build capital expenditures.
- Surpassed our $250 million gross annualized cost savings target more than one year ahead of plan and raised our target to $400 million by the end of 2024.
4th-Quarter 2022 Highlights:
- Built fiber to a record 381,000 locations
- Added a record 76,000 fiber broadband customers
- Revenue of $1.44 billion, net income of $155 million, and Adjusted EBITDA of $528 million
- Capital expenditures of $878 million, including $517 million of non-subsidy-related build capital expenditures and $33 million of subsidy-related build capital expenditures
- Net cash from operations of $360 million, driven by strong operating performance and increased focus on working capital management
- Achieved annualized run-rate cost savings of $336 million
4th-Quarter 2022 Consolidated Financial Results:
- Frontier reported revenue for the quarter ended December 31, 2022, of $1.44 billion, a 6.9% decline compared with the quarter ended December 31, 2021, as growth in consumer, business and wholesale fiber was more than offset by declines in copper and subsidy.
- Revenue growth was negatively impacted by the expiration of CAF II funding at the end of the fourth quarter of 2021.
- Excluding subsidy-related revenue, revenue for the quarter ended December 31, 2022, declined 2.5% compared with the quarter ended December 31, 2021, an improvement in the year-over-year rate of decline reported for the quarter ended September 30, 2022.
- Fourth-quarter 2022 operating income was $136 million and net income was $155 million.
- Capital expenditures were $878 million, an increase from $559 million in the fourth quarter of 2021, as fiber expansion initiatives accelerated.
4th-Quarter 2022 Consumer Results:
- Consumer revenue of $764 million declined 2.3% from the fourth quarter of 2021, as strong growth in fiber broadband was more than offset by declines in legacy video and voice.
- Consumer fiber revenue of $436 million increased 7.7% over the fourth quarter of 2021, as growth in consumer broadband, voice, and other more than offset declines in video.
- Consumer fiber broadband revenue of $283 million increased 15.5% over the fourth quarter of 2021, driven by growth in fiber broadband customers.
- Consumer fiber broadband customer net additions of 73,000 resulted in consumer fiber broadband customer growth of 17.9% from the fourth quarter of 2021.
- Consumer fiber broadband customer churn of 1.32% was flat with the fourth quarter of 2021.
- Consumer fiber broadband ARPU of $61.20 declined 1.6% from the fourth quarter of 2021, as price increases and speed upgrades were more than offset by the autopay and gift-card incentives introduced in the third quarter of 2021.
- Excluding the impact of gift-card incentives, consumer fiber broadband ARPU increased 0.9% over the fourth quarter of 2021.
4th-Quarter 2022 Business and Wholesale Results:
- Business and wholesale revenue of $659 million declined 2.6% from the fourth quarter of 2021, as growth in our fiber footprint was more than offset by declines in our copper footprint.
- Business and wholesale fiber revenue of $285 million increased 5.5% over the fourth quarter of 2021, driven by growth in both business and wholesale.
- Business fiber broadband customer churn of 1.33% increased from 1.23% in the fourth quarter of 2021.
- Business fiber broadband ARPU of $107.68 increased 0.8% from the fourth quarter of 2021.
Separately, Frontier introduced its Fiber Innovation Labs yesterday – National Innovation Day – designed for inventing and testing new patents, technologies and processes that will advance its fiber-optic network. Improving the customer experience and driving efficiencies are key to accelerating Frontier’s fiber-first strategy. Frontier’s labs serve as a testing ground to find new technologies and procedures to advance the way it delivers blazing-fast fiber internet to consumers and businesses across the country.
“The work we are doing in our Fiber Innovation Labs will change the way we serve our customers and will ultimately change the industry,” said Veronica Bloodworth, Frontier’s Chief Network Officer. “We have the best team in the business – they live and breathe innovation. They have been awarded several patents and are in the process of bringing those new inventions to life to deliver the best ‘un-cable’ internet experience to our customers. Be prepared to be amazed.”
As part of Frontier’s Fiber Innovation Labs, the company has launched its first-ever outside plant facility in Lewisville, Texas. The facility is designed as a miniature suburban neighborhood that mimics the real-life experiences of its techs serving customers every day. It features roads, sidewalks, a state-of-the-art central office, a small house and a reconstructed manhole system. It also simulates weather elements and temperature changes. Here, the Frontier team can test and learn new methods in real-world environments to install and maintain its fiber-optic network.