Frontier Communications’ (FTR) impending acquisition of the rural fixed-line business of Verizon (VZ) suffered a major blow as an Administrative Law Judge in Illinois has issued an order to block the transaction in the state. The concerned judge has proposed to the state regulator “Illinois Commerce Commission” not to approve the deal.
The move puts the asset sale in Illinois under significant uncertainty. However, a final decision of the state regulator is expected in April 2010, which could amend or accept the judge’s proposal. Frontier is expected to respond to the proposal in the next couple of weeks. The deal affects roughly 600,000 customers in Illinois .
Illinois is not the first state which has opposed the deal as it previously faced resistence from the workers unions of West Virginia . The local labor unions in West Virginia fear that the transaction is detrimental to the state’s interest and may put Frontier in a severe financial crisis by elevating the carrier’s debt level.
Moreover, the acquisition of Verizon’s assets should result in higher prices and degradation in service quality as Frontier lacks the requisite knowledge to operate Verizon’s coveted FiOS network. Similar concerns have been raised by the Illinois Administrative Law Judge. The International Brotherhood of Electrical Workers (“IBEW”) has also opposed the deal.
Frontier 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.
The deal was approved by the Frontier shareholders in October 2009 and was also cleared by the state authorities of California, Neveda, South Carolina, Arizona and Ohio. Moreover, the Public Utility Commission of Oregon recently cleared the acquisition, representing the sixth state approval.
The transaction is now subject to the approval of the US telecom regulator Federal Communications Commission (FCC) and regulators in four other states (including Illinois ) and is expected to close during second-quarter 2010.
The deal represents a major opportunity for Frontier as it contends with the loss of legacy landline phone business to wireless and competitive services of cable operators including Time Warner Cable (TWC). Frontier continues to face declining revenues which is, to a great extent, attributable to persistent erosion of fixed access lines.
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 unlock opportunities for revenue growth through expanded broadband penetration, attractive bundled service offerings and improved customer retention.
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