The stock of Frontier Communications Corp(NASDAQ:FTR), which was up 6.3% on Friday, declined more than 1.5% in last trading session. The gains were recorded following a statement from the company on an FCC proposal to restructure regulations of business data services.
Dan McCarthy, the CEO said that the Fact Sheet shows less severe rate declines than projected by Verizon Communications Inc.(NYSE:VZ). However, Frontier continues to battle against these rigid rate changes authorized for all carriers without considering the impact of process on smaller price-cap carriers.
The CEO added that the firm has projected that such declines if they’re applied next July 1 would lead to a revenue impact of $10 million in 2017 and $20 million in 2018 and 2019. As the company have previously reported to the FCC, they plan to mitigate the expected effect of all rate declines with incremental reductions in overall expenses.
Who doesn’t look for a high-paying dividend equity in their investment portfolio? In telecom firms like Verizon and Frontier, the market can nab stocks yielding 4.4% and 10.1%, correspondingly. With disbursements like that, there is nothing that investors would stay away from. Telecoms are a diverse beast compared to other investments. Because there exist massive up-front investments that firms need to make to construct their infrastructure and network, debt loads are generally very high.
As a result, it’s vital that firms are able to generate adequate free cash flow to pay off debts, and have little funds left for a dividend. In initial assessment, Verizon’s debt appears staggering against Frontier’s debt. But it is vital to note that the firm is valued at circa 40 times the Frontier’s size. Additionally, Verizon is making more than required free cash flow to enable the firm to fulfill its debts.
On contrary, Frontier is waiting to note if some of its recent acquisitions from AT&T Inc.(NYSE:T) and Verizon will begin paying off. Without any record of strong FCF growth from Frontier’s bought assets in California, Florida, Connecticut, and Texas, Verizon seems to be a better choice.