Frontier Communications Management Discusses Q2 2012 Results - Earnings Call Transcript

Frontier Communications (FTR)

Q2 2012 Earnings Call

July 31, 2012 4:30 pm ET

Executives

Gregory H. Lundberg - Vice President of Investor Relations and Assistant Treasurer

Mary Agnes Wilderotter - Chairman and Chief Executive Officer

Daniel J. McCarthy - President, Chief Operating Officer and Chief Operating Officer - Electric Lightwave

Donald R. Shassian - Chief Financial Officer and Executive Vice President

Analysts

Batya Levi - UBS Investment Bank, Research Division

Simon Flannery - Morgan Stanley, Research Division

Michael McCormack - Nomura Securities Co. Ltd., Research Division

Christopher C. King - Stifel, Nicolaus & Co., Inc., Research Division

Philip Cusick - JP Morgan Chase & Co, Research Division

Scott Goldman - Goldman Sachs Group Inc., Research Division

Michael Rollins - Citigroup Inc, Research Division

David W. Barden - BofA Merrill Lynch, Research Division

Frank G. Louthan - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Good day, everyone, and welcome to the Frontier Communications Second Quarter 2012 Earnings Results Conference Call. This call is being recorded. At this time, I would like to turn the conference over to Mr. Greg Lundberg. Please go ahead, sir.

Gregory H. Lundberg

Thanks, Rebecca. Good afternoon, everyone. The purpose of this call is to discuss the 2012 second quarter results for Frontier Communications. The press release and earnings presentation are available in the Investor Relations section of our website, frontier.com.

On today's call are Maggie Wilderotter, Chairman and Chief Executive Officer; Dan McCarthy, President and Chief Operating Officer; and Donald Shassian, Chief Financial Officer.

During this call, we'll be making certain forward-looking statements. Please review the Safe Harbor language found in our press release and SEC filings. On this call, we'll also be discussing GAAP and non-GAAP financial measures as defined under SEC rules. Please refer to the reconciliation between GAAP and non-GAAP provided in our earnings release.

I'll now turn the call over to Maggie.

Mary Agnes Wilderotter

Thanks, Greg, and good afternoon, everyone. Frontier's second quarter 2012 results reflect a significant 39% narrowing of our revenue loss, thus, $9 million for the quarter. This is strong progress from $31 million in the third quarter of 2010, the first full quarter of our ownership of the acquired Verizon properties.

Q2 2012 revenues represents a year-over-year loss rate of 4.8%, the lowest levels since closing. Total access line loss in the acquired properties was 8.5%, 3 percentage points below the loss rate when we took ownership. We achieved this well in advance of our stated goal of 2013.

Our revenue improvement is happening on many fronts so what is central to our strategy is focusing on broadband services. During the quarter, we extended our network reach to 60,000 more homes and will connect an additional 92,876 homes with the $71.9 million of capital from the FCC's Connect America Fund.

Another broadband initiative [gap] is our new wholesale agreement with Hughes to distribute satellite service branded Frontier Broadband. We're excited about the economics of the partnership, the sales opportunities for double and triple play bundles and the ability to extend 5 to 15 megabit service to several hundred thousand unserved and underserved customers in our existing markets.

We are also focused on dramatically improving broadband speeds for residential and business customers, bringing 20 megabits service to 42% of our residential homes by the end of the year. Dan McCarthy will discuss this in more detail.

Improved broadband reach and capacity, combined with enhancements to the customer online and off-line experience, will allow us to have better acquisition and retention rates, driving further revenue growth. Our total access line loss rate is now down to 7.6%, the lowest since closing. Our second quarter net broadband subscriber additions were 5,442, reflecting an expected increase in conversion non-pay disconnects and less robust marketing programs.

Before I continue with Q2 results, I do want to mention the great job our employees did in responding to the severe and unusual windstorm in the last 4 days of June that impacted 3 of our 5 largest states. 2 million people throughout these states were without power for days. Frontier deployed more than 300 generators to keep our service up and running.

Our Fort Wayne, Indiana market alone saw a wind gust of 91 miles an hour, the equivalent of a Category 1 hurricane. And Ohio customers were without power from June 29 to July 10th. And we deployed 91 generators in that state. In West Virginia, half the state was without electricity, and 55% of our wire centers were running on generators.

Our employees in all these states went above and beyond the call of working duty, around-the-clock restoring service to our customers, deploying and refueling generators, removing trees and debris and repairing and replacing physical damage to cables, fiber, dropped and other network equipments. I would like to thank all of our employees who kept their communities connected through these devastating storms.

As I mentioned, we completed the systems conversion activities during the second quarter, and we have all states and markets operating on one set of systems, which is a competitive advantage in this industry. During the second quarter, our call center representatives and field technicians were getting more proficient on the new systems. Our General Managers have also gained a better understanding of their markets with the new recording and measurement tools we provided. With these activities behind us, and the entire company on one set of systems, we are now moving forward focused on revenue growth, cost reductions and broadband penetration.

Several initiatives underway include: An upgrade to our Frontier websites later this summer, which will greatly enhance online customer sales, provisioning and service activities; improvements in sales and retention based on a simple and flexible pricing structure we launched in mid-July that provides customer choice on bundles, all-in pricing with no hidden fees and eliminates old promotional credits. Slide 6 shows how our new service offering leads with attractive broadband tiers, from 1 megabit per second to over 50.

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