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Frontier expands fibre footprint with $10.5B Verizon deal

US operator Verizon has agreed to sell off wireline assets worth $10.54 billion to Frontier Communications. The sale will see Frontier almost double in size, and become one of the largest fibre-to-the-home (FTTH) operators in the United States virtually overnight.

In detail, the transaction includes Verizon’s local wireline operations serving customers in California, Florida and Texas. At the end of fourth-quarter 2014, these operations served approximately 3.7 million voice connections; about 2.2 million high-speed data customers, including 1.6 million FiOS Internet customers; and 1.2 million FiOS video customers.

Verizon has invested more than $7 billion in the build-out of FiOS in those territories, which now enjoy a high availability of FiOS services. Fully 54 per cent of the acquired network is FiOS enabled, according to Frontier.

Frontier will pay Verizon approximately $10.54 billion - approximately $9.9 billion in cash, plus $600 million in assumed debt - for the business and related assets in these states.

"These properties align with Frontier's disciplined strategic focus and enhance our footprint with rich fibre-based assets," said Maggie Wilderotter, Frontier's chairman and CEO. "We look forward to building on the strong results Verizon has delivered in these three states."

Dan McCarthy, Frontier's president and COO, added: "We have four FiOS markets today from our 2010 transaction with Verizon, and a high level of familiarity with the systems underlying these properties. We plan to flash-cut convert these properties to Frontier's systems as we did in states including West Virginia and Connecticut."

Frontier reckons the switchover will enable a reduction in operating costs, by $525 million in the first year after close and $700 million by year three. The Verizon operations being acquired generated revenue of more than $5.7 billion in 2014. Overall, Frontier reckons that the deal will be 35 per cent accretive to free cash flow in the first year.

Selling its wireline operations in California, Florida and Texas to Frontier will concentrate Verizon’s wireline operations on the East Coast, where Verizon will focus on boosting the market penetration of its FiOS business across what is now a contiguous footprint. It will retain around 16.1 million wireline voice connections; 7.0 million high-speed data customers, including 5.1 million FiOS Internet customers; and 4.5 million FiOS video customers.

In a separate deal, Verizon has agreed to lease the rights to over 11,300 of its company-owned wireless towers to American Tower, which will also purchase approximately 165 Verizon towers, for a total upfront payment of approximately $5 billion.

Some of the cash from these two transactions is earmarked for a $5 billion accelerated share-repurchase program. Verizon also has a substantial bill to pay from the recent AWS3 spectrum auction, in which it bid $10.4 billion.

Verizon chairman and CEO Lowell McAdam said: “Our long-standing strategy has been to consistently invest in our networks, improve our customers’ experience, and develop new products and services while delivering profitable growth. These transactions will further strengthen Verizon’s focus on extending our industry leadership position in our core markets and return significant value to our shareholders.”

Verizon and Frontier expect to complete the transaction in the first half of 2016. The deal does not include other Verizon businesses, such as Verizon Wireless and Verizon Enterprise Solutions.

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