Q1 2021 Frontier Communications Corp Earnings Call
And.
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For <unk>.
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Good day, and thank you for standing Brian and welcome to the Frontier Communications and Investor presentation.
I would now like to hand, the conference over to your Speaker today, Mr. Shelton. The Hall. Please go ahead.
Yeah.
Good morning, everyone and thank you for joining us on the Frontier Communications first quarter 2021 earnings and restructuring of merchants investor presentation.
Sheldon Bruha, the Chief financial Officer of the company.
Joining me today is John Stratton, and kind of the executive Chairman and Nick Jeffrey President and CEO.
At the outset I would like to inform you that this presentation can be found and followed within the webcast and is available on the webcast and events section of our Investor Relations website.
During this call we will be making certain forward looking statements.
Forward looking statements by their nature address matters that are uncertain and involve risks, which could cause actual results to be materially different from those expressed and such forward looking statements.
Please review the cautionary language regarding forward looking statements on page two of the presentation.
On this call and we'll discuss certain non-GAAP financial measures.
Please refer to the presentation for how management defines these measures and certain shortcomings associated with these measures.
Reconciliations of these non-GAAP measures to the closest GAAP measures can be found in the presentation.
I will now hand, the call over to John Stratton and kind of executive Chairman of the board, who will lead off today's presentation.
Okay. Thank you Sheldon and and thanks, all of you for joining us today.
And just briefly for those of you that I haven't met I joined the frontier as the Board Observer and May of 2020 and was later named the company's executive Chairman and pending our emergence from bankruptcy.
And prior to joining frontier I served.
And a variety of roles at Verizon Communications, most recently as president of global operations with responsibility for the $120 billion P&L of the company's network businesses, which included our wireless business enterprise and consumer which included of course of the company and Spice business, most relevant to where we are here today with frontier.
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And to begin our discussion and I'd ask you the turn to slide five.
After almost two years of hard work, we're excited to be emerging today from our chapter 11, and financial restructuring and expect to begin trading on the NASDAQ This coming Tuesday may for it under the ticker fiber.
I'd like to take a moment to thank everyone, who helped us to get to this point, including our current board of directors. The management team are dedicated employees and our advisers.
Our presentation today is designed to give you envision and frontier as path forward our business today, the opportunity ahead, and our strategic positioning and the market.
Overall, we hope you'll leave today with a better understanding of our current opportunity and the transition that we're undergoing to build of new future at frontier.
On the slide six.
Our future here at frontier requires a very strong foundation and this begins with an outstanding leadership team, which we built not only by bringing and Nick Jeffrey as our new CEO and other key executives, but also of new board of directors, who will introduce and just a moment.
Strategically we are most focused on the expansion of our fiber network with our initial emphasis on building over 3 million, new fiber passing and the very near term.
Operational improvements at frontier is underway with.
We focused on simplifying and streamlining processes generating systems improvement to benefit customers and improving efficiency for our employees.
We will emerge from chapter 11, with a strong financial position.
<unk> liquidity low leverage and strong cash flow that will support us as we continue deploying fiber throughout our nationwide footprint.
On slide seven as we've mentioned, we've been able to attract exceptional talent and the recently added two industry, leading executives as you see here on the slide.
Jeffrey our CEO of the telecom industry veteran with over 30 years of deep operational expertise and leadership experience mixture.
Nick joined frontier from Vodafone and where he most recently served as CEO of its UK company.
This was a business that historically had performed quite poorly and for many years was losing share outgunned by aggressive competitors its brand perception and tarnished by sub standard customer support.
Under Nick's guidance, the company engineered of substantial transformation and turnaround driving wireless market share growth improving service delivery and Reenergizing. The brand and addition to repairing its wireless business. Nick also launched of consumer broadband service and rapidly it became the uk's and fastest growing provider of gaining over 1 million customers and the <unk>.
Hi, its rated brand NPS scores within three short years, clearly an ideal fit for the task ahead of frontier.
And Ironically bloodworth, our new Chief Network Officer recently joined Frontier from AT&T, and where she spent 23 years and helped architect At&t's IP strategy, yielding 3 million builds per year for Anika has extensive experience with the planning design and construction and capital maintenance of fiber networks, having overseen deployment of <unk>.
Millions of customers while at AT&T.
Turning to slide eight we had spent a significant amount of time and energy recruiting talented new board of directors. This new board brings a diverse wealth of experience from relevant disciplines.
And all functional areas are well represented with high levels of subject matter expertise across key areas, including digital transformation brand development capital investment and operational efficiency and telecom strategy.
We're very excited about this new board and so I'll run you through a quick introduction and.
In addition to myself as executive Chairman and Nick our CEO, we have Kevin <unk>. The co founder of asked for capital management, and formerly <unk> head of operations I should note that Kevin has been on frontier as board since 2019.
Including the Finance committee that led the restructuring efforts that we've just completed.
Please the Chang who is currently chief people officer, and Coca Cola Pam.
Panel of co the former Deputy General Counsel and corporate Secretary at Liberty Media Steve.
Steve PUC, the form of global CTO of Vodafone.
Maryann <unk>, who is the former chief operating officer of the National Football League.
And perhaps a homeowner who is currently the chief digital officer of Kaiser Permanente. These.
These leaders will work diligently with the management team to drive a clearly defined set of immediate objectives critical to frontier is path forward.
So what the frontier look like today and how do we think about this business. If you move to slide nine and I'll try to answer this year.
Our new future starts on the excellent foot and we believe the frontier has the foundation of become the largest U S. Pure play fiber provider, which Nick will cover later in the section.
Going forward. Our story is based on two primary components, our base fiber network and our expansion of fiber network and simply put the base fiber network is fiber thats in the ground today already generating solid cash flow the.
The expansion fiber network is the unique and significant opportunity that we have to convert our cash of millions of copper locations into fiber replicating of proven and successful model to unlock massive value.
On slide 10, just a bit more about what's in place today to illustrate each of these assets a bit more specifically.
Network <unk> on the left side of the chart include both consumer and commercial locations and as of March 31.
Sort of 11 8 million copper locations with.
And with fiber, we passed $3 4 million total locations most of which are the $3 2 million passengers and our base network, which we define as all of those built prior to 2020.
We plan to ring fence, the $3 2 million passengers going forward and we will continuously informed the market how we're doing there.
Should serve as a reference for you as you model our business how are we doing on penetration ARPA.
It means for you to understand not only how these markets are fair and but also to update the inputs you use as you model the potential of our new fiber build.
The expansion of fiber network is everything we build from January 2020 forward.
To date, we've built to hundreds of thousands of these pass things, but we're just getting started.
Moving forward as these networks are deployed you should expect us to inform you of our progress of the pace of our billed and the level of demand we generate to fill it penetration by cohort.
Obviously as we upgrade our copper customers. The fiber you should expect the copper passenger to decline as the.
Copper internet or DSL broadband will generally not be offered after the upgrade and the location of the patients here will be reclassified as fiber.
We'll take a closer look at our fiber network on slide 11.
Our existing fiber network generated $2 6 billion of revenue roughly $1 billion of adjusted EBITDA and 2020.
And both metrics, that's about 40% of our overall business excluding subsidies.
And while our future may be and fiber, we still have roots and copper or copper business generated $3 8 billion of revenue and $1 $4 billion of adjusted EBITDA last year.
Over time, we expect to aggressively shift our business mix with a larger percentage of both revenue and margin coming from fiber as we implement our expansion plan.
Turning to slide 12, our plans are built on the substantial foundation of this expansive existing network of fiber based fiber network.
As described the space network is already well established with $1 3 million customers and penetration of approaching 42%.
To enhance and further develop the power of this network, we focused on three core value drivers penetration gains.
<unk> accretion and increased cost efficiencies.
And penetration over time, we believe we could achieve the penetration rate of 50%, which alone would substantially increase the value of our fiber network.
Let me take you further into this point on slide 13.
We see a clear correlation between valuation and penetration company.
Companies that are able to achieve greater levels of penetration are clearly more highly valued by the market.
Using the trend line and this analysis implied by our peers and our current penetration of roughly 41, 5% of.
Analysis yields and implied enterprise value for existing base fiber network of $11 billion today.
As we aspire to move up into the right and as we seek to approach 50% fiber penetration of the near term will drive further value growth for our shareholders.
We feel confident and our ability to meet that target for a number of reasons.
Many of our cable peers, who are north of 50% penetration today of a product that is arguably inferior to the products and services will offer on our fiber networks.
When we acquired much of our fiber from horizon penetration was and the high Forty's, even approaching 50%, which then dropped sharply in subsequent years due to the significant operational challenges.
Our recent operating initiatives have resulted in seven consecutive quarters of positive net adds and increased fiber penetration we.
We have much more to do here, but it is and encouraging reversal of prior trends.
Unlike our peers, we will continue to evaluate ways to increase profitability and all aspects of our residential commercial and wholesale businesses for the benefit of our shareholders.
And bringing the methodology discussed on slide 12, and 13 together on slide 14 are $3 2 million base fiber passing today translate to $11 billion of the implied enterprise value as described by the trend line on that prior slide this.
And this methodology would imply roughly at 11 times EBITDA multiple for our fiber business together with our copper business that equates to $15 billion.
Slide the total dv today.
And if we're able to increase our fiber penetration of 50% it would drive that value to 14 billion and for the fiber network alone implying a total EV of 18 billion when including the copper network assets.
Important to note this is.
The analysis doesn't include any additional upside from our expansion plan.
And Thats to say, if our fiber footprint remained exactly constant and we only work to increase one dimension our fiber penetration.
Our business can achieve evaluation of $18 billion.
And while we expect the value of our copper business to decrease and negatively impact total potential EV, there's substantial upside when taking these two networks together as we worked to at least double and potentially triple the size of our fiber network over time.
It will be more on this and the following slides.
So as we look to the future we have an exciting opportunity to further our growth.
We've identified over 10 million additional locations, where we can build out fiber with very attractive financial returns. However.
However, we've done more than just identify the build out of the first $3 4 million of those passing is fully underway with 200000 already constructed and you'll hear much more about that from debt and just a moment.
We strategically prioritize our build outs the target the highest IRR projects first.
To maximize value.
The $3 4 million builds currently in progress are expected to produce program irr's of at least 24%.
The next tier of opportunity and the speed with which will accomplish the whole of our builds is currently being evaluated in the strategic review.
We recognize the time to market is and absolutely critical success factor and to that and Nick and his leadership team are driving two critical questions, how far and how fast this work by the management team in conjunction with our New board will be completed over the next 100 days.
We plan to share the outputs of this process and the shape of our ambition and and Investor day that will be held in August and addition to framing the size and speed of our fiber investments. That's referenced earlier, we're also generating additional disclosure metrics to complement our story and better communicate the value proposition of our assets to the market.
And giving you an overview of the significant value creation opportunity for frontier of post emergence I'd like to turn the call over now to our new CEO, Nick Jeffrey to introduce himself and provide more detail on our strategy Wi frontier is well positioned to succeed.
Okay.
Thank you John and before we get into the detail on slide 18, I guess like steak and many of them I can just tell you that I just joined the frontier because of the enormous opportunity I see for the company and to create value.
Frontier today has a solid foundation of owned by the assets.
And at the current customer base and strong competitive positioning.
This enabled frontier to win and key market and then and successfully execute on a unique investment opportunity to create shareholder value.
All networks and 25 state with 180000 by the REIT models, making.
And one of the largest fiber networks and the United States.
The gigabit capable network of policies 3 million lineal homes for three 4 million total possible with greater than 41% the penetration, while we build fiber today.
We positioned ourselves as one of the largest local exchange carrier and the.
The last 12 months regenerate the $7 billion of revenue and $2 8 million of adjusted EBITDA, which represents a 40% adjusted EBITDA margin.
From a competitive standpoint, we've proven that we can win market share while we have buyback.
Furthermore, almost the entirety of our homes, Paul phase, one or more of bank competitors, giving.
Giving us a significant opportunity to build upon the strong foundation of alcohol and network.
I joined frontier well aware of the issues the company Inspite of the pond and we.
The strength of real urgency to bring about change to help improve execution and make smart investments for the future.
Our fiber feature.
And the economic and desirable operation and deliverables, and we believe our unique market dynamics make us well positioned to win.
Frontier of purpose is to be a leader and building Gigabits of America.
And we'll connect more rural areas upgrade all of our network speeds make quality internet more accessible and play our role and providing the U S with the digital infrastructure it needs to succeed over the coming years.
Moving on slide 19, as we look to capitalize on our attractive fiber assets favorable industry dynamics will continue to provide tailwind probably.
Well I only have data and continuing to get thoughtful but customers are continuing to consume data out of a thoughtful pace.
The number of connected devices inside the home application downloaded on mobile devices and demand for over the top video.
Second the increased at double digit growth rates over the next couple of years.
We believe these dynamics together presented the perfect opportunity for high speed by the net woke up right. There's lots of helpful to profitably grow our business.
On Slide 20, we believe fiber is the best product to meet the rising demand for data.
Not only due to superiority for <unk>.
Cable today, but also because we believe it will maintain the pay a reality and the years to come.
Good day Bye bye have 34% off the download speed.
17 fixed bump the upload speed and <unk>.
For Q2 percent lower latency levels and cable.
This means by that is the perfect technology to support the ride and demand we've seen for home video conferencing, the need to upload and share of large files of the cloud and for low latency applications like gaming.
Looking forward the fiber, we will continue to outpace wholesale and good day.
Shrinks, the metrical download and upload speeds and I play.
Paul the 10 gigabit vertically.
Our assets have longevity the <unk>.
By way of laying to day after 50 years and will cost less and maintain funnel plummeted.
On slide 21, the illustrates the U S broadband market is unique and primed for exploiting the growth.
There are approximately 128 million homes and the Yankee day, only 30% of which are currently passed by fiber.
And contrast, Europe's rollouts of fiber and more volume than in the U S. With many countries now above 80% power of the pumping and part of the home.
With this backdrop and the U S company that can execute on fiber deployment.
<unk> create significant value for our shareholders.
We truly believe payable for the home will be the most important digital infrastructure for the work over the next decade.
Moving on for the next slide it's clear the market have already acknowledged this opportunity as reflected in lower bulk valuation will be eligible for the practice.
Over the course of the last 24 months alone we've seen EV to EBITDA multiple with the value of about 20 times, reflecting the market sentiment.
Our fiber centric companies such as frontier can be right and that ballpark now more than ever given the right balance sheet strategic upgrade plan and resulting potential for tremendous growth.
On Slide 23, we show key statistics on our fiber network through the lens of the borrowing power business.
Frontier today is one of the largest fiber for the heightened platform and the United States.
We have over three 4 million total fiber pumping for today and I don't have covered.
So let me double the footprint over the.
The coming years.
Within our footprint, we are well positioned to competitively today, 88% of outside the footprint as one of note.
Penetration in the markets could improve significantly.
And the demand for bandwidth and the home continues to accelerate.
Similarly, 87% of our couple of footprint had one or no incumbent wireline and competitive.
But the penetration potential for on fiber buildout should be significant.
The demographics in the market are also favorable of the majority of these market of glory and exhibit higher than average household income for the younger population.
Correlating pipe fleet with high outflow of bonds.
One of the most important point I want to cover is our advantage and deploying fiber as shown on slide 24.
As an incumbent frontier.
Has several advantages and building our model part of the network, including existing rights of way by the.
The network infrastructure conduit and procurement and of course, the economies of scale.
We're able to use these advantages to the yield lower build call.
All of the network deployment.
The effective penetration and more efficient planning perspective.
We have a terrific work force of thousands of employees and build this fiber rapidly, which new entrants or smaller players cannot easily replicate.
Taken together it is clear the frontier has the scale resources and established network the build African packaging of the vantage for other players.
Turning to page 25, we're already seeing evidence of our of bumps is playing out and the business today.
We've seen seven consecutive quarters of positive consumer fiber net adds.
We are accelerating the construction of new fiber and our penetration is increasing with a clear path towards 50% plus penetration.
Again, we believe the frontline and significant value creation, Ralph all of them.
On the right, we can see multiple and the customer experience of the gun concern. The result, with the residential by the channel hopping between from two 7% for the third quarter of 2019.
The one 4% per day.
We expect to continue to improve churn for the operational efficiencies and improvements are implemented.
Moving to the next slide we are going to accelerate the initiatives already in place over the course of 2021.
We're focused on maintaining and accelerating the positive momentum and penetration and often.
The right sizing of our fiber business of <unk>.
Evident for several quarters and we have.
And every intent of exceeding the prior quarter's fulfillment of fiber.
We are equally focused on cost aggressively looking for all opportunities to reduce expenses and investments are being made both in the ground as we build fiber, but also in gross ads and we welcome new subscribers onto our growing network.
And the video will remain on hold and reflecting changing can see the habit and the moon.
Moving to over the top television.
Looking forward, we have already taken proactive steps to improve the business.
And most significantly we have reviewed our carrier relationships with key business partners resetting current price and contracts in exchange for a higher share of future most explainable revenue opportunity.
This will improve our competitiveness and the market.
And if it doesn't resolve and a decline in revenue per ton for 'twenty. One this change will be offset by volume gains.
And the NPV pump of it.
Our value creation net win for frontier.
That said that can of trends will continue and couple of revenues and both the overall as customers move away from the land loans.
We are aggressively targeting data product and the conversion of the buyback and respond.
And further our investments and fiber and driving new customer adoption will be of commensurate investment and close to add and we target third the penetration gains and ultimately set the course for our future of modern data provider.
Losses relatively early in my tenure from debt, it's clear to me that we have set a price.
2021 objectives and full alignment with both the realities and the opportunities in our business.
Thank you the headwinds nothing and Mod and the team has a long term focus.
And leverage all elements of the business, whether and decline on the rise to deliver a return to growth and generate substantial stakeholder value.
This outlook on our 2021 the business drives the guidance, we're providing on slide 27.
Notably, we expect decline and EBITDA driven by voice revenue decline.
We have and established track record of managing operating expenses total adjusted.
EBITDA at most of the top line.
The most compelling part of 2021, despite the growth.
This is headlined by our target to build for 195000, new fiber locations over the year.
And you'll note the capital expenditures increased year over year, driven mostly by the expansion initiatives.
And as John has already mentioned.
Undertaking a full strategic review of our business.
So the level of about five of them.
The baseline.
And to provide updates to the during our August Investor day.
As I mentioned earlier frontier purpose is to be a leader and building digging at America, we will connect more rural areas upgrade a lower network speeds and make quality internet more accessible.
We will have more to share at our <unk>.
Good day, and holding and a very much looking forward to coming back to you at that point with further detail on our vision and plans for the pump.
Looking forward, it's clear we have a lot to do but I could not be more excited by the opportunity ahead.
I'll now hand over to Sheldon will go into more detail on our financial performance Sheldon EBITDA.
Thank you Nick.
Our first quarter results were in line with our expectations with progress in several key areas, but still of lot of work to do the transformed the business and realize the potential for John and Nik outlined.
The results included a seventh consecutive quarter of positive net additions to our fiber broadband service.
During the quarter, we had of 11000 net fiber broadband consumer customers growing penetration of our existing network and addition to adding customers on the upgraded fiber footprint, we began deploying last year.
Our net and improvement is aided by a significant improvement of churn versus the prior periods consumer customer churn was 145% with strong improvements in both fiber and copper broadband share.
Our churn performance was aided by several initiatives to improve the profile of our customer acquisitions, including recent initiatives to no longer sell low speed offerings of one to three megabits of our copper broadband and has historically had high rates of churn and challenging customer lifetime value.
Before turning to the financial performance and highlight that we had another active month and April on our capital structure as we access the capital markets again to further improve interest expense and liquidity for the company and advance of the merchants, which I'll be reviewing further in the moment.
Turning to slide 31, I'll make a few comments on the financial performance for the quarter.
The prior year periods have been adjusted to exclude the contribution from the northwest operations, which were sold exactly one year ago. So all comparisons here on an apples to apples basis.
Total revenue was $1 67, $6 billion of six 3% decline from a year ago.
Looking at revenue performance by product total.
Total debt of the Internet services revenue declined modestly against prior year.
But within that category, our fiber broadband revenues grew by $19 million for over 8%, reflecting the operational focus for the upside potential of this business.
As I mentioned, both fiber and copper broadband products and materially improved churn performance, reflecting recent churn reduction initiatives.
And this was during the quarter and which we implemented price increases on both existing and new broadband customers.
Operating expenses declined $96 million versus prior year, reflecting continued cost management, including content cost improvements as we renegotiated for crop premium content channels.
Our adjusted EBITDA margin improved to 40% versus 38, 4% one year ago when.
And we expect the margin to decline during the remainder of 2021, as we ramp up growth and activity on our fiber network, resulting and increased operating expense.
And as we incur and near term pricing impact of our strategic repositioning and our wholesale business.
Moving on to our capital spending on slide 32 and.
And the first quarter, we built fiber to approximately 100000 new locations.
This is more than the total number of locations, we built and all of 2020.
And this demonstrates the pace of our fiber upgrade program as we ramp activities to deliver the 495000, new fiber locations and 2021 net.
Mentioned earlier.
We continue to be pleased with the results, we're seeing and both the cost of the build and the early penetration and the footprint.
And we intend to provide more details on this important aspect of our transformation during our Investor day, and we'll be planning later this summer.
Turning to slide 33.
We've also done a considerable amount of work on our capital structure.
And this work was not just confined to the reorganization transactions that were approved as part of our chapter 11 cases.
But we were extremely opportunistic and the capital markets as well.
During the last six plus months, we refinanced all of $5 billion of secured debt issued by our parent company.
And some cases and refinance the debt of second time within this time period.
Not only the this resulted in significant interest expense savings of just over $75 million per year.
Okay.
And as unencumbered as possible as we focus of our expansion plans and fiber build.
And our sales of any funded debt maturities until 2027.
I also wanted to note that there are a couple of last pieces of the capital structure of that are being finalized at emergence.
As part of our term loan repricing earlier. This month, we raised an additional $225 billion via an add on to that facility.
And that add on will close today, providing us additional liquidity.
Secondly, the $750 million of kickback debt will be issued today.
And the interest rate coupon on the second lien take back debt will be five 875% of.
The significant improvement over the 675% coupon of the Parry pursue secondly notes that we issued in November.
Moving on to my last slide.
The work we've done of our capital structure provides us the financial flexibility to execute on our expansion plans.
With the $625 million revolving credit facility, largely and utilized and approximately $800 million and post emergence cash which includes the $225 million from the turn on add on we expect to have approximately $1 3 billion and liquidity at emergence.
But not only of emerging with strong liquidity, where also emerging with industry low levels of net leverage of two two times.
So we are well positioned financially to become the frontier of the future.
With that I'll turn it back over to Jon for <unk>.
Closing comments.
Okay. So in summary frontier emerges later today with a host of advantages as we seek to rebuild our business the <unk>.
Solid foundation of critical telecommunications infrastructure, including fiber rich assets, such as the three plus million homes passed already in place and opportunity to grow much further.
We enjoyed strong industry fundamentals and strong tailwind and this provides us great opportunity to grow the business further.
Perhaps most importantly, all of this comes with the commitment to improve the customer experience, we have an opportunity to rebuild our brand and it starts with the customer the service that we provide the ability to deliver great value that's recognized both by our customers as well as the industry at large.
And finally, our restructured balance sheet provides us the flexibility to pursue our ambitions with great optimism. So that concludes our prepared remarks, we will now open the call for your questions operator.
Thank you for later as a reminder to ask the question you will need the press star one on your telephone.
To withdraw your question press the pound key.
The Sam Bally compile the Q&A roster.
Our first question is from Greg volume from Cowen Your line is open.
Great. Thanks for taking my questions and I appreciate the color today.
And if I could put two data points together on the presentation. One John you mentioned kind of markets of the essence, how fast and.
And.
Getting up to speed the path as quick as possible on the build out and then I think on slide 22, you mentioning the amount of pay and the infrastructure funds that are just a loss of capital and entering the space. So the timing is of the assets and you want to build out as fast as possible would you be willing to sell some of your copper assets.
To accelerate the fiber build and the <unk>.
Second question is and where.
Hearing some conversations about.
And our resource constraints and delays chip shortages network equipment capacitors yesterday and consolidated call. They mentioned the resin for the conduit and even the work for US and then AT&T said that they are a little bit skittish about.
Delays are you seeing any possible delays in the rollout due to the constraints. Thank you.
Yes.
Yes, Thanks, Craig for your questions and I'll hit them in reverse order first on supply chain, we've been stepping our pace up as was evidenced in the commentary that <unk> had and the mix expectation is that we'll continue to ramp the build through this year with the exit velocity that would allow us to go even substantially further and <unk>.
<unk> thousand 22.
So as of yet no indication of the supply chain issues that would crimp the pace of our build obviously, we're going to keep an eye on this.
With Roddick leadership, our expectation here is to provide with our partners our longer term level of commitments the visibility to the size of our build and what they should then be able to plan around which makes all of those elements both from a material and labor perspective.
A much smoother and to the benefit of both us and our partners.
Starting the possibility of selling assets and the like I would like to push that question Greg to our August review, Nick is leading a strategic review now.
And that looks at both the size of our build the speed with which we will get it done.
And then what are the best means for us to think about Resourcing that build as you go as we go forward. So.
We will push that question to August, but recognizing the fact that we see that our ability to move very quickly may have a positive effect in terms of pointing of the over builders to markets that may be less competitive for them as we leverage the advantages that Nick spoke about on cost and time to market.
Operator next year and I forgot it.
Thanks for the next call.
Your next question for Phil Cusick from Jpmorgan. Your line is open.
Hey, guys. Thanks.
I guess two if I can Nick if you had the cash how quickly could you build the 3 million lines that youre working on.
And can you give us a preview of the strategic review of additional lines one of the criteria of looking at least thanks.
Yes, Thanks Bill.
And I think the long on how quickly and Sheldon and perhaps you could.
Take us through how we're prioritizing the telephone.
And how quickly.
And the presentation, we have been very fortunate and being able the hot runner Ludwig and to the team to lead our networks of organization and Veronica.
And from AT&T, where of course, she was building fiber at a rate of about 3 million a year and brings.
Substantial operational experience of the practicalities of ramping of build now.
Now what I've already done and Veronica short tenure and the company is offset to think about how we can at least double.
Double of the build rate next year.
And also work through with the physical and indeed capital constraint.
To find the optimal range of build to maximize shareholder value and that's what we are focused on share.
This sales.
And that's what it's already in flight.
You can be safe and assuming we will we will see and material acceleration of the exact details of that we're going to come back to you later in the year Sheldon do you want to just talk about how we prioritize sales.
Sure.
For the prioritization standpoint, clearly I mean, our builds and the early part of this is really focused on the the highest IRR potential ones and we're kind of at the beginning of going after those first certainly with the sort of within sort of some other constraints we are focusing on.
Some of the high priority states as we've been talking about the historically the CTF for PTSD markets of California, Texas, Florida, Connecticut markets.
And that prioritization and force even within that we are trying to identify as much as possible of these builds and locations for sort of growth.
To build on sort of the scales within those within the footprint. So.
We will be we are concentrating sort of the densification of fiber sort of within further within the states.
Within the territories for building.
Okay.
Okay. Operator next question please.
Your next question is from Jonathan Chaplin from New Street Research. Your line is open.
Thanks, So a question for Nick actually I think so much of the opportunity that you've laid out we'll strike index. This is very compelling.
<unk>.
The Big Challenge I imagine.
In execution, it's sort of <unk>.
Taking the old frontier and turning it into the new frontier and.
And for those who who aren't familiar with your track record at Vodafone and I'm wondering if you can touch on.
The turnaround that you engineered in the UK business there.
And how it sort of is sort of NAV.
And so it doesn't match the task ahead of the year.
And at frontier over the course of the next year.
And where you see the biggest challenges is being and.
And in going after the vision that you've started to outline here.
Yeah, Jonathan Thank you great question, and I'll try and keep the focus on frontier, but just to recap quickly.
For the last five years I led the turnaround.
Market and the U.
Okay.
It was the company about the same size in terms of revenue.
Frontier.
But with a much more complicated product offerings, both wireless and wireline and services and.
And in a highly competitive market with for Oi of infrastructure.
At least 16 retail competitors and a much much smaller market space than in the U S.
That was the company that have been neglected for many years the brands.
Revenues of a declining market share of were declining and every single segment.
MTS was significantly negative huge problems huge customer service problems and extremely low employee engagement.
Five years later on and it was growing and all the segment taking market share and all segments. It has beaten every day.
And every metric for seven consecutive straight quarter the.
And yet and the company's debt and three years of history and the best employee engagement.
Good.
And when I first spoke to John about from day, Joe actually said for me.
From the very similar and lots of ways to Vodafone and.
That really rang the bell for me because I, absolutely loved cutting back company around and what I've seen and my first 40 day. The frontier is exactly the same the same.
And the way to get at it is really to focus on operational basis.
Really inch by inch model by model, improving customer service, making sure. The operational excellence is delivered right throughout the build process and making sure that we put through the many small but together significant improvements and it system.
And then build on that with really accelerating the application of the digital to automate some of it is to increase reliability and to achieve better rates and of course to produce a much better customer offer and then.
And the final thing, which is an absolute obsession with competition and winning and the market.
So the although the every move every competitor the makes every second of the day and it really the on top of customer trends, both as you see them and as you anticipate them and I am completely convinced that it's exactly the same recipe here from the albeit in a much bigger market.
And much less.
Competitive intensity.
And indeed, a simple product portfolio.
The Jonathan I'd add of balance of your question.
The.
No that was outstanding thanks Nate.
Alright and next thank you operator next question. Please thank.
Thank you Sir your next question is from Mcdonald's Hail from Moffett Nathan Your line is that the.
Thanks for taking my questions and I appreciate the <unk> for your presentation and.
Obviously, congrats on getting to the emergence of the listing.
Yes, I guess what needs to happen to get your fiber penetration.
Up to 50% in terms of service brand marketing et cetera, and kind of tied into that how should we think about the 50% penetration and the P times Q framework.
And some operators and more aggressive on price to drive volume and some of the opposite how do you think about that balance.
Yes, Thanks for your question, Nick and Nick Jeffery.
I will ask you to and maybe take that one.
And particularly on the balance question, we've talked a lot about the pace of penetration gain and the importance for example of building the value of the <unk> as we transition to a more broadband centric offering, but maybe maybe Nick just a piece on that and the broader thoughts about how we restore.
Proper market share.
Yes, Thanks John.
And thanks Nick.
And the first thing on market share.
If we look out of couple of data points just to begin with the first of which is the files network when it came across to the.
Well already at close to 50% penetration.
Secondly, we have a number of.
Operations today are already.
60% penetration so it of sense.
Is it possible is already proven and facts.
The question is.
Why is share not being going up.
It should do and what have we got to do to get share growing back up again, I think the way developed as part of the P times Q question as well.
Sort of the thing is I think we have to build a really much more compelling customer offer and Brian.
People don't buy fiber the Bible fiber sales for them and the homes and businesses.
And that's very much the way, we need to stop thinking about how we sell and market such as that.
From the day provides.
As people use more data as.
As the old and in our lives we are already seeing people trading up to foster the gigabit services.
And we're already seeing people willing to pay more for that and those two things put together is why after the fiber has already started to creep up and have we optimize that.
Accurately as we could see market dynamics and customer needs probably not.
Have we got the brand being and acceleration rather than a break on that probably not work.
The work in flight.
We're already beginning to deliver the.
And then we also need to think about the extra services that customers would be willing to buy so it's not just moving up a price speed ladder, but it's also moving up the value added services.
In the household as well and a day.
The loan security do they want Wi Fi mesh.
Mesh Wi Fi and setup.
And then using really sophisticated digital marketing technique.
Optimize that mix down to individual household level and I think as we begin to put things in place as we've already started and will begin to see a much more active management the up all the penetration and hopefully.
And as well.
Okay, operator, thank you Nick.
Your next question is from Brett Feldman from Goldman Sachs. Your line is open.
Hi, Thanks for taking the question and and congratulations on getting through the New York reorganization process I'm actually going to follow up on what you were just discussing in terms of additional services you did not mentioned mobile and Comcast and charter and in particular have done very well.
And lean in our mobile offering and they continue to make that a very compelling value proposition, which I think makes the the broadband customers very sticky. So I'm curious, whether you see mobile potentially fitting and and if you are seeking or do you think you need of mobile partner and then a separate question and when I look at Capex guidance, you gave for a year and some of the data points you gave.
Around the cost of deploying fiber it seems like the fiber expansion is actually a relatively small component of the capital budget I am curious whats comprising of the rest and are there any legacy capital projects you, maybe wrapping up that could allow you to reallocate that budget in the fiber and therefore fund of more accelerated rollout. Thank you.
Yes, Thanks for your question and Sheldon and Im going to pumped the capital question for you in just a moment.
But as we talk about.
Mobile and the lack of this is a topic that Nick and I have I think between us about 65 years of.
Experience running global businesses.
Look I think that it's an interesting idea and obviously curious it's informative to keep an eye on charter and Comcast progress there, which has been pretty exceptional that said, we have a ton of opportunity right ahead of US right now and what we want to be careful about is not distract the company as we start the initial base business of building the fiber expanding our <unk>.
<unk> and sales capabilities to rapidly not only build the penetrate those markets as we build them I would never say never to an opportunity like mobile, but in the near term for youre going to focus on bidding of of our.
Mary of fiber offerings, but with that said Sheldon could you take the first question regarding the capital.
Sure.
Sure. Thanks, Brent within our capital and you've highlighted that the real driver of the increase year over year is related to the is related to the investments we're doing on the fiber expansion program.
And the rest of our mix of of.
Capital expenditures are of good nutrition and around sort of the costs for gross additions and what we're doing to acquire customers not just the fiber customers and.
New customers across across our business.
Our various other net.
Net worth investment.
The initiatives and on this one and I think maybe to get to your point, we still are invest and capex related to the cash program, which we which is the people will know sort of the subsidy program and here in 2022, we have some remaining builds that we're doing here in 2020.
Alright, and 2021 debt.
And that will no longer continue beyond there and for 2021 period. So there there is a sizable portion of the capex spend that debt.
No longer we get as good at accounts that.
And there will be.
Essentially available for other opportunities there is a little bit more investment as well this year.
Those were kind.
And im coming through some of the emergence and as well as some of the introduction of the new leadership in terms of looking at some of the technology.
Platforms, and other and other sort of maintenance spend around the portfolio debt.
That has stepped up a little bit of this year as well.
Great. Thank you.
Okay. Thanks, Brett operator, we have time for one more question. Please.
Yes, Sir next question is from Simon Flannery from Morgan Stanley. Your line is the thing.
Thanks for the presentation.
Can you give us sort of a bit of insight into the ramp rate of penetration. When you do the initial passing so I think you've done 60000 last year you've had some good results. So what's the kind of the first year kind of.
Trajectory and how does it ramp from there and when do you think we'll start to see the revenue trend starting to inflect higher wear and so youre seeing significant improvements and year over year decline. Thanks.
Sure.
Yes, Thank you Simon and Nick and just a moment I'm going to pass the question for you, but before I do.
I want to restate, something I mentioned and the.
Prepared remarks earlier.
I think the heart of your question Simon does really critical and it is one of the more important drivers of success that we're going to need to demonstrate.
As we move forward here and so to that and from a standpoint of our debt.
Disclosures and the transparency with which we want to run the business I referenced earlier that the base fiber network that is the $3 2 million subs that are already in place and we're effectively going to put a wall around those from a standpoint of reporting so as to be able to inform all of you and the marketplace broadly.
The success, we've had and raising penetration beyond sort of its current for 41 and change percent and also how we take the other drivers RP gains cost efficiency, expanding margins et cetera, with the notion of that then is a baseline of a reference point for you to consider as you input for your models the value of of the new fiber that we then go.
And bill as it relates to the new fiber I think it's important for us to be able to communicate to the marketplace. The pace of our billed and then also of the pace of our penetration rates of your very point Simon we're still pretty early in terms of the Newbuild and again I'll ask Nick to comment on this more but you should expect us to be communicating on a cohort by cohort basis, how do we look at 12 months 18.
24 months etcetera, as we go forward and not only for the purpose of our external reporting and our conversations with you, but obviously as mixed gearing up is.
And as operational and Jay and the means by which we measure success inside of the business and drive our initiatives inside the company. This will be the focus on both sides of that wall mix further thoughts on the early stage penetration.
Yes, John.
Thanks for great Great question.
And just to remind ourselves I mean, we already have jumped over the 41% penetration and our mature base already and of course as we've said the.
The potential for me.
The 50% type of time.
In new areas.
Estimate will ramp to about 35% plus penetration over a four year cycle and then on the backs of 40% plus and really the key point for future quarterly results and as John said, it's for US the show very clearly the cohort analysis.
And the mature base and the new build at different ages, so that we can be clear with you.
How penetration is changing and of course, how the cost of both of those sites developing as well so youll stay back and our upcoming quarterly releases.
Great.
All of on the revenue trajectory. When you are really the kind of the corporate business starts to become you've got this crossover effect on the revenue trajectory improves.
I know you've got capped out and work through and some of these repricing on the wholesale downstream.
Yes, yes, thanks, Amit I think what you should expect is that the trajectories of the business begin to improve after 'twenty. Two as you just referenced there's really a couple of factors here, we have the weighting between copper and its contribution versus fiber. So what is the crossover point right as we do the new build and penetrate those markets. There is.
Also of Caf II effect, so we will have that.
The last bit of subsidy falls off and then you'll see the effect of that next year and then we begin to build back and the expectation is the EBITDA trajectory of that comes first and then revenue.
Just behind that as we lever up the the Newbuild.
This is subject to further evaluation of all of it should be clear that and the work that Nick is doing right now we will be be calibrating whole of our expectations and so we've talked to a 3 million unit build historically and the last of one of our seven to eight months.
It is our expectation that we're going to significantly increase that and also the pace of that bill and so the resultant revenue trajectories and EBITDA will be updated to reflect that new plan as we go. So that's the work ahead, we're down into that and a pretty detailed level already.
And expect to release more information on that as we get back together and the month of August So hopefully that's helpful. Simon I'm sorry.
Helpful. Thank you.
Okay. Okay, operator, we will now move to conclude the call.
This concludes today's conference call. Thank you for participating you may now disconnect presenters. Please stay online for the post conference.
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