Frontier regains footing in the business and wholesale segments in Q2 2023

Frontier’s comeback in the business services market gained momentum in the second quarter of 2023 as the telco saw the unit break through to positive revenue growth as its peers saw ongoing declines.

During the second quarter of 2023, Frontier reported that business and wholesale revenue of $653 million increased 0.3% year-over-year as growth in fiber was partly offset by expected copper network service declines.

Frontier’s business and wholesale fiber revenue of $284 million increased 7.6% year-over-year as growth in data and voice was partly offset by declines in other segments. However, business fiber broadband customer churn of 1.31% increased from 1.28% in the second quarter of 2022, while business fiber broadband ARPU of $102.89 decreased by 4.0% year-over-year.

“While we're pleased with the performance in our consumer business, the star of the quarter was our business and wholesale segment,” said Nick Jeffery, CEO and president of Frontier, during its second-quarter earnings call. “Business and wholesale revenue broke through to positive territory for the first time in six years. That's even more profound against the backdrop of our telecom peers who continue to report mid to high single-digit revenue declines in this segment.”

In particular, the SMB and enterprise segments saw gains in fiber-based services as well as wholesale gains from its wireless backhaul agreement with AT&T. “For the second quarter in a row, SMB and enterprise had double-digit fiber revenue growth,” Jefferey said. “And our wholesale business had a standout quarter, driving revenue growth for the segment overall.”

Reengaging with SMBs, enterprises
Since Frontier serves smaller markets, the telco can more effectively focus on smaller enterprises and small to medium business (SMB) customers that may have needed more, if any, options for service.

Unlike larger telcos such as AT&T and Verizon, Frontier’s focus tends to be on small and medium enterprise customers and SMBs. “Those customers have a much higher propensity to buy the kinds of fiber-based internet access products that we're good at providing and selling and deliver with real quality,” Jeffery said. “We’ve got a natural affinity towards the smaller segments, and that's where we focus our efforts and build up our teams and expertise.”

He added that a more practical focus on the enterprise market enables revenue improvements. “It's hard to avoid the fact that the enterprise segment overall was not as well managed in the past, let's say, as it could have been,” Jeffery said.

To drive its enterprise and SMB segments back to profitability, the service provider focused on achieving three milestones: inflect fiber business sequentially, grow the fiber business, and drive fiber growth to offset copper declines.

“We have achieved our goals by knocking down our milestones while executing day good day in, day out execution, hiring great people, changing our prices, refining our channels, building our brand, being out in the market, and hustling,” Jeffery said. “And that's what a perfect enterprise business does.”

The second key milestone was to grow the fiber business year-over-year, which we've achieved for three consecutive quarters. And the third milestone is for fiber growth to offset copper declines, which we reached in the first quarter this year for the first time in six years.

While these are undoubtedly compelling milestones, Jeffrey said Frontier still has much work to do to maintain growth in the business services unit. “We’ve got much work to do before we can achieve sustainable positive year-over-year growth in the business segment overall,” he said. But I am encouraged by our momentum and remain confident in achieving our stable total business and wholesale growth in 2023.”

Overhauling wholesale
As Frontier has moved to reengage with its business customer base, the provider is making similar moves in the wholesale segment to return to profitability.

In 2021, the service provider moved to realign its wholesale operations. It also restructured its pricing to align with the market, signed a significant deal with AT&T, and shifted its focus towards high-growth areas such as fiber-to-the-tower (FTTT) and edge data centers.

“The strong bookings we've discussed for the past year are now successfully converting into revenue growth,” Jeffery said. “And seeing our transformation from a legacy copper business into a fiber-based digital infrastructure business is encouraging. That covers the highlights from the quarter.”

Jeffrey added that a big part of the growth cycle is the new leadership of the wholesale unit. In 2020, Frontier tapped industry veteran Mike Shippey to become its senior vice president for wholesale services. Shippey came to Frontier after spending eight years at Windstream, where he was president of wholesale services.

“On business wholesale, we're pleased with it,” Jeffery said. “A big part of the unit’s success has been the new leadership that we welcomed to Frontier just a couple of quarters ago, already driving significant improvements across the business units.”

Already, Frontier’s efforts to overhaul wholesale are paying office. In February, Frontier signed a wholesale agreement to give AT&T the ability to deploy wireless infrastructure in Frontier facilities. Frontier’s fiber infrastructure will allow AT&T to add fiber connectivity to its wireless infrastructure in areas where AT&T doesn’t currently own fiber.

Frontier’s footprint complements AT&T’s existing network, which will help accelerate the company’s 5G deployment. AT&T will tap into Frontier’s fiber-to-the-tower (FTTT) infrastructure to connect to AT&T’s wireless cell towers. This latest wholesale deal is an extension of AT&T and Frontier’s 2021 agreement that brought the two complementary fiber networks together to power business customers nationwide.

“Part of the wholesale growth has been driven by the strategic agreement with AT&T that we discussed in the past we signed earlier this year, which is now translating from a strong order book to solid financial growth,” Jeffery said. “And that's also helped by a shift towards us selling new offers like digital infrastructure services based on the infrastructure that Frontier's got, but monetizing that in a different way to these segments.”

Integrated fiber build
While Frontier has been actively expanding its fiber network for the consumer space--reaching over six million locations—the service provider looks at how it can also touch local businesses or carrier customers that may be adjacent to the consumer path. The service provider created what it calls an “integrated build plan.”

This integrated build plan considers that the fiber network can be leveraged to serve wireless operator towers that need fiber-based backhaul, large enterprises, and even small businesses.

“As we're looking at our network, we have a priority of passing the committed build of 10 million out of 15 million locations,” said Scott Beasley, CFO of Frontier. “We also want to make sure as we're building out our network, we want to optimize that build for passing fiber to the tower opportunities for wholesale customers, getting close to enterprise customers, and getting close to SMBs. It's not just a consumer-driven build.”

He added that the integrated plan will enable it to maximize more revenue opportunities from the fiber network. “We're very returns-focused,” Beasley said. “Whatever is going to get us the best returns, we're going to tune the plan to optimize our return on capital.” 

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