Frontier Appeals for Federal Funding

Rural telecom operator Frontier Communications Corp. (FTR - Analyst Report) reportedly submitted two applications for federal funding to expand its broadband network in West Virginia. The company has asked for a total of $55 million through Broadband Initiatives Program and Broadband Technology Opportunities Program as part of the American Recovery and Reinvestment Act (ARRA).

The US government sanctioned ARRA as an economic stimulus package earlier this year, allocating almost $7.2 billion for broadband and related infrastructure development in rural and underprivileged markets across the country.

Frontier provides telecommunication services both as an incumbent local exchange carrier (ILEC) and a competitive local exchange carrier (CLEC). The company filed one application for certain areas of West Virginia where it is authorized to operate as an ILEC and the other application for areas where it serves as a CLEC.

If sanctioned, Frontier will receive aggregate federal funding of $69 million for expanding broadband infrastructure coverage and network speed in West Virginia. The company will use this fund to deploy and connect fiber-optic cable from its central office to key public facilities such as schools, hospitals, nursing homes and libraries. This network deployment will allow broadband speeds of up to 100 Meg.

Increased penetration of broadband business in the rural regions, which are either underserved or not served at all, remains a key element in Frontier’s long-term growth strategy. As part of its broadband expansion initiatives in West Virginia, the company is investing roughly $4 million in Charles Town and Princeton service regions for deploying fiber-optic network.

Frontier remains significantly challenged by beleaguered economic condition in its service territories and contends with loss of legacy fixed-telephony business to wireless and other competitive offerings by cable TV operators. However, subscription levels continue to increase for the company’s high-margin broadband service.

The company’s high-speed Internet customer base surpassed the 600,000 mark through healthy quarterly additions on a consistent basis. As a result of low customer acquisition costs and declining capital expenses, broadband remains more profitable than its traditional local and long-distance services.

Frontier is set to lead the pure-play rural telecom market by acquiring the rural fixed-line business of Verizon Communications (VZ - Analyst Report) in 14 states, including West Virginia, for about $8.6 billion. This acquisition represents an important stimulus to accelerate deployment of broadband services to remote rural markets and will further strengthen the company’s presence in West Virginia.

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