The adoption of high-speed internet is gaining momentum in the U.S. This has helped Frontier Communications (FTR, Financial) record impressive growth in its subscriber count in the last few quarters. Looking ahead, the trend will continue as the broadband market continues to expand on the back of high-speed offerings.
Growing its subscriber base with smart moves
As a result, telecommunication companies have been investing heavily in improving their infrastructure, and Frontier is no different. In fact, as a result of its investments, Frontier has added net new broadband customers seven quarters in a row, with total new additions of 21,900 in the third quarter and 87,000 customers so far this year. More importantly, Frontier has expanded its broadband market share in approximately 81% of its local markets in the first 9 months of 2014.
Now, Frontier is making efforts to sustain this impressive rate of broadband adoption. One of its key moves in this area is its acquisition of AT&T's (T, Financial) Connecticut operations, which was recently approved by the Public Utilities Regulatory Authority. This acquisition should expand Frontier’s capability of delivering a more efficient service in the wireline market. Moreover, the acquisition has increased Frontier's customer base and infrastructure in an impressive manner.
Hence, by paying $2 billion for AT&T's Connecticut operations, Frontier has expanded its business in an impressive manner. It can now use this acquisition to sell its products and services to a higher number of customers in more markets.
New services and a better infrastructure will be catalysts
The good thing is that Frontier is also focusing on organic growth by launching its services in more markets and developing new products. For instance, the company has released Frontier Secure and its Internet of Things package in Connecticut. It is also upgrading its high-speed broadband capacity as a larger customer base is shifting toward its portfolio of Internet-leveraged activities such as e-commerce, social, and streaming video activities.
Now, to serve the customer base better, Frontier plans to upgrade its present fiber transport systems to the ROADM Architecture in every market. It is also implementing a low-cost technique to extend its U-verse share in its Connecticut markets. Also, in October, Frontier introduced 500 megabit and gigabit capabilities in Durham, North Carolina. However, given the competition in the market, Frontier will have to price its offerings competitively. As a result, it is offering easy pricing plans to customers, apart from launching several distribution channels and local engagement with no contracts.
Hence, Frontier is trying to tap broadband growth in a methodical manner, and its strategies are reaping results as the customer additions suggest. The acquisition of the Connecticut business from AT&T and its own infrastructure upgrades will allow it to sustain its impressive growth in the future, along with the dividend.
Reasons to stay invested
Now, a strong dividend yield of 5.70% is a key reason why Frontier is a good investment. Looking at the rate at which it is growing, Frontier should be able to sustain this dividend in the future. The company has generated impressive operating cash flow of $1.36 billion in the past year, and it has a current ratio of 2.19, which signifies a strong liquidity position. Additionally, its bottom line is forecasted to increase 47.4% next fiscal year. Moreover, as Frontier adds more high-speed customers to its portfolio, it can continue getting better.
As such, despite gaining 51% in 2014 and trading at the higher end of its 52-week range, Frontier is still a good stock to remain invested in.
