Frontier CEO targets growth for Verizon properties

When Frontier Communications acquired Verizon operations in Tier 2 and 3 markets around the U.S., Frontier CEO Maggie Wilderotter saw the potential for significant upside growth. She talked with Connected Planet in some detail recently about how she plans to achieve that growth.

Improving Performance Metrics

Connected Planet: You believe you have significant upside potential by bringing several key Verizon performance metrics in line with your own—including access line decline, high-speed Internet penetration, long-distance penetration, and satellite TV penetration. What is your strategy for improving those metrics?

Wilderotter: Their satellite penetration is at 5%. We’re at 15%. One of the big issues we found in the last couple of months of taking over the [operations] is that Verizon was so focused on FiOS, they never did anything about DirecTV. We’re providing training in these markets and offering free Sunday Night NFL Ticket. If you add video to the bundle, it reduces churn dramatically.

I wish there were one silver bullet on access line loss. [Addressing it] starts with quality networks. We do an analysis to determine where we have poor voice quality. Also, if you take voice and bundle it with high-speed service, it cuts churn 30% to 50%. We also bundle local and long-distance in packages.

We’re also changing the local engagement model. We have general managers in every market, and we transitioned our technicians to work directly for the general manager. They were working for a centralized operations group in Fort Wayne. Now they work for the person in the office next door. It really helps with the challenge of customers staying with our service.

We’re also advertising the value of having an access line. In most cases, it costs between 10 and 15 dollars a month. In a lot of rural market, the power goes out frequently but the phone works. For older people, it’s important to have 99.999% reliability, and in many of our markets [cellular] coverage is spotty in residential areas.

In our suburban markets, people in their twenties and early thirties that are starting families are putting access lines in. They take their cell phones with them and there is no phone in the house for the grandmother or babysitter. We’re advertising the value of that service as a mainstay and saying, “You can have a low-cost access line.”

ARPU Growth

Connected Planet: Your average revenue per user has been steadily growing and now stands at a level of $70. What has driven that growth?

Wilderotter: We surround [customers with] valuable services. Broadband is a good example. We have over $40 a month ARPU on the residential side per customer [in part because of our] “peace of mind” offering. About 35% of broadband customers take it at an average of about $10 a month. We provide 24/7 tech support about any question, not just the network—[such as questions about] how to hook up a printer or do photo sharing or about a virus. We also do hard drive backup. We store a copy securely on our network and every time you make a data change, we grab that and add it to your virtual hard drive. When your system crashes, you don’t lose everything. That’s an example of how we’ve increased revenue on the high-speed side by adding value to customers.

Connected Planet: The ARPU for the Verizon lines you’re acquiring is $68. Is there much room to grow that?

Wilderotter: Those lines don’t have a lot of added value peace of mind services. We can [offer that and offer our] build-your-own-bundle approach. You don’t necessarily have to buy a phone line. You can just buy broadband and video.

Their basic local and long-distance services are higher than Frontier’s but their broadband services are less. We want to flip that. We think in the long run, broadband is the most important product set.

A Unique Approach to Wireless Data

Connected Planet: Tell me about your wireless data offering.

Wilderotter: In 19 markets we have deployed Wi-Fi mesh as an extension to our basic Internet service. Any time you do a wireless build, the most expensive part is backhaul. Since we have phone networks in place, the backhaul is free. But to build out a Wi-Fi network is just putting antennas on poles. In [certain] locations, you can put a network up fairly quickly and inexpensively.

We get anchor tenants—a college, municipality, health care facility, trailer park or truck stop—and we sign three to five agreements to buy x number of seats and then we give high-speed customers access to the Wi-Fi network for free. They can use it as long as they’re paying for high-speed service at home.

We also made the decision to only deploy modems [with wireless capability.] Every one of our 700,000 high-speed customers have hot spots in their homes. We’re trialing a service [for these customers] where if they use [a mobile phone with Wi-Fi capability] in their house, it’s going out over the IP network. When they’re on the mesh network, there are no cellular minutes. It’s only when they leave the community that they start putting minutes on. They can save 50% by bundling voice mobility with other products and services. Hand-offs [between cellular and Wi-Fi] are seamless, and the network the phone always looks for first is Wi-Fi. We’re testing this in Cookville, Tenn. with Frontier Mobile and the hybrid cellular/Wi-Fi service.

We have to have softswitch networks in order to [support Wi-Fi] and we’ve deployed softswitches to a little over 40% of our legacy markets. As we add more softswitches, it opens up the opportunity to do Wi-Fi. In 2011, we will look to deploy [Wi-Fi] in 25 to 30 markets, and we’ll do 10 markets with voice as well as data service. The 25 new markets will probably be Verizon [markets].

Universal Service

Connected Planet: To what extent is your business reliant on Universal Service funding, and what is your take on proposed USF reforms?

Wilderotter: We have the least amount of overhead for Universal Service Funding of any of our peers. [After combining the Verizon properties] it’s a bit less than 10% of our revenue. Six years ago, [that number was] 35% to 40% of our revenues.

We have gotten [more] efficient. We wanted to focus on customer revenues because that’s the right thing to do. We’re actively involved in Washington with the FCC and with Congress about reform for the Universal Service program, which is totally married with inter-carrier compensation. We’re very supportive of reform. We think it needs to happen. We think the system is broken. We’re in agreement that one rate for inter-carrier compensation is good but we need a five- to 10-year transition.

On Universal Service reform, we need to close the gap on wireless [carriers] taking money out of the fund with a wireline cost structure. And [with regard to] inter-carrier compensation, we need to close the gap on phantom traffic, which in some cases is 5% of all traffic. [Some people] call it phantom traffic. We call it fraud.

The FCC wants to shift some or all of Universal Service funding to broadband away from voice. But we have to transition provider of last resort [obligations] for voice. Many people who are without broadband rely on voice. We need to find a way not to cut them off.

[With regard to broadband funding], it’s the last 8% of [a service area] that’s tough or unprofitable. Unless you’re at 88% to 90% reach, you [shouldn’t be able] to apply.