Verizon to buy Frontier for $20 billion and expand its fiber network
Verizon, one of the largest wireless service providers in the US, announced its planned $20 billion acquisition of Frontier Communications. This significant all-cash deal is a key step for Verizon to expand its fibre-optic network, enabling it to strengthen its competitiveness in the rapidly expanding broadband market.
The acquisition is expected to be completed within 18 months and will help the company better counter competitors such as AT&T.
Verizon's fibre network expansion
Verizon $VZ offered Frontier Communications shareholders $38.50 per share, a premium of 37.3% to Frontier's closing share price on September 3, when news of the potential deal first surfaced. Frontier Communications now has $11.25 billion in debt and serves 2.2 million customers connected to its fiber-optic network in 25 states. The merger with Verizon, which has about 7.4 million connections to its own FiOS fiber-optic network in nine states and Washington, D.C., will create one of the largest fiber-optic networks in the U.S.
In the past, Frontier has primarily served areas in the Midwest, Texas, California and other states, while Verizon has focused its presence primarily in the Northeast and Mid-Atlantic. With this combination, Verizon will be able to provide superior broadband services to a much larger territory and strengthen its ability to offer premium services to customers.
Return to key markets
The deal also symbolizes Verizon $VZ's return to markets where it sold its operations to Frontier several years ago. In 2016, Verizon sold its TV and internet services in California, Texas and Florida to Frontier for $10.54 billion, which included a portion of the FiOS fiber network and its customers. Now, however, Verizon sees the return to these markets as a major opportunity to grow and expand its presence on the U.S. West Coast.
"The acquisition of Frontier is a strategic move for us. It builds on our two decades of market leadership and paves the way for us to be more competitive in a broader number of U.S. markets," said Verizon CEO Hans Vestberg. He added that the acquisition will strengthen the company's presence in key markets and provide customers with faster and more reliable internet access.
Savings and financial benefits
Verizon expects the acquisition to deliver annual cost savings of at least $500 million over the three years following the completion of the deal. The company also expects the acquisition to contribute to revenue and earnings growth on an adjusted basis, which should have a positive impact on Verizon's overall financial performance.
However, if the acquisition is not completed for any reason, Verizon has agreed to pay Frontier a severance payment of $590 million. Despite the planned acquisition, Verizon confirmed that its annual earnings and wireless revenue guidance remains unchanged. The company had already seen a decline in prepaid wireless customers in July due to the end of a federal Internet subsidy, which led to lower-than-expected revenue.
Verizon hired financial advisors Centerview Partners and Morgan Stanley to execute the deal, while Frontier worked with Barclays. Analysts and experts are watching this acquisition with keen interest as it could reshape the dynamics of the US broadband market and bring new investment opportunities in the fast-growing telecom market.
The future of the telecommunications market
Verizon's acquisition of Frontier will not only enable the expansion of its fibre network, but will also increase pressure on competitors, including other major players in the market such as AT&T, Comcast and Charter Communications. With the growing demand for faster and more stable Internet connections, especially in the wake of the pandemic and the shift to telecommuting, Verizon is expected to invest even more in infrastructure development.
As a result, the future of the US telecoms sector looks increasingly focused on broadband and fibre networks, which will enable the delivery of higher quality and faster services. This trend is likely to continue in the years ahead, with 5G technology and fibre networks expected to play an increasing role in modern society.
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