Frontier’s capital expenditure
Telecommunication services is a highly competitive industry, with multiple operators offering similar voice, data and video offerings. Given the limited opportunities to expand organic margins, emphasis on strategic services, product innovation, and expansion may require increased capital expenditure. Let’s take a closer look at Frontier Communications (FTR), which continues to increase capex to improve its network.
Referring to the acquisition of Verizon’s CTF (California, Texas, and Florida) assets, FierceTelecom reported that “Frontier may be putting more emphasis on cutting costs after making its third-largest acquisition in the past decade,” adding that “financial analysts and equity holders said the telco should consider ramping up network build-out spending.”
In 4Q16, Frontier’s capex was $0.3 billion, up from $0.2 billion in 4Q15. Frontier is investing to improve network capabilities by ramping up Internet access availability, speed upgrades, and fiber-to-the-home expansions. Speed is important for Frontier, as it allows it to compete with cable companies Comcast (CMCSA) and Charter Communications (CHTR), which have the highest broadband subscriber additions.
Expected capex investments in 2017
In 2017, Frontier expects capital expenditure of $1 billion–$1.3 billion, down from its earlier projection of $1.3 billion–$1.4 billion. In comparison, CenturyLink’s (CTL) and Windstream’s (WIN) capex is expected to be ~$2.6 billion and ~$0.8 billion, respectively, in 2017.
In 4Q16, Frontier reported adjusted free cash flow (or FCF) of $316 million, compared with $243 million the year prior. Frontier anticipates its adjusted FCF to be $800 million–$1 billion in 2017.