Frontier’s McCarthy: OTT will be important to our video strategy

(Frontier Communications)

Frontier is the latest telco that has cited interest in using over the top (OTT) as part of its video service arsenal, signaling a realization that an online option could be another option to deliver video that is less capital-intensive.

Dan McCarthy, CEO of Frontier, told investors during its fourth quarter earnings call that the telco is open to looking at various options that it could create in house or seek out a partnership with another provider.

“There have been some advances and some changes in the landscape on the OTT side,” McCarthy said. “We could spend time developing our own or we may partner with others, but I think that will be an important part of the strategy going forward.”

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While McCarthy did not provide any specific details about its plans for an OTT video offering, one possible reason Frontier could be looking at OTT is a way to scale its offering with less capital. Emerging video players like Frontier are at a disadvantage over the established cable MSOs that have well-established relationships with content providers.

Frontier isn’t the only telco that’s considering partnering with another provider to build out an OTT video offering either. Fellow telco CenturyLink told investors during its fourth quarter earnings that that OTT video is a less capital-intensive prospect because it does not require a truck roll to a customer’s home to provision service.

CenturyLink plans to start rolling out OTT video by the middle of the year. Already in trials in four markets, CenturyLink plans to launch those markets early in the second quarter then further expand it throughout the year. This comes as CenturyLink saw a slowdown in new Prism TV subscribers, adding only 7,000 in the fourth quarter, for example.

Focus on experience

Regardless of whether Frontier uses IPTV or an OTT offering it develops in house or partners with another provider for its video service, Frontier maintains it will continue to upgrade its last mile and core network infrastructure.

A key focus of that expansion is on expanding its broadband network infrastructure. Over the course of 2016, Frontier completed the expansion of 50 Mbps services to over 1 million copper-only households, for example.

“One of the key priorities is revenue generation, whether that's really on the commercial side or it's really making sure that our speeds and our network are congestion-free going forward,” McCarthy said. “More and more video traffic is flowing and we want, whether it's our OTT product or it's someone else's, we want to make sure that's a good experience for customers.”

McCarthy added that “we're not really cutting CapEx at this point.”

Having scaled its operations through the acquisition of Verizon’s wireline properties, service provider has forecast capital spending between $1 billion to $1.25 billion, down from $1.26 billion in 2016.

“This is a decline from 2016, as our larger size has enabled greater efficiencies, including better pricing in procuring goods and services,” Perley McBride, CFO of Frontier.

Selective IPTV pace

While Frontier is not turning its back on IPTV, the service provider is scaling back the video build to evaluate other technology evolutions in OTT and other technologies.

Frontier previously set a high bar for its IPTV service. During its fourth quarter 2015 earnings call, the telco told investors it planned to leverage its existing fiber-to-the-node (FTTN) network to bring service ultimately to 7 million customers across the network territory upon completing the Verizon asset acquisition.

At that time, Frontier confirmed that the telco will deliver service to nearly 50 percent of its households even without the Verizon acquisition.

McCarthy said that the issues it faced with integrating the Verizon assets in California, Texas and Florida held up the process of IPTV service expansion.

“We did roll out to a number of markets last year,” McCarthy said. “We had anticipated going full throttle on those markets, but they were caught up in the whole disruption of what happened following the integration.”

McCarthy added that while Frontier has seen sales in the markets where it offers IPTV today, including two it turned up at the end of 2016, the service provider is trying to figure out its next move and what take rates it will get

“What we decided at this point to really do is focus on those five markets, evaluate them, ensure that where we’re and what we thought would be profitability and good growth rates are there,” McCarthy said. “That's similar to what we said when we were introducing the strategy.”