Tags: Frontier | Communications | change | FTR

Frontier Communications On the Edge of Change

By    |   Tuesday, 17 July 2012 05:53 PM

Frontier Communications (FTR) is a telecom on the edge of change. Having bought up millions of lines from Verizon, it quickly turned itself into a player in rural telephone access. Nevertheless, competition from non-traditional phone providers, specifically from cable companies promoting bundled voice, TV and Internet, could weaken its position going forward, analysts said.

Frontier Communications provides services predominantly to rural areas and small and medium-sized towns and cities in the United States. It offers a variety of voice, data, internet, and television services and products, some that are available á la carte, and others that are available as bundled or packaged solutions.

Frontier’s business is with both residential and business customers. It provides the “last mile” of telecommunications services to customers in these markets. Services include local and long-distance voice, data and Internet, access services and video services.

“We believe that our local management structure, 100 percent U.S.–based customer service workforce and innovative product positioning will continue to differentiate us from our competitors in the markets in which we compete,” management said in a recent filing.

On July 1, 2010, Frontier acquired the defined assets and liabilities of the local exchange business and related landline activities of Verizon Communications in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin and in portions of California bordering Arizona, Nevada and Oregon, including Internet access and long distance services and broadband video provided to designated customers there.

Frontier acquired approximately 4 million access lines in the deal. As a result, the company is the nation’s largest communications services provider focused on rural areas and small and medium-sized towns and cities, operating in 27 states, and the nation’s fourth-largest Incumbent Local Exchange Carrier (ILEC), with approximately 5.3 million access lines, 1.8 million broadband connections and 15,400 employees as of Dec. 31, 2011, the company said.

Frontier Communications has a market cap of $3.91 billion in a sector, diversified telecommunications, where the average company size is $13.82 billion. Its trailing 12-month P/E ratio is 32.67 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.65, compared to 3.49 for the sector.

Its projected earnings per share growth for the coming year is flat, compared to a sector average of 8.85 percent.

Competitive threats

Analysts are positive on FTR, with buy or outperform calls from Jefferies, Raymond James, and UBS.

“Frontier remains significantly challenged by the fragile economic condition in its service territories and competes with the loss of legacy fixed telephony business to wireless and other competitive offerings. Approximately 65 percent of Frontier’s access lines are exposed to cable voice service offerings. The persistent decline in access lines continues to tighten local service revenue, which accounts for most of Frontier’s overall revenues,” wrote the analysts at Zacks Investment Research, which rates the stock neutral.

Frontier Communications next reports on July 31.

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Tuesday, 17 July 2012 05:53 PM
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