Frontier’s ongoing bet on fiber-based services continues to show fruit as the provider saw its revenue rise for the first time in several years.
The company reported revenues of $1.46 billion, a 2% increase from the year-ago period and beating analysts' expectations of $1.44 billion. Fiber-based broadband services are a big part of Frontier’s revenue mix; fiber revenue now makes up more than 50% of its total revenue.
It is executing its strategy through its aggressive fiber network build and raising its fiber broadband customer base, which now stands at 2.1 million.
During Frontier's first-quarter earnings call, CEO Nick Jeffery told investors that fiber is at the heart of its revenue growth focus.
"Over the last few years, we’ve advanced our purpose and shown rigor and discipline in executing our strategy,” he said. “First, we’ve developed the capability to build fiber at scale quickly and efficiently. We’ve doubled our fiber footprint in just a few short years. Second, we’ve grown our fiber broadband customer base by nearly 60% since 2020.”
Another critical component is improving customer service capabilities via a digital-focused approach. “We’ve improved our customer service, and 75% of our customer interactions are now digital, driving greater customer satisfaction as reflected in our industry-leading NPS scores,” Jeffery said. We can move faster and with greater efficiency because we’ve created a simpler and more digital organization.”
Expansion on track
At the heart of Frontier’s fiber growth effort is its ongoing fiber network expansion.
Frontier added 322,000 fiber passings in the first quarter, putting it on track to achieve its goal of 1.3 million passings this year. The telco also added 88,000 fiber broadband customers in the quarter. Consumer fiber broadband churn was also solid in the quarter, remaining low at 1.2%.
Jeffery said that the growth of broadband customers and ARPU drove up fiber revenues during the quarter.
“This quarter, we grew fiber broadband customers by 18% and ARPU by 6%," he said. "Combined, these two metrics helped us deliver a total fiber revenue growth of 10%. As data consumption rises, customers increasingly turn to the best broadband product in the market: fiber.”
He added, “We’re also seeing this need for speed, which translates into a higher adoption of symmetrical gigabit plus speeds.”
From a total fiber build perspective, the telco has passed nearly 7 million locations and is closer to its 10 million fiber passing goal.
“With 6.8 million fiber passings, simple math puts us 68% of the way towards our initial goal of building to at least 10 million fiber passings,” Jeffery said. “Our fiber broadband customers now represent 70% of our total broadband customer base, and fiber now accounts for more than 50% of our revenue and 60% of our adjusted EBITDA.”
In addition to seeing broadband growth, Frontier is finding benefits from its cost-saving measures. Scott Beasley, Frontier's CFO, said it “has reached a cumulative $536 million of savings since we started the program in 2021.”
Capex shifts
The service provider is shifting capital budgets as Frontier expands its fiber reach and customer base.
Frontier's $1 billion capital investment in the first quarter was down $125 million from the same period a year ago.
Looking forward, Beasley said Frontier’s capital investment will continue to drop in the coming quarters.
“We expect to see capital investment decline for the remaining three quarters of the year, and we remain on track for our 2024 capital investment to be lower than 2023,” Beasley said. As we noted on our last call, we expect to spend less capital on the same number of passings as we consumed pre-work and inventory that we built up in 2022 and 2023.”
As gross adds increase, the service provider shifts its capital investment mix with lower build spending but higher success-based customer acquisition spending.
“We continue to be confident that our fiber build will deliver IRRs in the mid-to-high teens, well above our cost of capital,” Beasley said. “Once we are through the investment phase, our business should generate significant, growing free cash flow.”
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Also, check out our Q1 broadband earnings coverage.