Frontier's Biggest Growth Opportunities
The cable industry is changing and Frontier has some opportunities to be a leader. Image source: Getty Images.
Frontier Communications (NASDAQ: FTR) wants to step up to compete with the big players in the pay-television and broadband industries.
The company has spent big ($10.54 billion) to more than double in size by buying Verizon's (NYSE: VZ) former wireline territories in California, Texas, and Florida.That deal gave the company 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers.
More importantly the Verizon deal gave Frontier something it lacked previously -- leverage with content owners. As a tiny cable provider, Frontier could not do very much when it came to negotiating better prices or different deals for its customers. Now, as a mid-size player, the company should be able to use its new heft to offer its customers more.
That won't be an easy path, but it's one which could prove more lucrative than simply being an alternative cable or internet choice for customers in its markets.
Go skinny and a la carte
Frontier's competitors are the traditional cable providers -- companies like Comcast (NASDAQ: CMCSA) and Charter Communications which are married to the current cable model. In competing Frontier has always used price as its wedge to get people to switch. Now, price is a factor, but since cord-cutting is so much cheaper than even a two-year Frontier promotional price, the company has to go farther.
What the carrier should do is debundle its cable packages. This could mean offering skinny bundles (smaller packages of channels at a lower price than traditional cable) or even offer a la carte service where customers literally only get the channels they want (likely paying a premium for the privilege).
These won't be easy deals to negotiate with top content owners (Comcast especially) who make money by forcing people to pay for channels they don't want). Difficult, however, is not impossible and some content owners would likely be willing to play for the right price.
Offering a skinny bundle or a la carte channels may not be overly profitable on its own, but it might lead to consumers switching their broadband service as well. Being different and consumer friendly would at least give Frontier a way in the door when it comes to attracting customers.
Become an un-ISP
As a smaller player in a space one of the best ways to get attention is to kick the shins of the big boys. T-Mobile (NASDAQ: TMUS) CEO John Legere has delighted in doing this and it has worked for his company. By dropping traditional wireless industry anti-consumer practices, Legere has cast his brand as being pro-consumer. T-Mobile is not just a better price -- it's a better experience -- and that has paid off with user growth.
Frontier operates in a field where the big players are as reviled as the top wireless players. The company could win over users if it followed the T-Mobile playbook by aggressively putting consumers first. That could mean things like pledging to never have data caps, advertising the price you pay, not the price before mandatory charges, and generally becoming transparent.
These are not short roads
These examples are areas which could lead to potential growth, but Frontier does not have an easy path. What is very clear though is that there is little growth in being just another cable and internet provider -- an alternative to the big boys which operates more or less like them.
Going skinny or even offering a la carte would work hand in hand with becoming a consumer-first company in the style of T-Mobile. Offering that kind of deal would give people a reason to switch. Wrap that in a series of pledges to not shake every last dime out of its customers' pockets, and the company could have a path to growth.
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Daniel Kline has no position in any stocks mentioned. He was a relatively happy Frontier customer until recently. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.