Frontier Communications Steps Up Its Fiber Game

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Frontier Communications (NASDAQ: FYBR) is accelerating the pace of building out its fiber-to-the-premise infrastructure across its operating area. In 2Q22, FYBR added 281,000 new passings, bringing the total fiber passings to 4.4 million out of a total of 15.3 million fiber and copper passings. That new fiber passings figure is up significantly from the 211,000 locations built in 1Q22. To support the faster deployment pace, FYBR’s capital expenditures for the quarter were up significantly to $641 million compared to $385 million in 2Q21. Through 1H22, the company invested $1.1 billion in its network compared to $769 million during 1H21.

FYBR’s network spans 25 states in the upper Midwest and Northeast, the Southeast and Western and Southwestern regions. FYBR’s combined copper and fiber local access network passes 15.3 million locations. At the end of 2Q22, the company served 3.2 million customers including 2.8 million consumer and business broadband accounts. The company reported 54,000 fiber broadband net additions in the quarter, four times higher than the same period a year ago. FYBR competes mainly with cable companies and internet service providers in its operating area. 

FYBR raised its full-year 2022 guidance for new fiber passings from an earlier estimate of 1.0 million to 1.1-1.2 million with the expectation of reaching more than 5.0 million total fiber passings by year-end. Fiber passings are growing at a 5 percent a quarter rate, both replacing legacy copper cables and in new construction. In line with that deployment guidance, FYBR revised its full-year 2022 capex outlook to $2.5-2.6 billion from the prior guidance of $2.4-2.5 billion.

Copper facilities still make up 71 percent of the company’s outside plant. Wave 1 of the company’s fiber build plan phased out at the end of 2021, with 4.0 million fiber passings. Wave 2 will increase fiber passings from roughly 5.0 million at year-end 2022, to over 10 million by 2025, reducing copper to about one-third of the installed base. This means FYBR will accelerate its fiber build to 1.6-1.7 million passings in both 2023 and 2024.

Note that by the end of 2025, FYBR still expects to have about 5 million copper passings, predominantly in rural areas. Upgrading these remaining copper passings to fiber will be part of Wave 3. However, FYBR suggests it can upgrade only 1-2 million locations without subsidies. To convert the remaining 3-4 million to fiber will require some form of government subsidies, like those available under the Infrastructure Law.

Of course, the big motivator for FYBR to convert to fiber is the financial payoff, both on the top line and in profitability. The company reported 2Q22 revenues of $1.46 billion of which fiber contributed $685 million or 47 percent of the total even though fiber accounts for just 29 percent of total passings. By contrast, copper revenue was $757 million but declined 9 percent on a year-over-year basis.

FYBR offers broadband connectivity in both “sub-1 Gig” and “Gig+” speed packages. FYBR reports 35 percent of customers taking the fiber service. Even though Gig+ is available only to 10-15 percent of the installed fiber passings, it accounts for 50-55 percent of new consumer broadband activations. With higher speeds comes higher ARPU that averaged $63.35 per month for fiber broadband in 2Q22 versus $48.47 for copper broadband. FYBR is striving for a 40 percent fiber take rate by 2025.

Adjusted EBITDA for the quarter was $519 million, excluding any subsidies. Fiber accounted for $292 million or 56 percent of the total. That figure was up 5 percent from $278 million in 2Q21. The company now expects full-year 2022 Adjusted EBITDA in the $2.05-2.15 billion range, from the previous guidance range of $2.00-2.15 billion.

By John Celentano, Inside Towers Business Editor

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