Better Buy: Frontier Communications Corporation vs. AT&T


By Daniel B. Kline, MotleyFool

AT&T (NYSE:T) faces multiple assaults on its core businesses. Frontier Communications (NASDAQ:FTR) has many of the same problems, albeit on a smaller scale. And neither company has an easy path forward as changing market conditions give consumers more options.

Of course, AT&T gets to battle low-priced rivals and cord cutting from a position of strength. Frontier, which has suffered from cord cutting as well, does not have that benefit, as the company has been facing financial struggles.

A person points a remote control at a television.


What are the industry issues?

Cord cutting has been slowly draining customers from the cable industry since 2013. The numbers have been growing each year, going from 105,000 pay television customers lost in 2013 to nearly 1.5 million in 1017.

This has affected AT&T and Frontier in different ways. AT&T owns both DirecTV and its own U-Verse service. It lost 554,000 DirecTV satellite customers in 2017 and dropped 624,000 U-Verse subscribers. Those losses, however, were offset by the addition of 888,000 customers signing up for DirecTV's streaming service.

That's not a one for one swap, as the streaming customers generally paid less than cable or satellite customers. But AT&T also gained 114,000 broadband subscribers, which helped further offset its cable losses.

Frontier did not fare as well. The company lost 184,000 cable customers in 2017. Even worse, it did not post any gains in broadband dropping 330,0000 subscribers.

YearPay TV gains/lossesInternet gains


Frontier is in free fall

AT&T has struggled in cable, but it has dealt with it well. The company also faces a second battlefront in wireless, where it has to fight off T-Mobile, which offers lower wireless prices. However, while those are both legitimate concerns, they're relatively minor compared to the problems facing Frontier.

The smaller cable company has been shedding customers since it spent $10.55 billion in April of 2016 to buy Verizon's wireline business in California, Texas, and Florida. That deal gave the company approximately 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers.

The problem is that Frontier has not been able to hold onto those users. That has pushed the company into a battle for survival in which it has had to conduct a 15-1 reverse split to maintain its stock listing and has suspended its dividend -- which was really the main draw of its stock. Despite this negative momentum, it's worth noting that Frontier CEO Daniel J. McCarthy has been adept at keeping the company afloat, largely by cutting expenses.

"Our fourth quarter results highlight the ongoing progress on our key initiatives to improve customer retention, enhance the customer experience, and align our cost structure," he said. "We are pleased with continued improvement in subscriber trends and churn in our California, Texas, and Florida (CTF) markets, and the continued operating efficiencies achieved in the fourth quarter."

That's a very optimistic view of the situation. In reality, Frontier is battling for survival with limited hopes of turning things around.

Which is a better buy?

AT&T clearly has a brighter future. The company is facing struggles on multiple fronts, but it has fought them well. Its growth in streaming television subscribers is encouraging, and while it faces strong competition in wireless, it continues to add customers.

Frontier's best hope is that it gets acquired by a healthier company. That's possible, but not likely given the company's struggles and the sinking popularity of cable delivered over phone lines (which is the technology the company uses).

There's really no debate here. AT&T faces questions about possible growth, while Frontier has to fight for survival. You may not want to own either one, but AT&T is clearly the better bet if you must pick one for your portfolio.

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