The past few years have been unkind to wireline telecom operators like CenturyLink (NYSE: CTL) and Frontier Communications (NASDAQ: FTR). Both companies are dealing with multiple problems, including cord-cutting, declining legacy technologies such as landline phones, and high debt loads -- the after-effect of past acquisitions. As you can see, the trends have led to declining customer and revenue numbers, which have punished both stocks:
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As both have declined so much, is either a potential turnaround play? Both stocks are dirt cheap by traditional equity metrics, so investors will have to parse whether either stock is a bargain or a value trap. Let's take a look at both.
Business characteristics
CenturyLink is currently much larger than Frontier. It has 450,000 route miles of fiberoptic cable across the U.S., connecting 150,000 on-net buildings and serving 60 countries with its global footprint. After its merger of equals with Level 3 Communications in 2017, the company is now mostly focused on enterprise, international, and small business customers, which makes up about 75% of revenue, as opposed to 25% in consumer broadband, video, and voice.
Frontier is smaller, but by no means small: It serves both consumers and businesses across 29 states. However, Frontier is a bit more evenly split between consumer and commercial wireline services, with just over 50% of its business in consumer services and just under 50% in commercial services.
Image source: Getty Images.
Under current industry stresses, both companies are cutting costs and selling off non-core assets. CenturyLink, for its part, has already cut a fair amount of costs since the 2017 merger, but expects to achieve another $800 million to $1 billion in annualized run rate savings over the next three years. Last quarter, the company announced it was considering the sale of its consumer business, but would only do so if it were value-accretive.
Meanwhile, Frontier is also embarking on an aggressive cost-cutting plan, as it aims to cut $200 million over the next year in a bid to stave off declining revenue and profit. Frontier also just sold its operations in Washington, Oregon, Idaho, and Montana for $1.35 billion, which will help the company make a dent in its $16.9 billion debt load.
Revenue and profit trends
Both companies are challenged right now, especially in their landline phone and cable video segments, yet CenturyLink actually managed to eke out 1% broadband revenue growth last quarter, which helped mitigate the effects of lost phone and video revenue. Frontier, however, showed declines across all segments, even broadband. While Frontier's overall revenue declines were more modest, CenturyLink's retention of higher-margin broadband customers, along with merger synergies, allowed it to actually grow adjusted EBITDA even as revenue declined: