Frontier Communications has revealed to investors what many probably realized long ago — the independent phone company chronically underinvested in network upgrades and repairs for years, giving customers an excuse to switch providers.
Remarkably, the phone company did not just underperform for its remaining voice and DSL internet customers. In a sprawling confidential “Presentation to Unsecured Bondholders” report produced by Frontier’s top executives, the company admits it was even unable to achieve significant growth in its fiber territories, where Frontier-acquired high-speed FiOS and U-verse fiber networks held out a promise to deliver urgently needed revenue.
Frontier’s bondholders were told the company’s ongoing losses and poor overall performance were unsustainable, despite years of executive “happy talk” about Frontier’s various rescue and upgrade plans. In sobering language, Frontier admitted its capital structure and efforts to deleverage the company’s massive debts were likely to cut the company off from future borrowing opportunities and deter future investment.
The presentation found multiple points of weakness in Frontier’s current business plan:
Voice landline service remains in perpetual decline. Like other companies, Frontier’s residential landline customers left first, but now business customers are also increasingly disconnecting traditional phone service.
About 51% of Frontier’s revenue comes from its residential customers. That number has been declining about 5% annually, year over year as customers leave. Frontier’s internet products are now crucial to the company’s ability to stay in business. Less than 30% of Frontier’s revenue comes from selling home phone lines. For Frontier to remain viable, the company must attract and keep internet customers. For the last several years, it has failed to do either.
Frontier customers are disconnecting the company’s low-speed DSL service in growing numbers, usually leaving for its biggest residential competitor: Charter Spectrum. Frontier remains saddled with a massive and rapidly deteriorating copper wire network. The company disclosed that 79% of its footprint is still served with copper-based DSL. Only 21% of Frontier’s service area is served by fiber optics, after more than a decade of promised upgrades. Frontier’s own numbers prove that where the company still relies on selling DSL, it is losing ground fast. Only its fiber service areas stand a chance. Just consider these numbers:
Out of 11 million homes is Frontier’s DSL service area, only 1.5 million customers subscribe. That’s a market share of just 13 percent, and that number declines every quarter.
Where Frontier customers can sign up for fiber to the home service, 1.2 million customers have done so, delivering Frontier a respectable 40 percent market share.