Frontier Communications is on a quest to return to revenue and EBITDA growth in 2023 and hit a key milestone in Q1 2023 with its first year-on-year EBITDA growth in more than five years. Its plan mainly hinges on continued expansion of its fiber footprint, but it appears the operator has a few other tricks up its sleeve, namely fees for “value added” services.
Before January 2023, services such as whole-home Wi-Fi, the eero Secure VPN and expert installation were all free. But now, each comes with a cost. The Wi-Fi service, for example, now costs $10 per month, while eero Secure runs $3 per month. Installation comes with a one-time cost of $50.
In related moves, Frontier said it is scrapping price lock offers, cutting back on its use of gift card promotions and planning annual rate adjustments to pass through the impacts of inflation to customers. All of these are meant to increase average revenue per user (ARPU).
Already, CEO Nick Jeffery said on an earnings call the strategy is working exactly as intended, yielding higher ARPU among new customers. Those new to Frontier are paying ARPU of between $65 and $70 per month, he said. That compares to overall consumer ARPU, which stood at $61.44 in Q1.
It is making similar plays in the business and wholesale segment.
CFO Scott Beasley said on the call Frontier expects year-over-year EBITDA growth to accelerate in the back half of the year as its pricing measures take full effect.
Fiber progress
Frontier also continues to ramp its fiber build, adding 339,000 new passings in Q1. That was up from 211,000 new passings in Q1 2022 and executives hailed the figure as the strongest start to a new year that the company’s fiber build has ever had.
It added 87,000 fiber subscribers in the quarter, ending the period with 1.77 million fiber customers. The latter marked a 19% increase year on year. These gains helped propel Frontier to 24,000 overall broadband customer net additions.
The operator raised its capital expenditure guidance for the full year, boosting it from $2.8 billion to a range of $3.0 billion to $3.2 billion. Beasley said about half of the increase is related to Frontier’s decision to increase its levels of inventory while the other half is related to scaling its build in new states and higher labor rates.
All told, Frontier said it expects its cost per passing to fall in the $1,000 to $1,100 range this year, but indicated the economics of its build remain favorable due to increasing ARPU and faster than expected penetration rates.
Financials
Consolidated revenue of $1.44 billion was roughly flat year on year, as copper declines continued to offset growth in consumer, business and wholesale fiber. For instance, while consumer fiber broadband revenue rose 17% and overall consumer fiber revenue (inclusive of video) grew 10% to $448 million, consumer revenue as a whole dipped 1.9% due to slides legacy copper broadband and voice revenue.
Net income fell from $65 million to just $3 million.