Month: September 2024
Verizon to buy Frontier Communications
Wall Street Journal reported today that Verizon is on the verge of buying Frontier Communications for as much as $7 billion in a deal that would bolster the company’s fiber network to compete with rivals notably AT&T. With a market value of over $7 billion, Dallas, TX based Frontier provides broadband (mostly fiber optic) connections to about three million locations across 25 states. Frontier is in the midst of upgrading its legacy copper landline network to cutting-edge fiber. Rising interest rates sparked fears among investors, however, that the business would run out of cash and not be able to raise more before completing those upgrades. Frontier has a 25-state footprint and serves largely rural areas. It reported sales of $5.8 billion in 2023, with about 52% of total revenue from activities related to its fiber-optic products and bills itself as “largest pure-play fiber internet company in the US.”
An all-cash deal between the two companies could be announced as soon as Thursday, a person familiar with the negotiations told Bloomberg.
Fiber M&A has heated up as telecom companies and financial firms pour capital into neighborhoods that lack high-speed broadband or offer only one internet provider, usually from a cable-TV company. New fiber-optic construction is expensive and time-consuming, making existing broadband providers attractive takeover targets.
Verizon, with a market valuation of around $175 billion, will be under pressure from shareholders to justify any big purchase after the company paid more than $45 billion to secure C-band 5G wireless spectrum licenses and spent billions more to use them. Executives have said they are focused on trimming the telecom giant’s leverage to put it on a firmer financial footing.
Verizon, the top cellphone carrier by subscribers, has faced increased pressure from competitors and from cable-TV companies that offer discounted wireless service backed by Verizon’s own cellular network. Faced with slowing wireless revenue growth and an expensive dividend, Verizon has invested in expanding its home-internet footprint. It has both 5G fixed wireless access (FWA) and its Fios-branded fiber to the premises network.
T-Mobile is the only major U.S. cellphone carrier that lacks a large landline business. Since its 2020 takeover of rival carrier Sprint, the company has focused on 5G dominance and succeeded in growing its cellphone business faster than rivals. That network has also linked millions of customers to its fixed 5G broadband service, which offers cablelike service over the air. T-Mobile’s strategy has shifted in recent months, however, as the company dabbles in partnerships and wholesale leasing agreements with companies that build fiber lines to homes and businesses. The wireless “un-carrier” in July agreed to spend about $4.9 billion through a joint venture with private-equity giant KKR to buy Metronet, a Midwestern broadband provider.
Photo Credit: Jeenah Moon/Bloomberg News
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A deal for Frontier would be a round trip of sorts for some of the network infrastructure that Frontier bought from Verizon in 2016 for $10.54 billion in cash. Frontier later filed for Chapter 11 bankruptcy in April 2020 as it burned through cash and was burdened by a heavy debt load. It emerged as a leaner business in 2021 with about $11 billion less debt and focused on building a next-generation fiber optic network.
Frontier’s biggest investors today include private-equity firms Ares Management and Cerberus Capital Management. The company drew the attention of activist Jana Partners last year, which built a stake in the business. Jana delivered a letter to Frontier’s board late last year asking the company to take steps immediately to help reverse its sinking share price, including a possible outright sale.
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AT&T has focused on expanding its fiber network since spinning off its WarnerMedia assets in 2022 to Warner Brothers Discovery. AT&T has 27.8 million fiber homes/businesses passed, growing at ~2.4 million per year, plus more locations passed via its Gigapower joint venture. AT&T’s fiber internet business is expected to contribute to an increase in consumer broadband and wireline revenue. AT&T expects broadband revenue to increase by at least 7% in 2024, which is more than double the rate of growth for wireless service revenue. In contrast, Verizon only has about 18 million fiber locations, growing at about 500,000 per year.
Other recent deals in the fiber transport market sector include the $3.1 billion acquisition, including debt, of fiber provider Consolidated Communications in late 2023 by Searchlight Capital Partners and British Columbia Investment Management.
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It’s All About Convergence (fiber based home internet combined with mobile service):
Speaking at a Bank of America investors conference today, Verizon’s CEO for the Consumer Group Sowmyanarayan Sampath said when Verizon bundles Fios with wireless, it sees a 50% reduction in mobile churn and a 40% reduction in broadband churn. He said they don’t see the same benefits with FWA. Sampath was scheduled to speak at the Mobile Future Forward conference tomorrow, but he canceled at the last minute, which may be a sign that this deal for Frontier is imminent.
The analysts at New Street Research led by Jonathan Chaplin said Verizon’s rationale for the purchase is “convergence baby.” They wrote, wrote, “Verizon seemed complacent. No longer.” Indeed, Verizon CEO Hans Vestberg was challenged on the company’s second quarter 2024 earnings call by analysts who questioned whether Verizon had a big enough fiber footprint to compete in the future. The New Street analysts said Sampath’s comments today “marked a shift in rhetoric from: ‘convergence is important, but we can do it with FWA.”
The analysts at New Street wrote today, “We have been arguing for a couple of years that all the fiber assets would eventually be rolled up into the three big national carriers (AT&T, Verizon, T-Mobile). We always knew that if one carrier started the process, others would have to follow swiftly because there are three wireless carriers and only one fiber asset in every market with a fiber asset.”
Other potential fiber companies that the big three national carriers might be eyeing include Google Fiber, Windstream, Stealth Communications and TDS Telecom.
After its annual summer conference in August in Boulder, Colorado, the analysts at TD Cowen, led by Michael Elias, said there was a lot of conversation about the wireline-wireless “convergence” frenzy. “We believe convergence is a race to the bottom, but if one player is going in with a slight advantage (AT&T), the others must reluctantly follow,” wrote TD Cowen. In the mid-term they speculated that T-Mobile might look at fiber roll-ups with Ziply or Lumen (formerly or other regional players.
References:
https://www.wsj.com/business/deals/verizon-nearing-deal-for-frontier-communications-9e402bb4
https://www.fierce-network.com/broadband/verizon-rumored-buy-frontier-its-convergence-game
https://finance.yahoo.com/news/verizon-talks-buy-frontier-communications-180419091.html
https://videos.frontier.com/detail/videos/internet/video/6322692427112/why-fiber
Building out Frontier Communications fiber network via $1.05 B securitized debt offering
Fiber builds propels Frontier Communication’s record 4th Quarter; unveils Fiber Innovation Labs
Frontier Communications fiber build-out boom continues: record number of fiber subscribers added in the 1st quarter of 2023
Frontier’s Big Fiber Build-Out Continued in Q3-2022 with 351,000 fiber optic premises added
AT&T and BlackRock’s Gigapower fiber JV may alter the U.S. broadband landscape
AT&T Highlights: 5G mid-band spectrum, AT&T Fiber, Gigapower joint venture with BlackRock/disaggregation traffic milestone
AT&T to use Frontier’s fiber infrastructure for 4G/5G backhaul in 25 states
Frontier Communications offers first network-wide symmetrical 5 Gig fiber internet service
Frontier Communications adds record fiber broadband customers in Q4 2022
Verizon Q2-2024: strong wireless service revenue and broadband subscriber growth, but consumer FWA lags
Summary of Verizon Consumer, FWA & Business Segment 1Q-2024 results
Huawei’s First-Half Net Profit Rose on Strong Smartphone Sales, Car Business
Huawei Technologies Co.’s revenue grew for the sixth straight quarter as its smartphones gained significant market share in China. Net profit climbed 18% in the first half of the year, thanks to strong smartphone sales and robust growth in its car business. Huawei reports a handful of unaudited financial figures throughout the year and releases a more detailed audited annual report each spring. It didn’t provide data broken down by business segment for the first half.
The Chinese networking and electronics behemoth posted revenue of 239 billion yuan ($33.6 billion) in the June quarter, up 33.7% from a year earlier, according to calculations based on the company’s six-month financial figures. Implied net profit was 35.5 billion yuan, a drop of 18.6% from a year ago when Huawei recorded one-time gains from divestments. The company sold mobile maker Honor Device Co. to a consortium in 2020 and parts of its server business in 2021, with proceeds from both paid out in installments.
The Shenzhen-based company’s smartphone shipments rose by 50% last quarter as it and other local players like Vivo and Xiaomi Corp. beat out Apple, which dropped to sixth place among handset makers in China, according to market tracker IDC. Apple’s sales in China fell 6.5% in the June quarter, missing Wall Street projections, even as overall shipments in China grew.
Huawei’s next flagship Mate 70 will be closely watched for any processor upgrades when the device is introduced later this year. The Mate 60 roiled US policymakers when it debuted a China-made 7-nanometer chip a year ago, despite US-imposed sanctions and export controls geared to stem advances in China’s chip technologies.
Last year, Huawei more than doubled its net profit as it rebuilt the market share of its core businesses in consumer electronics and cloud computing, which were severely eroded by several years of U.S. sanctions that limited its access to advanced semiconductors.
In the second quarter, Huawei was the No. 2 smartphone seller in China, the world’s largest smartphone market, with an 18.1% market share, according to market-research firm International Data Corp. Counterpoint Research said Huawei’s sales jumped 44.5% in the quarter from a year earlier, the fastest growth among Chinese original equipment manufacturers, thanks to the Pura 70 and Nova 12 series. The company launched its Pura 70 series in April.
Huawei and other local smartphone makers like Vivo and Xiaomi Corp. beat out Apple, which dropped to sixth place among handset makers in China, according to market tracker IDC.
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Huawei has invested in its car business as Beijing ramps up support for high-tech industries as part of efforts to reduce the economy’s reliance on the property sector for growth.
The company’s automotive unit, which offers self-driving technology to electric vehicle makers, earned a revenue of 10 billion yuan as of early July, according to a report by a Chinese media outlet, more than the combined revenue in the previous two years. Huawei didn’t provide a breakdown of its sales.
Changan Automobile-backed Avatr Technology said in an exchange filing last week that it will acquire a 10% stake in Yinwang Smart Technology, Huawei’s car unit that provides autonomous-driving technology to automakers, valuing the company at 115 billion yuan. Seres on Monday said it will acquire a 10% stake in Yinwang.
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References:
Despite U.S. sanctions, Huawei has come “roaring back,” due to massive China government support and policies
Dell’Oro: RAN market still declining with Huawei, Ericsson, Nokia, ZTE and Samsung top vendors
China Unicom-Beijing and Huawei build “5.5G network” using 3 component carrier aggregation (3CC)