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Understanding Frontier Communications’ Cost-Saving Measures

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Frontier focuses on cutting costs

Frontier Communications (FTR) has been focusing on cost savings in order to boost its adjusted EBITDA. In the second quarter, Frontier completed its program to achieve annualized cost synergies of ~$350.0 million, which was in line with its target.

Frontier is targeting a $500.0 million run-rate EBITDA benefit by the end of 2020 in its next phase of transformation initiatives. Firstly, the company is undertaking revenue enhancement initiatives to boost commercial and consumer revenues, which could boost its EBITDA by $150.0 million–$200.0 million.

Secondly, it expects operational enhancement initiatives to boost its EBITDA by $150.0 million–$200.0 million. The company also expects customer care and support opportunities to boost its EBITDA by $125.0 million–$175.0 million.

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Frontier’s EBITDA trend

In the second quarter, Frontier Communications’ adjusted EBITDA declined by ~3.5% YoY (year-over-year) to $884.0 million from $916.0 million, as well as ~2.6% sequentially from $908.0 million. This reduction was primarily due to seasonal customer activities, storms, and a reserve established for exiting a partnership.

In the second quarter, Frontier’s adjusted EBITDA margin expanded YoY to 40.9% from 39.8% in the second quarter of 2017, mainly driven by continued cost-cutting initiatives. For fiscal 2018, Frontier expects its adjusted EBITDA to be ~$3.6 billion.

In the second quarter, Verizon (VZ) posted a consolidated adjusted EBITDA margin of 36.8%. AT&T’s (T) combined domestic wireless operations EBITDA margin was 44.1%. Charter Communications’ (CHTR) adjusted EBITDA margin was 37.3% in the same quarter.

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