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Frontier Communications Corporation (FTR - Analyst Report) reported adjusted earnings per share of 6 cents in third-quarter 2013, in line with the Zacks Consensus Estimate. The earnings of this provider of telecommunication services to rural areas dropped a penny from the year-ago quarter.

Quarterly revenues of $1,185.3 million were in line with the Zacks Consensus Estimate but dropped 5.4% from the year-ago quarter. Lower voice revenues along with reduced switched and non-switched access revenues impacted the quarterly performance, partially compensated by increased data service revenues.

On a year-over-year basis, local and long-distance service revenues fell 9.1% to $510.1 million, while data and Internet services revenues improved 3.4% to $471.2 million. Other revenues fell 21.5% to $68.8 million.

Operating Income

Adjusted operating income in the third quarter declined 25.1% year over year to $206.2 million. Operating margin was 17.4% compared with 22.0% in the year-ago quarter.

Customer Trends

At the end of the third quarter, the number of residential customers was 2,822,141 while business subscribers totalled 274,653. Customer churn was 1.81% compared with 1.64% in the prior-year quarter.

Frontier added approximately 26,800 broadband users in the third quarter to reach 1,838,915 (up 5.1% year over year). As of Sep 30, 2013, video subscribers were 377,915, with the addition of 10,500 customers.

Liquidity

Frontier exited the third quarter with $661.0 million in cash and cash equivalents compared with $1,326.5 million at 2012 end. Long-term debt decreased to $7,887.3 million from $8,381.9 million at the end of 2012.

The company incurred a capital expenditure of $157.6 million for business operation, while free cash flow was $232.2 million.

Dividend

The company paid $99.9 million in dividends in the third quarter, equal to a dividend payout of 43% of free cash flow.

Guidance

For 2013, Frontier’s capital expenditures and free cash flow guidance remains unchanged in the band of $625–$675 million and $825–$925 million, respectively. The cash tax expense guidance also remains unchanged at $125–$150 million.

Other Stocks

Another telecom company, United States Cellular Corp. (USM - Analyst Report), a subsidiary of Telephone and Data Systems Inc. (TDS - Analyst Report), reported third-quarter results on Nov 1, after the market closed. The company reported a loss of 12 cents per share, widely lagging the Zacks Consensus Estimate of 13 cents.

Outlook

We appreciate the various strategic initiatives taken by Frontier, which include market share gains, new product deployments, broadband expansion, new pricing plans and lucrative collaborations.

However, we prefer to remain on the sidelines based on strong competition in the telecommunication market, regulatory issues and the effects of high promotional costs as well as access line loss, which continue to pose major threats to Frontier.

Frontier currently carries a Zacks Rank #2 (Buy). Among other stocks, NTELOS Holdings Corp. (NTLS - Snapshot Report) with a Zacks Rank #1 (Buy) is worth mentioning.

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