Frontier turns a big corner as revenues rise in Q1

Frontier Communications' turnaround reached an important milestone as the company posted year-over-year quarterly revenue growth for the first time since 2015.

Frontier, which exited bankruptcy in 2021 and embarked on a major fiber network upgrade, posted Q1 2024 revenues of $1.46 billion, a 2% increase versus the year-ago period. That result beat the $1.44 billion expected by analysts. Frontier shares jumped $2.02 (+8.42%) to $26.02 each in Friday morning trading.

"This is a major inflection point for our company," Frontier President and CEO Nick Jeffery declared on today's earnings call.

Frontier's primary focus is a fiber upgrade initiative that is targeting a buildout to 10 million locations. Frontier tacked on another 322,000 fiber passings in Q1, extending its total to 6.8 million and putting it 68% toward its goal. The company reiterated that it is on track to pass an additional 1.3 million locations with fiber for full-year 2024.

Frontier added 88,000 fiber broadband subs in Q1 (85,000 residential and 3,000 business), matching what it added in the year-ago period. Frontier ended Q1 with 2.09 million fiber subs (1.96 million residential and 132,000 business).

(Source: Frontier Communications Q1 2024 earnings presentation)

Jeffery reiterated that the vast majority of Frontier's new fiber customers are coming from cable competitors. "That's where we're winning," he said.

Related:Frontier sparks 'formal and comprehensive review process'

The average revenue per user (ARPU) for Frontier fiber customers reached $65.18, up from $61.44 a year ago. The rise in ARPU was aided by customers taking higher speed tiers (60% of new subs are taking speeds of 1 Gbit/s or higher) and by 50% of new subs purchasing at least one value-added service (such as whole-home Wi-Fi).

The company also ended the period with penetration of fiber passings of 30.7% and 44.9% in its older "base" fiber markets.

Those Q1 fiber adds helped to offset a loss of 57,000 copper subs.

Review process still ongoing

Execs did not have much new to say about a formal review process that is looking into various options, including optimizing Frontier's operations and finances and exploring strategic partnerships, joint ventures, divestitures, mergers and other business combinations. Frontier has delayed its investor day (it originally planned to be held sometime in the second quarter of 2024) until it can obtain more insight from the strategic review.

"That work is going on right now very intensively," Jeffery said of the review.

Some analysts have thoughts on what Frontier might do. New Street Research analyst Jonathan Chaplin speculates that Frontier could move its "Wave 3" assets in a joint venture with a financial partner that looks similar in structure to the Gigapower joint venture formed by AT&T and BlackRock.

Related:Frontier: We were probably hacked

Wave 3 refers to about 5 million locations in Frontier's footprint that are not covered by the current 10 million locations that are tucked into the telco's Wave 1 and Wave 2 footprint. Parts of Wave 3 are deemed to be financially less attractive to build fiber. Chaplin believes a JV focused on the Wave 3 footprint could help Frontier put some certainty on when it can turn free cash flow positive (perhaps by Q3 2026) and remove a "big overhang" for investors that are still on the fence about Frontier.

Updates on mobile, BEAD and the recent cybersecurity incident

Elsewhere, Frontier noted again that it's in no rush to add mobile to the bundle, holding that its resources are better spent on its fiber initiative. But it could quickly change course if customers demand such a bundle from Frontier.

"We've kind of laid the groundwork, but we don't really see it as something we need to do right now," Jeffery said.

Frontier was also asked its position on open networks. Jeffery said Frontier might be open to offering services on open networks in areas that are adjacent to its existing footprint, so long as such opportunities made financial and operational sense.

"It's not likely we'll open our own network to open access because we don't need to," he said. "We're growing healthily, we're growing ARPU, our brand is resonating, we have a great proposition, and we don't need to add anyone else to our network."

Frontier is also preparing to participate in the $42.45 billion Broadband Equity Access and Deployment (BEAD) program, viewing it as a way to expand its addressable market.

Frontier is scaling up a team to pursue the BEAD opportunity and has planning processes underway in a handful of states. But execs stressed that the company will take a disciplined approach and focus BEAD efforts on areas that are relatively close to Frontier's existing operations.

Execs said Frontier does not expect to see any material financial impact from a recent cybersecurity incident.