Why Frontier Communications Corp. Fell 28% in 2016

By Anders Bylund Markets Fool.com

Image source: Frontier Communications.

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What happened

Shares of Frontier Communications (NASDAQ: FTR) fell 28.1% in 2016, according to data from S&P Global Market Intelligence.

So what

The year started with a splashy acquisition. On April 1, the company closed its $10.5 billion buyout of Verizon's (NYSE: VZ) FiOS operations in California, Florida, and Texas. The deal gave Frontier 3.3 million new voice subscribers, 2.1 million additional broadband subscriptions, and 1.2 million internet-based video service customers under the FiOS banner. In other words, Frontier's subscriber rolls more than doubled in size overnight.

But the FiOS service handoff was anything but smooth, and Frontier quickly started shedding many of the newly acquired customers. By the end of 2016, the company had started reporting negative earnings and disappointing quarterly sales, and share prices were exploring negative territory on a regular basis.

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FTR data by YCharts

Now what

If Frontier wants to make the most of its pricey FiOS acquisitions, the company must pay closer attention to customer needs. The FiOS footprint is already being expanded, as Frontier builds out fiber optic connections in fiber-less areas of the newly bought territories.

The management team is painfully aware of the FiOS rollout's shortcomings, and has promised to improve the service standard in in the new markets. Frontier is hiring tousands of additional sales reps to push the consumer side of the FiOS markets. The business focus has shifted from merely running the new services in a competent fashion to swinging for actual growth.

The fourth-quarter report is due in about a month, and should give us a fresh look at how well Frontier's FiOS operations are working out. But until the company can put its FiOS ducks in a row, I would suggest staying away from this stock -- despite its tempting 11.4% dividend yield. Sometimes, huge dividend payouts serve as warning signs of a truly troubled business model, and Frontier may be one of those dangerous cases.

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Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.