AT&T-Frontier Deal: A Sign of Things to Come?
AT&T's sale of its Connecticut wireline network to Frontier Communications may be a foreshadowing of things to come -- for both companies. (See Frontier Buys AT&T Connecticut Network for $2B.)
The $2 billion sale allows AT&T Inc. (NYSE: T) to exit from a wireline footprint that is not strategic to its long-term business, while generating cash for Project Velocity IP, the all-IP, wireless, cloud-based network of its future. Frontier Communications Corp. (NYSE: FTR), which already bit off part of Verizon Communications Inc. (NYSE: VZ)'s wireline footprint, expands into its 28th state.
Both AT&T and Verizon have made it clear in recent years that their traditional wireline networks are becoming less essential to their long-term business plans, especially where those networks are more copper-based and don't include major markets.
AT&T had built a statewide fiber network in Connecticut, and its U-verse IPTV network reached 180,000 paying customers, in addition to the 900,000 voice connections and 415,000 broadband connections. The quality of that wireline footprint no doubt made the deal more attractive to Frontier, which has experience in managing the often-tricky process of taking over a telco operation from an incumbent provider. (See The Brave Old Frontier and A Brave New Frontier – in an RV.)
Frontier paid $8.6 billion to take over Verizon wireline assets in 14 states that include a small FiOS fiber-to-the-home footprint but mostly copper facilities.
It would not be surprising to see Frontier or other Tier 2 US local exchange carriers such as Windstream Communications Inc. (NYSE: WIN) acquire the remaining AT&T or Verizon landline properties that are non-strategic. Verizon recently made it clear that it has finished its FiOS build-out, meaning any remaining LEC footprint will be DSL only, and those customers are likely to be picked off by competitors or -- in the longer run -- find LTE broadband an attractive alternative. (See FiOS Expansion Is Finito.)
On the other hand, any company buying AT&T or Verizon landline facilities is likely to then face competition from those companies as they turn to selling LTE as a broadband alternative, which will make this particular merger space interesting in the years ahead.
Where AT&T and Verizon aren't able to divest their wireline assets, they are working hard at the Federal and State level to get long-standing voice network regulations lifted, and could even choose to walk away from some network obligations if they don't get relief in rural areas where they no longer want to be the carrier of last resort.
— Carol Wilson, Editor-at-Large, Light Reading