Frontier Communications Class B Earnings Call Insights: Momentum and Apple Gift Card

Frontier Communications Corp Class B (NYSE:FTR) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Session 1:

Batya Levi – UBS: A question on the strong momentum you saw in operating metrics. You mentioned that you expect this to continue into the second quarter, which is typically, seasonally a weak quarter. Can you provide a little bit more color on what you mean by the momentum continuing? Can we expect a similar rate of improvement into the second quarter? The follow-up question on tying the strong success in operating metrics, but not really reflecting – being reflected in the revenue trends, can you provide a little bit more color if you have some maybe pricing promotions during the quarter? What will drive the rate of declines improving to the second quarter?

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Maggie Wilderotter – Chairman and CEO: Batya, it’s Maggie. On the operating metrics, you’re absolutely right. First quarter is a very strong quarter always and we do go more seasonal in the second quarter. But what we’ve seen in the month of April is we are holding up on putting more broadband customers on and also managing to have good retention metrics in the month of April as well. Now one month doesn’t make a trend for the quarter, but we are encouraged by the momentum continuing on both the broadband net sales metrics, as well as customer retention. We haven’t seen any major follow-up of that compared to the momentum we built over the quarter. So, we do know that it is more of a seasonal quarter. We do know we take less calls during that period of time, but we’ve also, as Dan mentioned, seen our close rates go up in our channel. So, we think because we haven’t changed our offers and our reps, both in our call centers and contact centers as well as our aggregate partners and our online ordering capability, everyone’s getting comfortable selling what we’ve got as we transitioned off of the Apple promotion to the new offers and that has resonated well and has continued, at least through April. On the operating metrics translating to revenue, when we did our first quarter call, we were starting to see some build in the momentum for broadband net, but we really had to stride late February into March. So, we do things that the translation of those additional ads on to service and billing is going to pick up in the second quarter versus being in the first quarter. So, we just think it’s more of a timing issue that will start to see some lift based upon the positive results that we had in the first quarter.

 

Apple Gift Card

Michael McCormack – Nomura: Maggie, if you could give us a little more color on the decision to stop the Apple Gift Card and move to the other promotional bundled offer and maybe some more detail around what those promotions might look like versus the competition. Then secondly maybe just to discuss on the business side, how much exposure do you have to the migration from legacy voice and legacy data to IP and Ethernet services would be great.

Daniel McCarthy – EVP and COO: Mike, this is Dan McCarthy. So first off we made the switch in mid-February. The Apple Gift Card promo although attractive to certain segment I would say I would categorize this as people that were familiar with the Apple product family as well as their ecosystem. So when we switched to the new marketing platform which is a very simple, easy to sell offer, it resonated not only in our contact centers but also in all of our alternate channels. So as Maggie pointed out, we started to build momentum at the back end of the quarter and what we saw (indiscernible) we shifted was better customer response rates, improved sales conversion efficiencies, improvements immediately from the alternate channels and really success in strong win backs from competition. That’s something that we hadn’t seen with many – really any other offer that we had tried previously. So that coupled with moving our contact centers to a (state queue) basis where we let them get very good at selling in a specific community and aligning marketing, engineering and operations resources allowed us to meet all of the demand increases that came with the offer in getting intervals and also low-cost structures. So we are very happy with it. We think it’s very competitive. If you look at what our competition is doing today, for triple plays they are averaging $89 to $99 for one year moving to $105 to $149 in year two. On the standalone internet product our competitors on the revenue side are doing $29.99 for one year but it quickly ramps to $49 to $62. So when you look at where we are compared to that we think we are well positioned for bundled customers as well as standalone and I think the evidence is that we are taking market share right now pretty heavily. So we saw as Maggie pointed out good momentum as we came out of the first quarter through April and we are continuing to see that momentum there…

Maggie Wilderotter – Chairman and CEO: Mike if I can just elaborate, the major offering that we have in the marketplace is a 1999 broadband offer with a double or triple play. So the customer would take a digital phone package that could be – it’s local and long distance either unlimited for state or unlimited for national, along with broadband and then they can add dish as well. So, it’s a no contract, so there’s no termination fees. It’s all in so there’s no surcharges, there’s no modem fees on top of that. So it’s a very clean offer and we found that it really does resonate the marketplace and we have been taking share across the board. We also have a simply broadband offer in the marketplace as well for the customers that want broadband only. We did see in the first quarter, which was encouraging a number of our one customers, upgrading to packages as well. So, we’re seeing both new customers coming on board, and selling incremental products to existing customers. On the IP services, we do have a voice over IP offer for small and medium business, that’s called Tandem. We’ve launched in 14 markets, so it’s not nationwide yet. So we have been selling an aggressive price point offer for broadband and voice services together that includes Voice over IP. So it is a lesser priced product and we have normally in the marketplace with our CDM service. So that choice point has picked up some momentum. We would launch a Voice over IP residential product towards the back end of this year. So we haven’t put a VoIP product in place for resi yet, but plan to do some later this year.

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Daniel McCarthy – EVP and COO: The only other thing I would add Mike is that on the VoIP side, we also offer pretty extensive IP PBX family of products, which is very successful with small and mid-sized companies. We have a partnership with Avaya and Mitel on that and we combine it with ADTRAN and Cisco to provide a full complement of data products and ancillary services so that we can provide a total solution for anybody who’s looking through an IP solution.

Michael McCormack – Nomura: Dan, just thinking about the impact on price and margin from that migration, is that something that we should be thinking about going forward as being a significant issue over the next couple of years?

Daniel McCarthy – EVP and COO: For certain customers, Mike, I think the application, especially the large side is really Centrax customers and their prices that have been negotiated down, so I don’t see it as a major impact there. I think on the IP PBXs, we start to see, adding larger data pipes and SIP Trunking, that’s really offsetting a lot of the trunking losses and in some cases, it’s actually slightly higher MRC for those customers.

Maggie Wilderotter – Chairman and CEO: Yeah Mike, one of the other things that we’re going to – we just put into place at the end of March, that we’re going to start to really push especially with our small business customers is 24/7 premium tech support, as they get more and more reliant on the broadband networks in terms of how they run their businesses and with the threats of cybersecurity, we can provide them with a great peace of mind, product set, that includes 24/7 tech support, and so far we’ve seen good take in just getting out of the gates with that product.

A Closer Look: Frontier Communications Earnings Cheat Sheet>>

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