We believe product introductions, broadband expansion, cash flow management through operating expense control and acquisition of AT&T’s wireline operations in Connecticut should prove accretive for Frontier Communications Corporation (FTR) in the coming quarters. However, the backhaul revenue pressure and integration costs will continue to weigh on the company’s earnings.
Frontier is now focused more on customer retention, market share gain, new product launches, broadband expansion as well as sales and marketing initiatives. We are also encouraged by sustainable broadband subscriber growth supported by strong network expansion and improved pricing structure.
We are also optimistic about Frontier’s strategic collaborations to offer differentiated products, in turn catering to customers’ needs. Last year in October, Frontier completed its $2 billion acquisition of AT&T’s wireline operations in Connecticut and its related state-wide fiber network and U-verse operations.
The company will now offer broadband, voice, video and other products to residential and business customers in Connecticut. AT&T’s wireline operations in Connecticut have provided the company with 900,000 voice connections in the region.
In Nov, 2014, Frontier announced the addition of two new channels – Hallmark Channel and Hallmark Movies & Mysteries – for its Connecticut customers. These channels are available to the company’s residential and business customers. In the same month, the company added the popular global sports network, beIN SPORTS Network, to its Connecticut portfolio.
On the flip side, Frontier remains significantly challenged by slow economic recovery in its service territories and faces considerable loss of legacy fixed telephony business to wireless and other offerings. Approximately 65% of Frontier’s access lines are exposed to cable voice service offerings.
The persistent decline in access lines continues to tighten local service revenues, which account for most of Frontier’s overall revenues. Deteriorating wireless backhaul business is expected to remain a headwind for Frontier, given the fact that it has not invested heavily in the same and is expected to have a negative revenue impact of $25-$30 million in 2014. Long-term debt increased to $9,185.6 million at the end of third quarter from $7,873.7 million at the end of 2013.
Frontier currently has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks worth considering in this sector include BlackBerry Ltd. (BBRY), America Movil S.A.B. de C.V. (AMX) and Orange (ORAN). All these stocks carry a Zacks Rank #2 (Buy).
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