Verizon Sells Millions of Rural Access Lines to Frontier

Verizon continued their move to exit the rural local exchange business with the announcement today of the sale of 4.8 million access lines to Frontier Communications of Stamford, Connecticut. It’s a bold move by Frontier, almost tripling them in size and catapulting them to one of, if not the largest, service provider focused on rural markets in the U.S. Frontier will have over 7 million combined access lines after the acquisition. The new Frontier and the combined CenturyTel-Embarq will be extremely close in size and either could qualify as the largest U.S. rural service provider, depending on the choice of measurement. The operations Frontier will acquire 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. In addition, the transaction will include a small number of Verizon’s exchanges in California, including those bordering Arizona, Nevada and Oregon.

“This is a truly transformational transaction for Frontier. With more than 7 million access lines in 27 states, we will be the largest provider of voice, broadband and video services focused on rural to smaller city markets in the United States,” said Frontier chairman and CEO Maggie Wilderotter in a Verizon company statement. The deal also includes 2.2 million long distance customers; 1 million broadband customers, including approximately 110,000 FiOS Internet customers; and 69,000 FiOS TV customers. Approximately 11,000 current Verizon employees will transition to Frontier.

The terms of the deal are complicated and involve a formation of a new entity, which will then be merged into Frontier. Verizon shareholders will receive approximately $5.3 billion of Frontier common stock in the merger, subject to a variety of conditions. The total deal is valued somewhere around $8.6 billion.

The move is very similar to a previous transaction between Verizon and Fairpoint, where Fairpoint purchased Verizon’s rural operations in the Northeast. That transaction included 1.5 million access lines and has seen its fair share of transition headaches. The deal signals Verizon’s intent to focus its operations on wireless, wireline broadband in urban areas, and global enterprise markets. It also adds to a flurry of merger and acquisition activity in rural markets with companies like CenturyTel, Embarq, Windstream, Frontier, and Fairpoint all positioning themselves to be rural ‘super’ carriers with significantly larger scale. We suspect the M&A activity will continue.