Frontier Communications Earnings Call NUGGETS: One-Time Rates, Broadband Opportunities

On Tuesday, Frontier Communications Corp Class B (NYSE:FTR) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

One-Time Rates

Batya Levi – UBS: These were very good results with, especially revenues beating our estimates. First, can you please comment if there were any accruals or any one time rates on the revenue side and just looking out into the second half, can you talk a little bit more about how we should be thinking about the revenue improvement? You have ICC reform kicking in since July and maybe if you could comment about what you’re seeing in the macro environment and you also mentioned that, you expect to gain some share in the business segment. How all of that fits together in terms of revenue forecast for the second half??

A Closer Look: Frontier Communications Earnings Cheat Sheet>>

Donald R. Shassian – EVP and CFO: Batya, on the first question, one-timers. They are a really one-timers, couple of items typically offset each other. It’s nothing really significant. It was really a very clean quarter on the revenue side both on the voice side, local voice side, on the billing side and on the weather side and switch had a minor negative because of the local switching support true-up, but it’s quite minor, so really a very clean quarter all around.

Maggie Wilderotter – Chairman and CEO: Batya, it’s Maggie. Thank you for the compliment on the quarter. We agree with you. It was very solid Frontier. Let me talk a little bit about revenue. We are I think as you know very focused on that subject and with the convergence behind us, it’s really enabled us to have full transparency of all the products and services that our customers are taking today, both residential and business and to start to really move out with some new products and services that we think will provide revenue list for the Company. Good examples are the residential products we just launched on July 15th which is a new set of bundled. It’s basically a very simple way for a customer to create their own bundle. We did not have that capability in the acquired property on the Verizon systems, so this gives us full flexibility for the customers both online and offline in terms of very simplified bundled and a very simplified billing that goes along with that. In addition to that as Dan talked about we have a number of higher speeds that are available now to customers, but these bundles have a tiers to them that allows us to upsell customers to and ultimate and ultra-package in many cards of our footprints, so we’re very excited about that on the residential side. We’ll also have the Frontier Broadband by Hughes product site launching in the fourth quarter throughout the country. So, we’re also excited about the opportunity to reach several hundred thousand households that we weren’t planning on selling to this year that will be upside for us in that fourth quarter. If I shift over to the business slide, we have a very strong pipeline for CPE, we have found that with the macroeconomic environment, we have been seeing things get better. We’re not really seeing things get worse but customers, especially in the business side are taking longer to make decisions, so we have knot on the pipeline that we feel very positive about continued strong CPE growth. We have a number of wireless backhaul towers we’re going to be building in the second half of this year. We’ve also launched a new small business product called the (Dash) product that’s a combination of VoIP for voice and IT for small businesses, up to about 10 people in a small business. We launched that in four states so far. It will be in 13, 14 states over the next several months. We’ve had very, very good takeaway and I think as Don mentioned, with that new capability, it will enable us to do very good win backs in the new market. In addition to that, we’re launching a simplified pricing for small business, similar to what we’ve done in the residential side in the next 30 days. So there’s a lot of moving pieces, but we feel very good. We have a full portfolio of initiatives that will drive revenue. In addition to, as you’ve seen lower churn with lower access line losses and we really do believe we can drive broadband penetration significantly over these next couple of quarters.

Donald R. Shassian – EVP and CFO: If I can add on to that Batya, the question about (indiscernible) in this quarter, we do not expect to see any significant impact on revenues except for the rebalancing if you would, of regulatory revenues declining and the offsetting being more up in the local VoIP side, so rebalancing of an income statement. We don’t expect to see significant impact in third quarter for that.

Maggie Wilderotter – Chairman and CEO: Correct.

Broadband Opportunities

Simon Flannery – Morgan Stanley: Maybe we could stay on broadband, Maggie you talked about that the opportunity there. Can you just remind us of the size of the opportunity, give us an update on where you are in terms of penetration of total households in your acquired versus your legacy properties and where you are in terms of those right now that now that you’re taking the money from The Connect America Fund. So, how should we think about that sort of untapped opportunity in a sense? Then on The Connect America Fund, there have been very different responses to the opportunity by you versus some of the other carriers. Can you just talk through your thought process your decision process that made you decide to take this money?

Maggie Wilderotter – Chairman and CEO: Simon, I’m going to let Dan talk a little about the broadband penetration. We actually tracked that on a daily basis. He can give your more insight just to how we’re doing in the new build areas and some of the focus areas that we’re doing over the next quarters. So, and then I’ll come back to The Connect America Fund.

Daniel McCarthy – President and COO: Simon, we’ve actually continued to open more and more sites throughout the second quarter. So, as we said our penetration of the new areas that we (built about) – is about 16.4%, it varies from about 10% to 11%, up to a high about 25% to 26%. We continue to enjoy good results in areas that we opened up over the last several years. In the second half of the year, we plan on continuing to upgrade on our broadband expansion with about 89,000 additional household in the second half of the year in addition we’ll be looking at moving as quickly as possible on the cap related households that you asked about. As we go forward, we’re finalizing the design phase. The only thing that’ll hold us back in getting more of that into this year as well as the winter construction season in some of the areas especially in Wisconsin as Maggie pointed out, so we are very bullish on that. In addition, we move forward as I noted with upgrading the speed profiles in a number of areas using the bonded ADSL 2+ and DSL capabilities and the (indiscernible). So we see that as one of the biggest opportunities for us, both from a cross-sale perspective and moving customers, top in speed and up in ARPU as well as a gross activation perspective.

Maggie Wilderotter – Chairman and CEO: Just sort of answer what Dan said, a lot of these new households that were turning on in the second half of the year, Simon, are non-competition households too, so we do think that will help drive that penetration up more so where it is today. The 16.4% average that includes anybody we turned on yesterday and also households that have been turned on a 12 month window or more, so you will see those numbers continue to rise every single quarter. Let me shift over to The Connect America Fund, when went through the process of looking at household availability that we can build and the costs associated with building those households, I think we all know there is $775 amount per household that we could take from the FCC. We had ample households in our market where we could build for that price or less, so we felt very good about taking 100% of the money because we still have several hundred thousands households to build out and many of them still in a density area that we could afford to do it with the (indiscernible)

Simon Flannery – Morgan Stanley: (indiscernible) focused on the acquired properties.

Maggie Wilderotter – Chairman and CEO: As they’re all focused on the acquired properties, we’re not doing it in legacy at all because I think as you know, we’re at like 93% reach in those markets. So, we sort of had a different point of view from other carriers because we have so much rural properties that hadn’t had broadband built in those areas from the Verizon acquisition. So, it really gave us that opportunity to take 100% of the dollars and to put them to work in such a way that it’s a win-win for customer, for us and also helps drive what the FCC’s trying to accomplish and that’s getting broadband more quickly deployed in rural America. The other good part of going to that cap exercise is you basically had to do a lot of engineering work to figure out who could qualify or not and whether it could work or not for us. So, as Dan said I think we can move fairly quickly, we’ll start to receive funds in August, and we’re going to start building in August. So, I think we have the opportunity to turn on and again these are un-served locations that really are not competitive at all. So, we’ve no competition in those areas. So, we’re pretty excited about it. We think that this is going to be good for Frontier and good overall.