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Describing it as “a key focus going forward” and “an exciting revenue opportunity”, US triple-play operator Frontier Communications has unveiled plans to introduce video service in a number of its existing markets with a minimal capital outlay. It made the announcement during the company Fourth Quarter Earnings Call.
Dan McCarthy, President and CEO, said the initiative would leverage its fibre-to-the-node architecture and has become a viable opportunity because of advances in technology regarding video compression and server architecture. “This represents an exciting revenue opportunity for Frontier that takes advantage of our increasing scale and the substantial investments that we’ve already made in our broadband network,” he advised.
“We will be growing a new stream of revenue from our existing investments in the network while leveraging our enhanced operational support and billing support systems and our IPTV delivery platform. We believe that offering video service opens the door to attracting new customers to our broadband service while introducing new tools to improve retaining existing customers,” he said.
Frontier began the process as it introduced its video service in Durham, North Carolina, first on a trial basis in the fourth quarter and now commercially. “Our plans are to introduce video service to more than 40 markets representing approximately three million households over a three- to four-year period. Once complete, video service will be available to about 50 per cent of the 8.5 million households in Frontier’s existing footprint, not counting the pending Verizon acquisition,” he noted.
“Including California, Texas and Florida properties, we would be able to provide our video service to more than seven million households, and we anticipate additional opportunities as we upgrade select copper markets in the acquired states. This initiative is a direct result of the experience in technology we have gained from Connecticut and the pending California, Texas and Florida acquisition,” he revealed.
He described the video offering as essentially a product extension, running on Frontier’s already robust network infrastructure. “We will utilise existing content relationships, and we already have the rights in place to offer video across our footprint. And these rights provide us the flexibility to introduce a variety of bundles and packages that will appeal to a wide spectrum of customer preferences,” he suggested.
He claimed the initiative was extremely capital-efficient for two key reasons. “First, we are leveraging the substantial broadband infrastructure investment we have made in our network over the last half-dozen years. And second, our IPTV applications employ the latest very advanced compression technology.”
According to McCarthy, Frontier’s HD television channel will require approximately 2.5 megabits of capacity, meaning a household with four HDTVs active at once will only require 10 megabits of capacity into the home, leaving the remainder available for data usage. “The capabilities of the latest technology combined with our increasing scale make it extremely compelling for Frontier to undertake this initiative now,” he stated, adding that to enable 1.3 million households to receive video over its existing broadband infrastructure would require total capital spending of less than $150 million spread over several years. “That means we can undertake this project within our existing capital budget and current forecast. The rate of our deployment can be varied depending on success. As a result, this is a low-risk undertaking. If the take rates aren’t in line with our expectations, we can adjust our plan accordingly,” he said.
“In addition to the direct revenue benefits to Frontier, also consider the scale benefits. With the closing of California, Texas and Florida acquisition, we will have approximately 1.5 million video subscribers, excluding satellite. Consider how much larger our video scale could become as we proceed with this initiative and increase our penetration across the three million additional households. For all the reasons I have discussed, I hope you can see why this is such a strategically significant initiative for Frontier,” he told analysts.