Verizon Sells Rural Access Lines to Frontier for $8.6B

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[qi:086] What a deal! Verizon Communications (s VZ) today unveiled plans to dump roughly 14 percent of its expensive copper lines in exchange for $8.6 billion from Frontier Communications (s FTR). The transaction, which is expected to close within the next year, will make Frontier the nation’s fifth-largest incumbent local exchange carrier with more than 7 million access lines, 8.6 million voice and broadband connections and 16,000 employees in 27 states.

The big winner here is Verizon, which has been trying to sell off its rural access lines for years. It sold 1.5 million of them to Fairpoint in 2007, which is now struggling under the burden. In 2004, Verizon sold its access lines in Hawaii to The Carlyle Group. The resulting Carlyle-created business, Hawaiian Telecom, filed for bankruptcy last year.  Buying copper land lines is proving to be a sucker’s game.

As more consumers drop landlines, they’re becoming more expensive to service and as such a bigger drain on some carriers’ bottom lines. This is leading to consolidation among rural carriers as they seek scale in order to compete, such as Windstream’s announcement earlier this week that it will buy D&E for $159 million, and last year’s purchase of Embarq by CenturyTel. It’s likely the folks behind these deals are hoping to win a chunk of the $7.2 billion in funds allocated to broadband access as part of the stimulus package, but the question is, can Frontier milk these lines for all they’re worth before they start draining the company’s profits?

Verizon isn’t getting out of the copper business just yet. Customers of its FiOS, fiber-to-the-home lines still get their voice service over the circuit-switched network, so Verizon will still have more than 30 million access lines in areas where it also has high concentrations of its FiOS. This transaction is all about reducing expenses associated with maintaining copper lines in an area where Verizon can’t economically deploy fiber, and expect growth.

Verizon CEO Ivan Seidenberg said in a company statement: “Longer term, this transaction is part of our multiyear effort to transform our growth profile and asset base to focus on wireless, FiOS fiber-optic services and other broadband development, and global IP…We believe our focus on reshaping our asset base will drive higher growth over time and improve long-term returns.”

Frontier will get the residential and small business customers currently subscribing to both voice and DSL service. It also will take on 11,000 Verizon employees in the 14 states. Those states are: Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin. The agreement also includes a small number of Verizon’s exchanges in California, including those bordering Arizona, Nevada and Oregon.

Verizon will spin out its acquired assets into a new company that will be immediately merged into Frontier. Verizon shareholders will receive approximately $5.25 billion of Frontier common stock in the merger, and Verizon will receive a combination of cash or debt relief of some $3.3 billion.

10 Comments

phonee

Ever since GTE became Verizon, quality has gone out the door and production and profit have taken over, leaving subscribers disappointed.
Pooring everything into Fios which is overpriced, abandoning copper and its users has failed. To try and convince customers that your new product is better than the old is hard to do when you didn’t let manpower have the time to do their job to keep customers happy.
Used to be you saw something needing repaired they’d give you the time to fix it, all of it. Now it’s piece it together and forget the rest. Taking employees pride from them in doing their job correctly and forcing poor workmanship. Thus the fall of copper and the lack of Fios subscriber rates. Try and tell that to superiors and they scawf at you like you don’t know what you’re talking about. All the while we’re the ones face to face with customers.

Antony

I agree with you, “Buying copper land lines is proving to be a sucker’s game”

With the ways wireless are evolving, televisions and computers, and the demands of faster internet speed, we’ll soon find that wired broadband, including FiOS, is the thing of the past. Investments in wired technology are expensive and limited. If Verizon doesn’t sell these assets soon they will stuck with the outdated technology and might not even be able to recover the costs, not the least hamper its capital resources and investment to deliver super speed wireless technology.

DG Lewis

“…we’ll soon find that wired broadband, including FiOS, is the thing of the past.”

FiOS can pump 2.4 Gb/s down a single wavelength, split among 32 subs. If that turns out to be not enough, there’s WDM-PON or hybrid PON technology out there that can ship 2.4 Gb/s to each sub.

Current upper limits of radio technology max out at around 4.5 bps per Hz; even LTE’s 100 Mb/s gets there by going to 20 Mhz channels at 5 bps/Hz. Getting wireless bandwidth equivalent to even current FiOS would require roughly 500 MHz channels – at about ten times the current cell density to get the equivalent sharing. In other words, three million cell sites in the US, using every bit of spectrum that the FCC has ever auctioned in bands suitable for wireless broadband. For each operator.

I’m not holding my breath.

Lee Drake

CRAP CRAP CRAP. This means we’ll NEVER get FiOS in Rochester (Frontier’s headquarters and bastion). I guess we’re destined to remain “rural” forever here in Rochester, NY and get the same quality of service as those that Frontier just took off of Verizon’s network. I bet those rural customers are also disappointed that FIOS won’t be coming their way any time soon.

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