Frontier Communications’ (FTR) imminent acquisition of the rural fixed-line business of Verizon (VZ) has overcome a major obstacle. The acquisition of Verizon’s local wireline assets in Illinois has been unanimously approved by the Illinois Commerce Commission (ICC). This represents the eighth state approval for the deal.
The approval overrules the order of an Administrative Law Judge in Illinois who recommended in March 2010 that ICC should block the transaction. The concerned Judge opined that acquisition of Verizon’s assets would result in higher prices and deterioration in service quality as Frontier lacks the requisite knowledge to operate Verizon’s FiOS network.
Moreover, the judge argued that the deal would substaintially elevate Frontier’s debt which might prevent it from making the necessary investments in network upgrades in the state. However, the Illinois Governor recently urged the ICC to approve the deal stating that it will unlock opportunities for rural broadband expansion and create jobs.
Frontier had signed a deal to acquire Verizon’s regional wireline assets in May 2009. Verizon is divesting its fixed-line business (involving 4.8 million access lines) in 14 states to Frontier for roughly $8.6 billion. Per the deal, Verizon’s shareholders will receive approximately $5.25 billion in common stock of Frontier. Moreover, Verizon will also receive $3.3 billion in cash and debt securities from Frontier.
The deal was approved by the Frontier shareholders in October 2009 and was also cleared by the state authorities of California, Nevada, South Carolina, Arizona, Ohio, Oregon and Washington. The transaction, which is now subject to the approval of the US telecom regulator Federal Communications Commission (FCC) and the state regulator in West Virginia, is expected to close during second-quarter 2010.
However, the acquisition continues to face strong resistance from the Communications Workers of America (CWA) in West Virginia. The CWA fears that the transaction is detrimental to the state’s interest and may put Frontier in a severe financial crunch.
The acquisition, if eventually completed, will make Frontier the largest pure-play rural telecom operator with over 7 million access lines in 27 states. Additionally, this will create opportunities for revenue growth through expanded broadband penetration, attractive bundled service offerings and improved customer retention.
Frontier may also achieve cost synergies of approximately $500 million from the transaction. Moreover, the deal represents an important stimulus to accelerate deployments of broadband services in the remote rural and underprivileged regions of the US.
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