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A Look at Frontier’s Growth and Challenges in 2017

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Frontier’s outlook for 2017

Frontier Communications (FTR) expects moderate improvements in its customer and revenue trends, cost containment, and synergy realization in 2017. It expects synergy realization from the integration of AT&T’s (T) and Verizon’s (VZ) wireline businesses in Connecticut and CTF (California, Texas, and Florida) markets. Frontier completed the acquisition of AT&T’s and Verizon’s wireline businesses in October 2014 and April 2016, respectively.

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However, Frontier’s financial footing has weakened in the last few years. Frontier’s management has struggled to integrate the Connecticut and CTF assets, resulting in continued challenges in top-line growth. Frontier’s management acknowledged its disappointment with the company’s recent results and plans to address the situation with several new initiatives.

Key points from Frontier’s conference call

During Frontier’s 4Q16 earnings conference call, it gave guidance on its expected performance in 2017. Frontier anticipates adjusted free cash flow (or FCF) of $800 million–$1 billion in 2017. The company expects capital expenditure of $1 billion–$1.25 billion in 2017. However, Frontier has backed away from its previous 2017 EBITDA (earnings before interest, tax, depreciation, and amortization) outlook of more than $4 billion.

Frontier expects integration operating expenditure and capital expenditure of less than $50 million each. Cash taxes are expected to be $0 to $50 million, excluding any impact from legislation.

Additionally, in March 2017, investment bank Goldman Sachs (GS) downgraded Frontier shares based on concerns over Frontier’s dividend sustainability.

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