Commentary

Frontier Expands Its Verizon

Frontier Communications’ acquisition of Verizon’s landline business in California, Texas and Florida late last week might logically invite comparisons to buggy whips and telegraph lines were it not for the $10.5 billion price tag, which more than suggests there's a real business there. MoffettNathanson telecom analyst Craig Moffett hits closer to home in a piece by the Wall Street Journal’s Ryan Knutson today. “They’re trying to be the last newspaper,” he says.

“The transaction will include Verizon's FiOS Internet and video customers, switched and special access lines and its high-speed Internet service and long-distance voice accounts across the three states,” reports the Dallas Business Journal’s Danielle Abril. “Verizon's wireline assets across the three states served about 3.7 million voice connections, 2.2 million high-speed data customers and 1.2 million FiOS Video customers at the end of the fourth quarter.”

Who exactly is Frontier and what do they want? 

“Frontier is a national telecommunications company based in Stamford, Conn., that traces its roots back to the 1930s,” explains the Tampa Tribune’s Richard Mullin. "Recently, the company has been purchasing home phone lines and other operations across the country from both Verizon and AT&T Corp. The company was called Citizens Communications Company until July 2008 when it changed names, in part to reflect the purchase of 'Frontier' telephone operations in Rochester, N.Y.”

Knutson’s WSJ piece this morning revolves around a telling interview with Frontier chairman and CEO Maggie Wilderotter. 

“When Ms. Wilderotter became chief executive in 2004, Frontier had less than $1 billion in revenue and was scattered through mostly rural and suburban markets across the Midwest, she said in the interview,” writes the WSJ’s Knutson. “The company had no broadband Internet business and was selling only landline telephones. The board at the time had tried to sell the company, but no one bought it, she said.”

In May 2009, Frontier bought Verizon's phone lines in Arizona, Idaho, Illinois, Indiana, Michigan, Nevada, North Carolina, Ohio, Oregon, South Carolina, Washington, West Virginia and Wisconsin, adding 4.8 million residential and small-business phone lines and 1 million broadband connections, according to an AP story at the time. That deal more than doubled Frontier’s customer base.

Verizon, which “used to be commonly scorned by customers” in Tampa Bay, “has worked hard in recent years to elevate its service quality to where it ranks among the best nationally in recent J.D. Power customer satisfaction surveys,” writes Robert Trigaux in the Tampa Bay Times.  

“The deal also comes as residential customers increasingly are turning to the Internet for their entertainment options, and talk of "cutting the cord" — canceling cable TV service — gains popularity. But what customers may be willing to sacrifice in traditional TV is being replaced by rising demand for faster Internet speeds to assure the ability to watch movies or play games online.”

Indeed, “not since Alexander Graham Bell twisted pairs of wires together in the 1870s has the simple telephone technology that has served Americans for generations — the landline — faced such a threat to its existence,” reads the lede of an AP story published by the Washington Post — which, you’ll recall, is now owned by Amazon.com’s Jeff Bezos — on Saturday.

The gist of the story is that “major telecom companies have made no secret of their desire to abandon the traditional, copper wire-based phone service,” which is cheaper for consumers than the alternatives but is physically deteriorating.

"Two in every five American households relied only on cell service in the second half of 2013, according to a survey by the Centers for Disease Control and Prevention. Among those ages 25 to 29, nearly two-thirds had no landline of any kind. Some keep a landline but switch to a fiber system such as FiOS or a VoIP, which uses the Internet to relay calls."

Verizon, meanwhile, wants to concentrate on its wireline — another name for landline — business on the East Coast, USA Todayreports. “Consumer groups have argued that Verizon is trying to get rid of its rural landline business because it is expensive to keep up and not as profitable as wireless.” 

“Ms. Wilderotter is also making a bet that increased regulation of broadband networks won’t hurt the business — the opposite bet being made by her counterpart at Verizon,” Knutson points out. “We’ve been regulated for a long time,” Wilderotter tells him. “So we know how to operate in a regulated environment.”

Back to that newspaper metaphor.

“I think printed newspapers on actual paper may be a luxury item,” Bezos told NBC News’ Kate Snow in an interview after the deal to buy the Post was announced, The Poynter Institutes Andrew Beaujon reported, although he allowed that it might be “decades” before that happened. “It’s sort of like, you know, people still have horses, but it’s not their primary way of commuting to the office.”

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