Frontier has set a high bar for its fiber-to-the-home (FTTH) build with plans to bring service to another 1.3 million locations in 2024.
The service provider ended 2023 with 2 million fiber broadband customers. Frontier’s fiber broadband customers now represent two-thirds of its total customer base.
At the recent Raymond James Institutional Investors Conference, Scott Beasley, Frontier's CFO, told investors that capex peaked in 2024. In 2024, Frontier’s total capex will be lower from $3.0 to $3.2 billion.
"The nature of our capex will shift,” he said. “Fiber build capex is coming down even more, and our success-based customer connection capex is increasing as a portion of our capex, which is good because it is associated with customer orders and revenue streams.”
He added, “The fact that our customer capex is going up next year at a fixed cost per gross add implies our gross adds are increasing.”
Positioning inventory, labor
What’s also changing in Frontier’s FTTH rollout is the state of its build. Through 2023, Frontier has been in the preparation stage of its FTTH build.
During this period, the service provider equipped central offices with necessary optical line terminal (OLT) equipment and built a middle-mile fiber network to backhaul local traffic.
“For the last three years, we have been in the ramp-up phase, which can be lumpy because you’re building pre-work in central offices and middle mile before you build out to the full locations in an area and inventory,” Beasley said.
While the inventory issue was challenging in 2021 due to the COVID-19 pandemic, Frontier has overcome those issues. The provider will now review the inventory gathered over the last 24 months.
“The years 2021 through early 2023 were challenging inventory positions where it was hard to get your hands on inventory,” Beasley said. “That shifted in 2023, and we’re in a better inventory position.”
He added that Frontier has a workforce that can handle the new deployments. “A similar trend is happening in labor,” Beasley said. We’re well positioned in labor, and we have long-term relationships with large and smaller regional vendors and contract visibility regarding labor rates.”
New passing dynamics
With its preparation work behind it, Frontier is building about the same number of homes this year with less capital.
Unlike the ramp-up phase, Frontier’s new network build phase now connects homes to the network.
“There’s a dynamic in a build where you have to spend money on passings before you open them all up,” Beasley said. “If you’re doing electronic upgrades in a central office that will eventually support 50,000 customers, but you can only open 10,000 at a time as you build out further from the central office.”
He adds that Frontier calls this type of work pre-work capital. “This means you are spending money, but you are not using all of it until you built the last house in the wire center,” Beasley said.
The second dynamic is inventory. From 2021 to 2023, Frontier ramped up its electronics, CPE, and fiber inventory.
“As we have successfully derisked the plan by building inventory, we can focus on using it,” Beasley said. We don’t need to buy at the same rate to replenish the inventory, so your capex comes down because you’re using it.”
Overcoming installation challenges
As fiber broadband rollouts have evolved recently, Frontier has enhanced its customer premises connection process.
In particular, the service provider has homed in on finding ways to reduce truck rolls and technician visits to homes.
“We have become more productive in our technician installation process,” Beasley said. “We have done a lot of great work on our network team to reduce non-productive dispatches, which provides more value in connecting customers.”
However, the critical element of making the installation process more efficient is the ability for customers to install services themselves. “The real unlock for installation will be self-install capabilities,” Beasley said. “In our base footprint, we’re expanding self-install capabilities.”
Frontier has seen its fiber provider peers conduct two-thirds of their network installations without a technician at home. These providers will send out the necessary network gear, including a Wi-Fi router and other related equipment, to the house after a customer orders services.
“We’re starting to scale the capabilities that will accelerate in expansion markets,” Beasley said. “We will include an ONT at the house that will be future-proof to support required speeds, which is a significant reduction of cost in gross adds.”
Driving fiber customer growth, penetration
As Frontier enhances its network installation processes, the service provider continues to expand the availability of its fiber service footprint.
The year 2023 was the first year where Frontier grew ARPU and subscribers.
The telco has grown its penetration in its base fiber footprint, which includes the 3.2 million passings Frontier previously acquired from Verizon.
Frontier has continually grown penetration in its base fiber footprint.
“Three years ago, we were in the low 40s and thought we could grow to 45 percent,” Beasley said. “We’re now in the mid-44s last quarter, and our long-term goal of 45% is in sight.”
In the expansion markets, where Frontier has built fiber in the past four to five years, it set a goal to penetrate 24% in 12 months and 35% in 24 months.
“We have met expectations in both cohorts,” Beasley said. “We have now passed more than 3 million homes and have been able to penetrate in line with our targets.”
He added that the company has achieved the penetration targets because fiber-based broadband surpasses what can be done with legacy DSL or cable services. “We have a superior product,” Beasley said. So, as we build fiber, we expect to gain a significant market share just based on the product's superiority.”
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