Frontier Communications (NASDAQ: FYBR), a fixed broadband provider in 25 states across the U.S., today announced its Q4 2021 earnings and provided updates on its outlook for 2022, fiber broadband business, including its consumer and business & wholesale segments, as well as its projected fiber passings through 2025. Also, Frontier touted its new offering of 2 gigabit per second (Gbps) symmetrical broadband speeds across its entire fiber footprint.

Interestingly, Frontier states that in January of 2022, the company’s average fiber broadband customer consumed 828 gigabytes of data on its 500-megabit per second (Mbps) speed tier and 1.1 terabytes of data on its 1-gigabit per second (Gbps) speed tier. Indeed, this represents an increase in data usage of more than 30% since pre-pandemic levels across both speed tiers.

Financial Performance in Q4 2021 – Frontier Communications

In Q4 2021, Frontier Communications reported revenue of $1.54bn, a 2.1% decrease quarter-over-quarter, and adjusted EBITDA of $585m, a 0.3% decrease quarter-over-quarter. Therefore, the company’s adjusted EBITDA margin was 37.9% in Q4 2021, a ~65 bps improvement quarter-over-quarter.

Outlook for 2022

For full-year 2022, Frontier Communications provides its outlook for adjusted EBITDA of $2.00bn to $2.15bn. At the mid-point of the company’s outlook, Frontier is forecasting a year-over-year decrease of 16% in adjusted EBITDA.

Additionally, during 2022, Frontier’s guidance calls for cash capital expenditures of $2.4bn to $2.5bn. The company notes that the increase versus 2021, at $1.7bn in capital expenditures, is primarily driven by the acceleration of its fiber build program.

Fiber Broadband – Frontier Communications

Frontier Communications built fiber to 192k locations in Q4 2021 and ~638k locations during full-year 2021. As such, the company’s total fiber passings reached 4.0 million at year-end 2021. During 2022, Frontier expects to build-out fiber to at least 1 million new locations, bringing its fiber network to 5 million fiber locations by the end of 2022.

Frontier Communications Footprint Q4 2021

Furthermore, Frontier’s fiber network is within 250 feet of 400k businesses and is within 1 mile of 23k towers.

Customers

As of Q4 2021, Frontier Communications had 1.43 million fiber broadband customers. Of this total, the company had 1.34 million consumer and 96k business fiber broadband customers. During Q4 2021, Frontier added 45k total fiber broadband customer net additions, 44k of which were consumer net additions.

Penetration

Given its customer additions, Frontier’s existing base fiber penetration improved to 41.9%, while its total fiber penetration ticked down to 36.4%, due to new fiber build-outs. The company’s stronger existing base fiber penetration was driven by gains in Texas and Florida.

Cohort Analysis

On 86k new fiber passings, Frontier reports a 22% penetration rate at 12 months, for its 2020 build cohort. Additionally, for upcoming Wave 2 (see below) fiber build-outs, the company expects 15% to 20% penetration rates after 12 months. Moreover, Frontier expects to continue improving penetration rates to 25% to 30% after 24 months. Ultimately, the company anticipates terminal penetration rates of 45%.

Consumer Segment

Frontier Communications generated consumer fiber broadband revenue, in Q4 2021, of $245m, an increase of 0.8% quarter-over-quarter. Additionally, consumer fiber broadband customer churn was 1.32% for the quarter, an improvement of 0.24% from 1.56% in Q3 2021. Finally, consumer fiber broadband ARPU reached $62.21, a decrease of 1.8% quarter-over-quarter.

Business and Wholesale Segment

Frontier Communications produced business and wholesale fiber revenue, in Q4 2021, of $270m, a decline of 1.8% quarter-over-quarter. Also, business fiber broadband customer churn was 1.23% for the quarter, an improvement of 0.03% from 1.26% in Q3 2021. Finally, business fiber broadband ARPU grew to $106.87, an increase of 2.0% quarter-over-quarter.

Projected Fiber Passings – Frontier Communications

Frontier Communications has outlined a fiber-to-the-premises (FTTP) expansion strategy whereby its fiber network would pass 10 million locations by the end of 2025.

“Waves” of Frontier Communications

Frontier Communications’ fiber-to-the-premises (FTTP) deployment will occur in three “waves”, as follows:

  • Wave 1 (Complete): ~4 million fiber locations passed by year-end 2021. In terms of cost, the company targets $500 to $600 per passing
  • Wave 2: over 4 years (2022 to 2025), Frontier anticipates passing an incremental ~6 million locations with fiber, resulting in total fiber locations of 10 million by year-end 2025. In terms of cost, the company targets $900 to $1,000 per passing
  • Wave 3: remaining 5 million copper locations can be upgraded to fiber, resulting in potential passings of 15+ million post-2025. For these passings, Frontier may seek a joint venture partner or divestitures in certain regions to expedite the fiber deployment
Projected Fiber Passings – #s in millions
Frontier Communications Projected Fiber Passings

Frontier Communications’ Wave 1 fiber build-out was highly selective, targeting locations with lower costs of deployment. As the company progresses to Wave 2 fiber deployments, in more expensive locations, its focus will shift to achieving economies of scale in its fiber build costs. Through Wave 2, Frontier expects its build costs will support mid- to high-teens IRRs.

Jonathan Kim covers Fiber for Dgtl Infra, including Zayo Group, Cogent Communications (NASDAQ: CCOI), Uniti Group (NASDAQ: UNIT), Lumen Technologies (NYSE: LUMN), Frontier Communications (NASDAQ: FYBR), Consolidated Communications (NASDAQ: CNSL), and many more. Within Fiber, Jonathan focuses on the sub-sectors of wholesale / dark fiber, enterprise fiber, fiber-to-the-home (FTTH), fiber-to-the-premises (FTTP), and subsea cables.

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