Verizon sees clearly where its biggest opportunities lie: wireless broadband, both cellular and Wi-Fi, and fiber-optic networks that run to the home like its FiOS does. Having recently acquired Alltel to bolster its wireless network (yes, we know they’re used for phone calls too), it said this week it’s selling off portions of its footprint where building out its FiOS network would be too expensive.
Verizon is selling off the rural phone lines to Frontier Communications for about $5.25 billion in stock. The transaction includes about $3.3 billion in debt. Verizon shareholders, but not Verizon, would own between 66% and 71% of Frontier after the deal closes. Most of the footprint it sold is less-populated areas where fiber optic would be very expensive to deploy.
Short of running fiber to the home, Verizon would have been stuck with selling DSL wireline broadband, a technology that becomes obsolete as soon the local cableco deploys DOCSIS 3.0, which today is capable of speeds up to 100 Mbps (Cablevision) and soon 200 Mbps (Virgin Media).
Verizon Wireless has said repeatedly that it intends to roll out LTE-based wireless broadband beginning in December. LTE is capable of wireless speeds in excess of the 10 Mbps or so that wireline DSL technology can provide.
Verizon, which added 299,000 net new FiOS TV customers during the first quarter, has surprised many in the cable TV industry by achieving a 23% penetration so far. It also added almost 300,000 FiOS broadband subscribers in the quarter. The total number of subscribers to its FiOS Internet (2.8 million) and television (2.2 million) grew at rates of 55.5% and 83.8%, respectively, year-over-year.
Frontier will get 4.8 million accounts, tripling its phone lines, in 14 states including Idaho, Michigan and Oregon. Verizon is selling off about 14% of its landlines and stopping operations in half the states in its current footprint. Some 11,000 Verizon employees will be transferred to Frontier.
Verizon had previously sold off operations in Hawaii and New England. CEO Ivan Seidenberg said the company does not plan any further sell-offs of its operations. “This kind of completes the picture we have of where we want to take our local access lines, he said.
Frontier and the operations it’s acquiring from Verizon would have had revenues of about $6.5 billion last year, significantly more than Frontier’s 2008 revenue of $2.2 billion. Verizon spokesman Peter Thonis said the company wants to focus on faster-growing businesses such as FiOS and wireless. Consumers are giving up landline phone service in favor of mobile phones at alarming rates.
Frontier CEO Maggie Wilderotter said it will end up as the largest purely rural play in the US. She said the company believes Frontier can increase the broadband penetration in the areas it’s acquiring. “Rural America is our business,” Wilderotter said. She thinks Frontier can integrate Verizon’s operations because it already operates in 11 of the 14 states it is getting from Verizon. The companies expect to complete the deal in the next 12 months. State and federal regulators will have to have their say and extract their ounce of blood.