Frontier Communications closed in on some key milestones for its business in Q3. On an earnings call, executives noted it just about achieved a goal of cutting $250 million in costs a full year ahead of its original end-2023 target and later this month will hit the halfway point in its quest to reach 10 million homes with fiber. Looking ahead, the company expects to hit an EBITDA inflection point in Q4 and is now looking to cut an additional $150 million in costs by the end of 2024.
“We have made rapid improvements streamlining our cost structure,” CFO Scott Beasley said on the call. “As we dug deeper into our operations, the scope of the opportunity has increased. We now see a runway to $400 million by the end of 2024…We will continue to reinvest a portion of these savings into initiatives that accelerate top line growth, while a portion will flow directly into improved margins.”
While Beasley didn’t provide detail on the Q3 call about where exactly Frontier’s savings are coming from, he has said previously the operator is focused on improving efficiency, digitization, automation and making structural improvements to the business. It’s also worth noting that Frontier’s employee count dropped by 1,057 people year on year, leaving the company with 14,746 workers as of the end of Q3.
The cost savings program, coupled with rising fiber broadband revenue, is critical to Frontier’s plan to achieve an EBITDA inflection point before the end of the year.
Frontier added 351,000 new passings and 66,000 fiber customers in the quarter, once again outpacing copper losses to end the quarter with 4,000 broadband customer additions. Fiber revenue increased year on year from $684 million to $691 million, but copper revenue fell from $809 million to $735 million. All told, the operator ended Q3 with revenue of $1.44 billion which was down year on year from $1.58 billion and net income of $120 million which also fell slightly from $126 million.
Commercial
Though all eyes are on Frontier’s consumer segment, CEO Nick Jeffrey also said it’s seen early promise in its commercial segment turnaround follow the appointment of new leadership in August.
“The commercial segment, to be very upfront with you, was partially ignored by previous rounds of Frontier management, and therefore is a great opportunity for us to put it back on its feet and really get out and attack the market,” Jeffrey said.
Among other things, the operator is working to refine its pricing, channel strategy and product offerings. It is also going back into its base markets to connect small and medium businesses which it already passes but has hitherto left unconnected. Additionally, “we’ve very significantly increased our marketing channel activity” in the SMB space, the CEO said.
“I’m very optimistic about the early results we’re seeing there,” he concluded.
Costs
Though fellow telcos have flagged rising costs, Beasley said it was able to lock in labor and materials 18 months ago to insulate itself from such issues. He also noted it is broadening the scope of its fiber build to 12 states by the end of 2022 and 15 or 16 states in 2023, allowing it to avoid hotspots where sourcing labor might be more challenging and expensive.
As a result, it remains confident in its $900 to $1,000 cost per passing projection, he said, with modest inflation having already been factored into its guidance.