Frontier Communications Class B Earnings Call Nuggets: New Customers and Enterprise Side

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

New Customers

Batya Levi – UBS: A question on the consumer market. Can you provide a little bit more color on the subscriber trends going in the right direction. Churn remained flat suggesting that gross adds are improving. Can you talk about where those customers are coming from and how do you expect that trend to continue? And also on the revenue side, can you give us a sense of roughly what percent of the base is on the new pricing trends now? And as you transition the base with the new plans, how do you think that will impact ARPU going forward? We’ve seen some stabilization on the ARPU growth. Can we see that accelerate going forward?

Maggie Wilderotter – Chairman and CEO: Batya, let me take a shot at some of these numbers and if John or Dan want to jump in, they can sure do so. On the sub-trends in terms of where we’re getting the new customers from, we are definitely taking share from the cable operators in our market. So, we are watching that very closely. We actually judge our general managers in our regions on growing market share for broadband. So we track it on a daily basis. We know what the capability is, we know what our shares starts out at, and then we watch what happens on a monthly basis in terms of share growth. So we feel very good about that. I would say 75% of all of our markets are growing share right now against the cable guys in the second quarter. And as I mentioned before, you asked if this trend is continuing, and yes, we are seeing that. July, again, we know that is seasonal in the summer, but we still had a very strong showing in terms of net growth of broadband additions so far this quarter. And our goal is, and I’ve said this in the past, is especially in the acquired markets, we have started out with a low share number for broadband, so we think there is definitely upside and headroom for us to continue to grow that share, and we do know that these new products and services are resonating in the marketplace. Our close rates are up in the call centers across the board both residential and business, highest close rates we’ve seen in the Company. So we know that our reps are very comfortable selling this. And as Dan mentioned, we had very, very good success in selling these new plans through alternate channels as well this quarter. The last thing I’ll mention is we are not just putting on all new customers on these new plans, but we’re also in the process of migrating customers from older legacy plans over to these new plans. We are accelerating that in the third and fourth quarter on the migration side and we will be able to give you more color I think after the third quarter in terms of the percentages…

Daniel McCarthy – EVP and COO: The only thing I’d add Batya is that, the simplicity of the offer and the clarity for value proposition is resonating in all of the channels as Maggie pointed out. So, it’s translated to better customer response rates whether it to our alternate channel partners or direct marketing tactics. Improved sales conversion and improvements in total production from the alternate channels and really as Maggie pointed out strong win backs. The last thing that’s being kind of the secret sauce is aligning our contact centers into state specific (queues), and those (queues) allow us to build competencies and that’s paying dividends nicely. So, we continue to see sales improvements out of all the centers and at the same time all the alignment work we have done on marketing and sales allows us to really maintain tight intervals. And we’ve been able to meet all of the demand without really seeing any increase in our cost structure.

John M. Jureller – EVP and CFO: Batya, this is John. Let me just add some more color with respect to ARPU and while we don’t break out a lot of our detail, I think you need to remember what Dan had mentioned in terms of customers taking our higher speeds. So, even for our Simply Broadband product customers take higher speed together with the attachment rates of Frontier Secure that Maggie cited, our total ARPU for that particular customer even in a single play is higher than where we are getting our deactivations which is primarily our voice only customers. So, as we continue to blend through and add broadband to our mix, 80% of our gross ads in the quarter were into broadband. We are seeing the overall lift in ARPU and we expect to see this continuing.

Enterprise Side

Frank Louthan – Raymond James: Can you talk to us a little bit about the enterprise side. You’re seeing some improvements there, some of the sales expansion efforts. What’s sort of the outlook there with the sales hiring coming and how should we think about that in the back half? And then give us an idea on the subsidy step down in the third quarter additional adjustment, sort of mandated adjustments versus just the incremental trend, how should we think about what’s the incremental impact from that just so we’ve got that right for modeling purposes?

Daniel McCarthy – EVP and COO: Frank, this is Dan. I think first off on the enterprise side, we continue to see good performance in our enterprise segment, especially on our legacy properties. On the acquired properties, I would say that like many others in the industry we’ve seen some slowdowns on some of the major players who are doing RFP and deciding whether they want to change from their incumbent provider today and we are in the fight for that, but it’s a slow sales process. Where we see a lot of opportunity, however, is on the medium sized customers and in the small space. And we’ve adjusted our strategies around those two segments to try and take advantage of the opportunities as we go into the back half of the year. For instance, in the small space we’ve redesigned our small business bundle to actually create a very strong win back opportunity to make it more flexible and we’re seeing great results initially as we’ve offered that and that’s going head to head with the cable competitors. In the medium space we’ve really focused on improving our (indiscernible) installation intervals and standardizing certain product pricing and staging CP solutions and that’s really paid a lot of dividends for us as we focused our sales team on market growth rather than just embedded base management. And I’d say the final two things on commercial, our CPE partnership has really started to pay a lot of fruits at this point. Our portfolio of product is providing a competitive weapon as we begin and open up those conversations with these medium customers, because those customers in many cases have delayed technology refresh cycles and they’re looking for a partner that will be local and supportive. The headwinds that we do see in the commercial side is really around the tower losses that we’ve had and the migration to Ethernet from TDM. Those were anticipated as we discussed in our last call, and we’ve included those in guidance in our forecast. But the remainder of our carrier and wholesale business continues to perform well and we continue to see strong interest in Ethernet from all of our carrier partners. On the ICC side, Frank, we – nothing has really changed from where we anticipated or what we guided in the last call. We see the overall impact to us being similar to what we saw last year. It should be a decline of $13 million to $13.5 million in the second half with an approximate $12 million eligible for recovery through a combination of (indiscernible) cap funding, and it should ultimately be about the same impact as we saw last year.

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