Frontier Communications’ (FTR) impending acquisition of the rural fixed-line business of Verizon (VZ) continues to face resistance as the deal has been strongly opposed by the workers unions of West Virginia.
 
Members and leaders of Communications Workers of America (“CWA”) reportedly protested against the asset sale in West Virginia, fearing that the deal may put Frontier in a severe financial crisis and is detrimental to the state’s interest. Moreover, the International Brotherhood of Electrical Workers (“IBEW”) has joined forces with politicians to oppose the divestiture in Charleston, West Virginia.
 
IBEW officials stated that the disposal of Verizon’s fixed-line business should result in higher prices and degradation in service quality. Moreover, the divestiture would constrict investment in broadband network infrastructure.
 
The opposition of the labor unions follows the protest from the Public Service Commission (“PSC”) of West Virginia in November 2009, which has recommended the rejection of the deal to the state. Similar protests have been initiated by the regulatory officials of the states of Oregon and Washington. Regulators are concerned that Frontier lacks the requisite knowledge to operate Verizon’s coveted Fiber-to-the-Premises (“FTTP”) network. Moreover, the deal will elevate Frontier’s debt level.
 
Verizon is divesting its fixed-line business (involving approximately 4.8 million access lines) in 14 states to Frontier for approximately $8.6 billion. Under 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 transaction has been cleared by the US Department of Justice, Federal Trade Commission and the Public Utilities Commissions of the states of California and Neveda and the PSC of South Carolina. Pending approval of the Federal Communications Commission (“FCC”) and other closing conditions, the divestiture is expected to conclude in the second quarter of 2010. 
 
The deal represents a major opportunity for Frontier as it contends with loss of legacy landline telephony business to wireless and other competitive offerings of cable TV operators such as Time Warner Cable (TWC). Frontier continues to experience decline in revenues, which is, to a great extent, attributable to a consistent sequential decline in fixed access lines.
 
The acquisition, if successfully consummated, will make Frontier the largest pure-play rural telecom operator with over 7 million access lines in 27 states. Additionally, this will offer an opportunity for revenue growth through expanded broadband penetration, attractive bundled service offerings and improved customer retention.
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