Yeah, I think your comment has relevance outside of just Frontier. It's feels very common for companies to disclose huge savings targets (AT&T has done this as well), and then claim they've hit them by saying they reinvested the savings in some other area of the business (i'm assuming with Frontier it's in fiber related projects). I think unless management outright says the savings will flow through the P&L, the claims should be taken with a grain of salt...
Hi Tom, i've seen that they have some intro offers for ~$25, but don't think that's a good number to use for your calc. ARPU is ~$64 at end of 2023 and probably increases as new passings mature and promos start to roll off (churn hasn't picked up much over last couple of years).
One thing i'm always surprised about with these fiber providers is that they're saying >50% of new customers take 1gig or above. This number seems absurdly high to me (500mbps is more than enough for most families) - the pool of people who want the fastest speeds is larger than i thought.
On the AT&T, glad that one resonated! I think everyone has one of those stocks - just as it gets momentum it falls over its own feet..
the point of my calculation is to show that every new customer that Frontier signs up at the $25/month rate is costing them money. So ironically higher net adds is bad news for the company.
ARPU is what it is but interest cannot be paid with ARPU. As you said perhaps ARPU will increase, but that's all i was saying - they're signing up new customers at a loss, hoping to become profitable later. Hopefully that happens before they run out of money.
gotcha, sorry misunderstood your original message. yeah agree a $25 offer is not enough to earn a return. Their churn is pretty low (~1.2%), so strategy appears to be working currently - Worth tracking churn over the next year though to see if these promos lead to sticky customers.
I enjoy these round-ups a lot. Thanks for doing them!
Hi Matt,
quick question:
Frontier keeps mentioning that between 2021 and 2023 they have achieved $500M in cost savings. I don't see it in their financials. Do you?
Tks/Tom
Hi Tom,
Yeah, I think your comment has relevance outside of just Frontier. It's feels very common for companies to disclose huge savings targets (AT&T has done this as well), and then claim they've hit them by saying they reinvested the savings in some other area of the business (i'm assuming with Frontier it's in fiber related projects). I think unless management outright says the savings will flow through the P&L, the claims should be taken with a grain of salt...
Apparently, Frontier is offering 500Mbps for $24.99/month ($300/year).
Using $1,000/passing in build cost, 40% penetration, $750/drop to connect = $3,250/new customer.
8% interest on that (which is what they're financing their build with) means $260/year in interest.
So they need 87% ebitda margin just to pay interest.
From 2021 - 2023 their adj. ebitda margin actually decreased 2% (from 39% to 37%)
Perhaps reporting net adds at any cost with the hope of raising prices later to become profitable may be a viable strategy. Only time will tell.
Side note: I had a good laugh about your comment on owning AT&T stock. Often I have the same feeling on the stocks that I own.
Hi Tom, i've seen that they have some intro offers for ~$25, but don't think that's a good number to use for your calc. ARPU is ~$64 at end of 2023 and probably increases as new passings mature and promos start to roll off (churn hasn't picked up much over last couple of years).
One thing i'm always surprised about with these fiber providers is that they're saying >50% of new customers take 1gig or above. This number seems absurdly high to me (500mbps is more than enough for most families) - the pool of people who want the fastest speeds is larger than i thought.
On the AT&T, glad that one resonated! I think everyone has one of those stocks - just as it gets momentum it falls over its own feet..
Hi Matt,
the point of my calculation is to show that every new customer that Frontier signs up at the $25/month rate is costing them money. So ironically higher net adds is bad news for the company.
ARPU is what it is but interest cannot be paid with ARPU. As you said perhaps ARPU will increase, but that's all i was saying - they're signing up new customers at a loss, hoping to become profitable later. Hopefully that happens before they run out of money.
Tom
gotcha, sorry misunderstood your original message. yeah agree a $25 offer is not enough to earn a return. Their churn is pretty low (~1.2%), so strategy appears to be working currently - Worth tracking churn over the next year though to see if these promos lead to sticky customers.