Verizon, Frontier: Who is Better in the End?

By

Verizon made two mega deals relating to its wireless assets on February 5, but Frontier Communication looks like it may have the better long-term value when the smoke clears.  At some point, Verizon will have to admit it isn't in the telecommunications business anymore.

Part one of its $15.54 billion transactions last week was a definitive agreement to sell its local wireline operations in California, Florida, and Texas to Frontier for $10.54 billion, with $9.9 billion of that in cash and another $600 million in assumed debt for the business and related assets in the states.  Included in the deal scheduled to close in the first half of 2016 is roughly 3.7 million voice connections, 2.2 million "high-speed" data customers including 1.6 million FiOS Internet customers and around 1.2 million FiOS video customers, plus 11,000 Verizon company employees. 

Shedding the GTE assets it bought 15 years ago will enable it to "focus on further penetrating the market for its FiOS business across a contiguous footprint in Eastern states," says Verizon – whatever that means.  The company stopped putting in fiber back in 2010 and Wall Street analysts are spinning this as a shift to unregulated territory with more wireless in the mix.

 Verizon said it is bailing out of wireline in part because those mean people at the Federal Communications Commission (FCC) are threatening to reclassify broadband under Title II with tighter regulation.   But the company still is keeping more than three-fourths of its FiOS internet subscribers, so the logic tends to fail a bit unless and until Verizon ultimately sheds all of its wireline business.

Should Verizon decide to clear out of the wireline business in full, it seems like Frontier will be the ready-made buyer.  Frontier has doubled its footprint in one fell swoop, building upon other Verizon wireline selloffs in the past the past, most relating to former GTE territory.   Acquisition of more Verizon assets is likely constrained by available Frontier financial resources than anything else.

Frontier is also putting new fiber into a number of its current cities, a trend that may auger well for its new customers in California, Florida and Texas.  Having control of those physical assets and access points means Verizon Business will have to do more business with Frontier in the future when it comes to meeting the needs of Verizon enterprise customers.

The other formative deal for Verizon is leasing the rights to over 11,300 of its company-owned towers to American Tower Corporation along with selling another 165 Verizon towers outright for an upfront payment of $5 billion in cash.   American Tower will have an average of 28 years for the lease rights. As the leases expire, American Tower will have fixed-price purchase options to buy the towers based on anticipated fair market value at the end of the lease terms.

Verizon gets a fixed sublease on the towers for a minimum of 10 years for $1,900 per month per site, with annual rent increases of 2 percent, along with "customary renewal options" to extend to the full term of the sub lease to 50 years.  American Tower has the right to sublease other available space to the towers, while Verizon also has access to what the press release calls "additional reserve capacity."

After the financial smoke clears, Verizon will have fewer physical assets and a tighter wireline footprint along the East Coast.  American Tower looks really good with guaranteed cash flow, upside for more cash as Verizon expands, more cash from subleasing tower space – I can hear T-Mobile's speed dial right now – and the ability to buy up the Verizon towers when leases expire. 

Frontier continues to expand with wireline and I suspect it will pick up more AT&T and Verizon wireline castoff territory in the future.   Verizon needs to decide what it is going to do with its non-FiOS copper territories, and the plan may just be to "manage them for cash" today without investing in new equipment and sell them off to Frontier down the road.

But I can't help but think that Verizon is making a mistake in selling off towers. Time will tell. 




Edited by Maurice Nagle
Get stories like this delivered straight to your inbox. [Free eNews Subscription]

Contributing Editor

SHARE THIS ARTICLE
Related Articles

Can Science Outsmart Deepfake Deceivers? Klick Labs Proposes an Emerging Solution

By: Alex Passett    3/25/2024

Researchers at Klick Labs were able to identify audio deepfakes from authentic audio recordings via new vocal biomarker technology (alongside AI model…

Read More

Top 5 Best Ways to Integrate Technology for Successful Project-Based Learning

By: Contributing Writer    3/19/2024

Project-based learning, also popularly known as the PBL curriculum, emphasizes using and integrating technology with classroom teaching. This approach…

Read More

How to Protect Your Website From LDAP Injection Attacks

By: Contributing Writer    3/12/2024

Prevent LDAP injection attacks with regular testing, limiting access privileges, sanitizing user input, and applying the proper encoding functions.

Read More

Azure Cost Optimization: 5 Things You Can Do to Save on Azure

By: Contributing Writer    3/7/2024

Azure cost optimization is the process of managing and reducing the overall cost of using Azure. It involves understanding the resources you're using,…

Read More

Massive Meta Apps and Services Outage Impacts Users Worldwide

By: Alex Passett    3/5/2024

Meta's suite of apps and services are experiencing major global outages on Super Tuesday 2024.

Read More