Image via Mike Mozart/Flickr CC
Many investors, business customers and consumers are watching Frontier Communications (FTR) and can’t understand why they are not growing. After all, they acquired wire line assets from Verizon (VZ) and that increased the size of the company. So why then aren’t they growing? Let’s take a look at what is happening and what Frontier can do about it.
Frontier is a good wire line phone company with good quality and strong service. The problem they face is the same problem other wire line companies are facing. In fact, if we pull the camera back we can see the same forces impacting every competitor in a variety of spaces like local phone and cable TV.
The industry has been changing over the last decade or two. There are always new growth opportunities in today’s telecommunications marketplace. The difference is the way these opportunities are being addressed by each company. Only some competitors seem to be focused on them and are seeing strong growth.
Frontier Communications Not Yet Focused on Growth Opportunities
A company can grow through acquisition or through selling more stuff. Frontier has been growing through acquisitions. This is the same for other competitors like CenturyLink (CTL) and Windstream (WIN) as well. If we pull the camera back, we see the problem is their core sector, local phone service, is no longer growing.
In fact, traditional local phone service hit its peak around the year 2000 and has been shrinking ever since. It was in a rapid growth wave during the 1990’s with customers getting extra lines to dial into the Internet on AOL or Prodigy. But that growth wave crested and has been falling ever since as new technology moved in and took over.
So, the local phone growth wave rose, crested then fell. This threat was faced by every competitor. Some did a great job at changing direction and expanding their footprint. Others did not.
It is important to understand it’s not too late. Acquisitions are good, but only short-term. The real growth in this industry is coming from expanding into other sectors like wireless, VoIP, pay TV and the Internet. Growth also comes from new technologies like AI, IoT, the cloud, VR and much more.
So, the problem Frontier is facing today is the same problem every wire line telephone company has faced over the last decade. Even leaders like Verizon, AT&T (T) and CenturyLink. They are losing customers in their traditional local phone business as well because new technology is taking the place of old technology.
However, you don’t notice this kind of trouble with Verizon and AT&T because they have widened their marketplace over the last few decades. They are now leaders in wireless, VoIP, Internet, pay TV, wireless TV and much more. That’s why they are still strong and still growing. But it’s important to recognize their growth is coming from sectors other than local phone service.
Xfinity Mobile is Comcast Second Try at Wireless
In fact, if we pull the camera back even further, we can see the same thing happening to the traditional cable television industry. Leaders like Comcast (CMCSA), Charter (CHTR), Altice (ATUS), Cox and others are all struggling with a shrinking traditional cable TV market. How are they handling this problem?
Comcast is growing with Xfinity and is getting back into wireless with their Xfinity Mobile. They tried wireless once before several years ago, but the marketplace was changing and they failed that first attempt. Now they are trying again and could be successful this time around.
Same with Charter. They are going to do the same thing and get back into wireless next year. In fact, AT&T’s success is pay TV and wireless TV is forcing Verizon to take the same path to remain competitive.
So, competitor after competitor in industry after industry faces the same problem Frontier faces right now. As you can see, the communications industry is continually changing. Today, it is in the middle of an enormous transformation wave that is impacting and affecting every business competitor, consumer and investor in the telephone, wireless, pay TV, mobile TV and Internet space.
Companies who are still growing are focused on transforming themselves the way AT&T, Verizon (VZ), Sprint (S), T-Mobile (TMUS) and Comcast are doing today. They are expanding their footprint. Using new technology to replace the old tech. Increasing the number of services and sectors they compete in.
This is What Frontier Communications Needs to Do
This is what Frontier needs to focus on going forward. Growth through selling more stuff in new sectors, not just though acquisitions in a shrinking sector.
This is a wake-up call for Frontier Communications. It’s not too late. They can still get on the growth train if they follow the leaders. After all, look at Sprint and T-Mobile getting back on the growth wave after a decade of stalled growth. The opportunity is real for Frontier, if they recognize it and if they act on it.
There are three kinds of companies. Industry leaders like AT&T who transform the entire industry. Followers like Verizon, who don’t lead, but still do well. Then there are those who don’t do anything and these companies should get out of the way of a transforming industry.
Which category is Frontier in? This is the question they need to answer. It’s important for them to decide. Today, the local phone network is no longer growing. The signs are everywhere. This is not a Frontier problem. Rather, this is an industry problem. But it’s a problem.
Frontier Communications Wireless Growth Opportunity with MVNO
Growth opportunities can come from different areas like wireless. And it’s actually quite simple for any company to get into the wireless business. They don’t need a wireless network. All they have to do create an MVNO agreement with a wireless carrier or carriers and sell their wireless services under their own brand name.
This is what Comcast Xfinity Mobile is. This is what Charter will do. They sell Verizon Wireless and they are also talking with Sprint. This is what Frontier can do as well. Sell wireless services to their wire line customers.
So, the Frontier solution is actually quite simple. All that has to happen is the executives of the competitors need to change direction and follow the leaders. That means Frontier Communications, CenturyLink, Windstream and every other local phone provider needs to change direction and focus on growth going forward.
There are many ways companies like these can quickly jump back onto the growth wagon. The real question is, do they understand the changing industry, the new opportunities and how to get back onto the growth wave?
I’ve watched many companies over three decades face this same problem. Only some of them successfully transformed themselves and saw growth. Whether Frontier does the right thing or not is the real question now. If they choose right, growth can start again very quickly. I’ll be watching.
Jeff Kagan is an Equities.com columnist. Kagan is a Wireless Analyst, Telecom Analyst, Industry Analyst, speaker and consultant. He follows wireless, wire line, telecom, Internet, cable TV, IPTV, Cloud, Mobile Pay, FinTech and communications technology. Email him at [email protected]. His web site is www.jeffKAGAN.com. Follow him on Twitter @jeffkagan.