Frontier to Expand in Rural Areas

Frontier Communications (FTR - Analyst Report) expects to expedite investments in rural America for broadband deployment upon the receipt of funding worth $71.9 million from the Federal Communications Commission’s (FCC) Connect America Fund (CAF).

The CAF was set up by the FCC to primarily accelerate broadband infrastructural development in rural areas and to serve the 18 million U.S. rural population. With the funds provided by the FCC, Frontier expects to expand its data services to an additional 92,876 customers across 27 states. The funds add to the 1.5 billion investments made by Frontier over the past two years to deploy broadband services in 80% of its operating regions.

The company is also working on increasing data speed by ramping up its broadband Internet speed of 3 megabits per second (Mbps) in at least 85% of households by the end of 2013. It also plans to increase Internet speed to at least 4 Mbps by the end of 2015.

Last year, Frontier expanded its broadband availability to 40,000 new customers, bringing the total number to 1.8 million. As of March 31, 2012, 84% of the households were covered under Frontier’s broadband services. Additionally, the company deployed broadband in excess of 3Mbps, 6 Mbps, and 20 Mbps to 84%, 76% and 28% households, respectively.

With regard to new products, Frontier is committed to sell AT&T Inc. (T - Analyst Report) products over the next three years that support its strong portfolio of broadband, voice and satellite TV services. Along with AT&T’s mobile broadband network, Frontier will offer a broad range of smartphones, tablets and applications from the former’s product line.

The deal would fuel subscriber growth while retaining the old customer base. It would also boost Frontier’s competitive position against CenturyLink, Inc. (CTL - Analyst Report), which has a similar deal with Verizon Communications (VZ - Analyst Report).

Consequently, we maintain our long-term Neutral recommendation supported by a Zacks #3 Rank (Hold).