As $10.5 Billion Frontier/ Verizon Deal Closes, a Report Card on Frontier Acquisitions Strategy

Frontier Communications became a considerably larger company and Verizon shrunk somewhat with the news today that Frontier’s $10.5 billion acquisition of Verizon landline operations in California, Texas and Florida has been completed.  To mark the occasion, I thought it would be appropriate to put together a report card on the Frontier acquisitions strategy, which is becoming somewhat of a core competency for Frontier.

Frontier Acquisitions Strategy
Acquiring, integrating and upgrading lines from other major telcos initially was not a simple proposition for Frontier. But after an initial difficult start when the company previously acquired lines from Verizon in 14 states several years ago, the company now is quite familiar with Verizon operations support systems.

And while Frontier initially struggled with maintaining margins on Verizon video because content providers would not give Frontier the same terms they had provided Verizon, Frontier in recent months has been touting new compression and server technology advances that have improved video economics – and the company has become quite bullish about video opportunities.

The Frontier acquisitions strategy also included purchasing  AT&T’s Connecticut operations. That acquisition put Frontier in the unique position of having direct experience with both AT&T’s and Verizon’s approach to the broadband market and enabling Frontier to draw upon the best practices from both organizations.

But the real proof of the success of Frontier’s acquisitions strategy lies in the numbers. At a time when some broadband providers are losing broadband customers, the company has made continual gains for multiple quarters – in no small part because the company continues to invest in its broadband business. Companies lose broadband customers when they can’t provide the speeds customers are looking for. But that hasn’t been as much of an issue for Frontier as for some other carriers because customers in 57% of Frontier’s serving area can get broadband at speeds above 20 Mbps.

A naysayer might argue that Frontier has no choice but to invest in broadband because unlike the companies from whom it is buying landlines, it has no higher-growth wireless business. But the company is far from unique in that regard. And its ability to achieve broadband growth – including in areas the larger carriers don’t see fit to hang onto – should be encouraging for other landline-only carriers.

The Enterprise Market
It’s important to note that Verizon’s sale to Frontier does not include enterprise operations or assets – and that is an area where Frontier is likely to face some of its greatest ongoing challenges, as it faces tough competition not only from AT&T and Verizon but also from challenger companies like Level 3. Large enterprises need services nationwide, and delivering those will be challenging for Frontier.

Nevertheless the company has been making some of the right moves in pursuing the enterprise market. For example, it signaled that it aims to join the ranks of AT&T, Verizon and Windstream in serving enterprises’ future communications needs when it joined those companies in the Ethernet Interconnection point project, which aims to make it as easy for enterprises to purchase nationwide Ethernet connectivity as it was in the TDM world.