Blair Levin, the Policy Advisor to New Street Research, thinks that the Verizon $20 billion acquisition of Frontier Communications will ultimately be approved by the California Public Utilities Commission (CPUC), though it may be a bit of a bumpy ride.
His analysis, titled “VZ/FYBR Faces California Trump Transaction Trap,” focuses on how the Trump administration’s antipathy for diversity, equality, and inclusion (DEI) can be reconciled with the goals and position of the CPUC, which must approve the transaction between Verizon and Frontier.
Levin’s hints at an important piece of context: Since the deal was made, Los Angeles has become a focal point of resistance to the administration. Governor Gavin Newsom has lashed out at President Trump and the state has sued over the federalization of its National Guard. However, Levin thinks it is “highly unlikely” that Newsom will make the acquisition an issue. That doesn’t mean, however, that the CPUC won’t.
The centerpiece of Levin’s analysis is a letter last month from Verizon’s attorneys to FCC Chairperson Brendan Carr that describes changes being made to its DEI policies aimed at winning FCC approval. The question is whether the moves are seen as unacceptable by the CPUC and will lead it to disapprove the Verizon/Frontier transaction.
The deal was announced last September and approved by the FCC in May.
Levin points to both legal and political issues. On the legal side, Verizon has a goal that 21.5% of contracts be with “majority women-owned, minority-owned, person with a disability-owned, veteran-owned, and LGBT-owned business enterprises.” However, he points out that this may be an aspirational goal and not a pledge to the FCC.
Levin concludes that it is unlikely that the FCC can reverse its approval. Likewise, he does not think that the CPUC wants to block the Verizon/Frontier transaction.
“Usually, when considering state public utility commission approvals of mergers, the questions relate to timing and conditions, and not the risk of rejection” Levin writes.
“While we think the result here will be in line with that history, the DEI issue in California creates a risk — albeit limited — that the CPUC will view the deal as being at odds with California law and reject it, setting up a further legal challenge. We will revisit when [Verizon] files answers with the CPUC which we expect shortly.”
