OK, what’s not to like?

While this may be [...]]]>

Earlier today, Verizon announced it was selling off 4.8 million access lines in 14 states — rural areas — shedding 11,000 employees, and expecting to clear around $8.6 billion, between losing debt associated with the operations and a Frontier stock “dividend” paid to its shareholders.

OK, what’s not to like?

While this may be the biggest shedding deal Verizon has conducted, it continues the company’s pattern of selling off rural/slow-growth/no-growth business a la Hawaiian Telecom and its Northern New England wireline ops.  In all cases, it’s been the wireline, consumer business that’s been tossed, while the company keeps its wireless chips.

About the only selling job that Verizon has to do is to convince shareholders that this is a Good Thing and Frontier stock won’t end up with FairPoint transition problems.

Regulators in affected states will likely complain and moan about how Big Bell is leaving them behind and make note that the Verizon/FairPoint transition didn’t do so hot.  Expect some growling from Senators and Congressmen in affected states, but at the end of the day, it’s difficult to see how anyone could de-rail the sale.

The transaction is expected to return around $8.6 billion to Verizon and its shareholders as Verizon continues to “transform its growth profile” (i.e. shed parts of its business that aren’t making money [...]]]>

Verizon is selling off its wireline operations in predominantly rural areas across 14 states to Frontier.  Ba-be, we can hear you now…

The transaction is expected to return around $8.6 billion to Verizon and its shareholders as Verizon continues to “transform its growth profile” (i.e. shed parts of its business that aren’t making money so fast) and focus on wireless, FiOS, and global IP networks. As CEO Ivan Seidenberg pointed out in Verizon’s press release, ” All of Verizon’s remaining local landline operations have high concentrations of FiOS in more densely populated markets.  We believe our focus on reshaping our asset base will drive higher growth over time and improve long-term returns.”

As a part of the deal, the company is transferring over around 110,000 FiOS Internet customers and 69,000 FiOS TV customers, so it will be interesting to see how the numbers are juggled for FiOS growth moving forward.  Assets transferring over to Frontier include Verizon’s switched and special access lines in the affected areas, as well as its Internet service and long-distance voice accounts.  Also included are fiber-to-the-premises (FTTP) assets (i.e. FiOS) deployed by Verizon in 41 local franchises and the state of Indiana, which pass approximately 600,000 homes and small businesses.  Frontier will continue to provide video services in these areas after the completion of the merger.

NOT included in the deal are anything involving Verizon Wireless, Verizon Business, Verizon Federal or anything that says Business in the title.  Verizon Business will purchase local services from Frontier in order to serve existing customers.

Approximately 11,000 Verizon company employees  are being transferred over and are expected to continue to be with Frontier after the merger.  Verizon is touting Frontier as a reliable partner (gotta sell the deal to the shareholders, since they’re getting Frontier stock) that has successfully acquired, operated, and invested rural telecom propers, including landline assets purchased from Verizon between ’93 and 2000.  Operations Frontier is getting from Verizon include all of Verizon’s local wireline operating territories in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin annnnd a small number of Verizon’s exchanges in California, including those bordering Arizona, Nevada and Oregon.

My head hurts parsing through the implications.

Pending regulatory approval, Frontier will become the largest “pure rural” communications service provider and (more importantly) the nation’s fifth largest ILEC with more than 7 [...]]]>

Frontier Communication is buying 4.8 million access lines and the related business assets from Verizon in an all-stock deal worth $8.6 billion.

My head hurts parsing through the implications.

Pending regulatory approval, Frontier will become the largest “pure rural” communications service provider and (more importantly) the nation’s fifth largest ILEC with more than 7 million access lines, 8.6 million voice and broadband connections, and 16,000 employees in 27 states. Frontier will offer broadband, new bundled services and expanded technologies – whatever THAT means – to customers across its expanded geographic footprint.

Frontier will acquire Verizon access lines in Arizona, California, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, Wisconsin and West Virginia.  Assets in those regions include the aforementioned 4.8 million access lines, along with 1.0 million High-Speed Internet customers, 2.2 million long-distance customers, 164,000 DirecTV customers and 69,000 FiOS video customers.

Under the T&C’s of the agreement, Verizon will create “SpinCo” for the local exchanges and related business assets in the 14 states.  SpinCo will be spun-off to Verizon shareholders and simultaneously merged with and into Frontier.

Frontier says the combined entity will have a strong balance sheet and greater cash flow generation capability; a FY 2008 combined company would have had revenue in excess of $6.5 billion, EBITDA of approximately $3.1 billion, free cash flow of approximately $1.4 billion and would have had leverage of 2.6 times EBITDA at December 31, 2008.  Frontier expects to get cost synergies (i.e. savings/economies of scale) of around $500 million annual, representing 21 percent of SpinCo’s cash operating expenses, coming from leveraging Frontier’s existing network and IT infrastructure and its corporate admin.

Sweetening the pot for investors, Frontier will pay an annual dividend of $0.75 a share to its shareholders, representing an annual yield of around 9.9 percent based upon its stock closing price of $7.57 at COB on May 12.

SpinCo is coming with a debt of around $3.3 billion in a combination of newly issued debt as well as assumed debt from the entites that make it up.  Verizon shareholders will get shares of Frontier common stock in connection with the merger in an amount to be determined at closing, but with a value of around $5.25 billion and with a stock price not to be lower than $7.00 or higher than $8.50.  Depending on how the deal goes down, Verizon shareholders will end up owning between 66 to 71 percent of the new company and Frontier will end up with between 29 to 34 percent.

Frontier currently provides phone, video, Internet and broadband services to more than 2 million customers in 24 states, including 11 of the states that are part of the agreement announced today.

But but but, what does it MEAN?  It has different implications for the two companies. First, let me get Verizon’s side of the story posted…

This is the seventh acquisition [...]]]>

Atlanta-based Birch Communications (and what is it with Atlanta and phone companies, anyway?) has signed an agreement to grab nearly all the customers and network assets for Cleartel Communications.   Birch is getting around 100,000 business and residential access lines, plus a “state of the art” facilities network in Florida.

This is the seventh acquisition over the past three years and each one, says Birch, “has significantly increased customer density” in the company’s 31 state service footprint, saith the company’s press release.

Needless to say, the acquisition is going to wake up people in the Tier 2/Tier 3 space.

Skeptics will likely wonder aloud as to why Birch would buy so many landlines, given the ongoing decline in both consumer and business landline figures.  I suspect there’s some combination of economies of scale, the fact that consumer & business landlines aren’t going to zero overnight, an ability to convert business landlines from analog dialtone to broadband and SIP trunking, and some loose change with settlements in there.