CNET también está disponible en español.

Ir a español

Don't show this again

Christmas Gift Guide
Tech Industry

Frontier sees 2Q disappointment

Being wooed by two suitors may make Frontier Corp. (NYSE: FRO) feel wanted, but it won't stop the company from reporting a disappointing second quarter.

In results released after market close Monday, the Rochester, NY-based communications company said it expects to report fiscal second quarter earnings ranging between 20 and 22 cents a share, and fiscal year earnings of $1 a share. First Call's survey of 13 analysts had predicted a a second quarter profit of 28 cents a share, and $1.19 a share for the year.

Executives blamed much of the shortfall on rapidly falling prices in the market for long distance telephone service. Most communications industry observers regard traditional long distance service based on circuit switches as a stagnant market at best. Long distance companies have for years waged fierce price wars to win share.

Packet-switched communications growth remains strong, said Frontier, which predicted continued triple-digit growth rates in Internet Protocol services, and 40 to 50 percent growth in local connectivity.

"For the past year we've been actively repositioning Frontier to be an IP-centric company to focus our future where profitability will be greatest," said Rolla P. Huff, Frontier president and chief operating officer. "We've invested in the people, network and infrastructure that will support our future in high-growth market segments such as web hosting and application services. Clearly, our peers in the industry have also recognized the value of our investments."

Frontier is the target of merger offers from Global Crossing Ltd. (Nasdaq: GLBX) and Qwest Commnications Corp. (Nasdaq: QWST). Following Monday's earnings warning, both suitors said they remain committed to their current merger proposals. Qwest last week raised its offer, which Frontier is still evaluating.

Traders spoken to earlier in the day following CNBC's report that Frontier might issue a profit warning, said that such an announcement by the company would not seriously complicate the takeover battle much since the two companies want Frontier for its physical assets and not its balance sheet.

"No one is buying them for the incremental EPS (earnings per share," an arbitrageur said. "Who cares if there's a shortfall? That's not the issue. It doesn't matter."

-- Reuters contributed to this report