Analysis: Frontier Completes Acquisition of Verizon Wireline Operations in 3 States

Introduction & Backgrounder:

Over the past decade, Verizon (VZ) had acquired GTE and MCI Worldcom’s wireline networks and also built out its own fiber to residential customer premises for triple play services (FiOS for true broadband Internet, pay TV and voice).  In February 2014, VZ bought out Vodafone to be the 100% owner of Verizon Wireless.  That gave the huge telco a much larger stake in the U.S. wireless carrier market.  That’s certainly the case today and for the foreseeable future with Verizon’s CEO Lowell McAdam talking about 5G trials while saying VZ deploy 5G in a live network years before the ITU-R standard is completed!  Last September, VZ announced it would sell wireline assets to Frontier Communications.  That deal was completed today (April 1st).

The REALLY Big News:

NO APRIL FOOL’s JOKE:  Frontier Communications announced completion of its $10.54 billion acquisition of Verion’s wireline operations which provides services to residential, commercial and wholesale customers in California, Texas and Florida.  The acquisition includes approximately 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS® video subscribers, as well as the related incumbent local exchange carrier businesses. New customers will begin receiving monthly bills starting in mid-April.

From Verizon’s website:

The sale does not include the services, offerings or assets of other Verizon businesses, such as Verizon Wireless and Verizon Enterprise Solutions.

The transaction concentrates Verizon’s landline operations in contiguous northeast markets – which will enhance the efficiency of the company’s marketing, sales and service operations across its remaining landline footprint. It also allows Verizon to further strengthen and extend its industry leadership position in the U.S. wireless market, while returning value to Verizon’s shareholders. As previously announced, Verizon is using the proceeds of the transaction to pay down debt.

Approximately 9,400 Verizon employees who served customers in California, Florida and Texas are continuing employment with Frontier.

From the Business Wire Press Release

“This is a transformative acquisition for Frontier that delivers first-rate assets and important new opportunities given our dramatically expanded scale,” said Daniel J. McCarthy, Frontier’s President and Chief Executive Officer. “It significantly expands our presence in three high-growth, high-density states, and improves our revenue mix by increasing the percentage of our revenues coming from segments with the most promising growth potential.”

Frontier will take on approximately 9,400 employees from Verizon. “Our new colleagues know their markets, their customers and their business extremely well,” McCarthy said. “As valued members of the Frontier team, they will ensure continuity of existing customer relationships.”

Analysis – Frontier:

Frontier has now just about doubled in size as the result of this Verizon acquisition. The shift by Frontier is also noteworthy because of the massive consolidation currently underway in the US broadband and pay-TV markets. Frontier is about to become one of the few significantly-sized triple play service providers that isn’t a cable company (Comcast, TW Cable, Charter, etc).

Arris Group Inc. (Nasdaq: ARRS) CEO Bob Stanzione expressed his opinion last fall that Frontier would invest in expanding the FiOS plant, and Frontier President and CEO Daniel McCarthy has been vocal about his plan to expand TV and broadband service to new customers. (See Video: Frontier’s Final Frontier and Frontier Gives Telco TV a Boost .)

Most recently, Frontier Director of Strategic Planning David Curran talked to Light Reading about Frontier’s evaluation of open networking technologies, and the company’s particular interest in CORD implementations — the idea of a Central Office Re-architected as a Data Center (CORD). With possible migrations to new open networking technologies, Frontier hopes to be able to better scale to higher broadband speeds and higher numbers of subscribers. (See Frontier Checks Out CORD, SDN  and also Project CORD for GPON LTE, G.FAST DSL Modems & Mobile Networks)

Analysis – Verizon:

Light Reading reports that Verizon’s grand FiOS experiment that began more than a decade ago has wilted in recent years as Verizon has transferred its focus to wireless projects, and, more critically, wireless profits.

Verizon hasn’t given up on wireline altogether. The company did just spend $1.8 billion to acquire XO Communications and further build up its fiber network. Plus, Verizon is reportedly close to wrapping up an RFP process that will decide the vendors for a planned fiber upgrade project using next-generation PON technologies. (See Verizon Bags XO for $1.8B and Verizon Preps Next Major Broadband Upgrade.)

However, Verizon’s wireline strategy appears to center more on enterprise services and cellular backhaul, rather than broadband residential services. The telco has said it remains committed to its FiOS footprint on the east coast, but with even the director of FiOS TV promoting Verizon’s Go90 OTT mobile video service over her own product, it’s hard to know how seriously to take the company’s official position. (See FiOS TV Director Cuts the Cord.)

In a FCC filing last year, Florida Power & Light argued against Verizon selling wireline assets to Frontier:

“Verizon has made it clear it intends to be out of the wireline business within the next ten years, conveying this clear intent to regulated utilities in negotiations over joint use issues and explaining that Verizon no longer wants to be a pole owner. Indeed, the current proposed [$10.54 billion sale of Verizon facilities in Florida, Texas and California] proves this point.”

and later……………………………..

“All of the evidence shows that Verizon is abandoning its efforts to build out wireline broadband (especially in New Jersey).  There should be no doubt that Verizon’s strategy to abandon wireline service in favor of wireless service extends beyond New York and Florida and beyond storm damaged and rural areas.”