Frontier Communications Corp.'s (NASDAQ:FTR) 10-Q has been made available this past week, which expands upon the company's earnings announcement. FTR is the fourth largest Incumbent Local Exchange Carrier (ILEC) in the U.S. It serves customers, primarily rural and located in smaller and medium towns, in 27 states. Its total customer count is 3.14 million with 2.86 million residential customers. FTR provides a range of services from basic telephone service to data to broadband to video services. Most notable in its recent history would be its acquisition of Verizon Communications' (NYSE:VZ) wireline assets, which was announced in 2009 and completed in 2010. The stock price recently closed at $4.25 per share, up 21% from its price of $3.50 a year ago. However, FTR is still down substantially from its acquisition of the VZ assets.
Frontier is Sharing Less Information
In digging through the 10-Q, it is clear that FTR is still losing customers. However, what also jumped out at me was that FTR is no longer reporting the number of access lines that it serves. As an ILEC, this is a key metric to understanding the company. Access lines are often very similar to customer counts, but a key trend is the elimination of secondary access lines. It is no longer possible to see this trend.
At the end of Q1 2010 (prior to the consolidating results for VZ assets), FTR had 1.23 million residential customers served by 1.32 million access lines. This provided a ratio of 1.07 access lines per customer. However, at the end of Q3 2012, this ratio had dropped to just 1.03 with 3.03 million access lines for 2.93 million customers.
It would appear that FTR no longer wants the investing community to see these types of figures.
Customer Losses Continue but at a Slower Pace
Regardless of the availability of access line data, FTR's customers numbers have continued to decline.
|Period||Residential Customers||Q on Q Decline||Business Customers||Q on Q Decline|
Source: FTR SEC Filings and earnings announcements, Author Calculations. Figures reflect End of Period counts. Some figures may be rounded to the nearest hundred.
These declining figures present a significant challenge. There are substantial fixed expenses in running a communications company. A declining customer base can only result in revenue growth if you can raise prices or sell more products and services. While FTR is showing an ability to sell more customers broadband, it is not doing so a quick enough pace to offset these defections.
Largest Quarterly Revenue Decline in Almost Two Years
This past quarter, FTR posted its lowest revenue amount since the acquisition. However, given its downward trend, this was not unexpected. What should be slightly more concerning is that it was the largest decline since Q3 2011. Revenue dropped approximately $27 million from the previous quarter for a 2.2% decline.
|Period||Quarterly revenue ($ Millions)||Q-on-Q decline|
Source: SEC Filings
However, there is at least a silver lining to this news. FTR did post an increase in operating income. Q1 2013 operating income totaled $251 million, slipping back about 20% for the period. This represents an improvement over the previous quarter, but is still down from the two quarters prior to that.
While the stock has performed nicely over the past year, I'm not bullish. I think FTR faces a tough road ahead given its continued customer declines. Even if the rates are slowing, it will take a lot to turn the trend around.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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