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. (Nasdaq: 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

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Duh! 12/17/2013 | 12:04:01 PM
SNET? It doesn't seem that long ago that  AT&T acquired Southern New England Telephone.  Before the 1983 divestiture, the old AT&T had a stake in SNET, but it was managed independent of the Bell System.  I don't have time to do the research now, but it would be interesting to see the history of those transactions, particularly the net change in value of those properties.

Also interesting that AT&T sees Connecticut as no longer strategic.  Relatively high per-capita income, pockets of very affluent consumers, most of them easy-to-reach. Plus, as I understand it, that network is in better condition than most.  Any thoughts on why they'd shop that property rather than some of the more rural, poorer areas that they serve?
Carol Wilson 12/17/2013 | 12:31:33 PM
Re: SNET? I actually had the same reaction at first - this was the SNET property, which was the second thing SBC bought on its national buying binge, after Pacific Telesis. 

And it is intriguing that AT&T is selling a statewide network in Connecticut when I'm fairly certain they'd rather get rid of properties in places like Kansas, Missouri and Mississippi. 

But this may be the deal they could do and the money they could get. 
RitchBlasi 12/17/2013 | 12:53:40 PM
SNET As someone who started in the Bell System in 1972 and retired from AT&T Mobility (the last 14 years of my career), I've seen the breakups and consolidations, the demise of wired and rise of wireless networks. and the commoditization of all these services along the way.  With mobility still forging ahead with tremendous opportunities, having another $2 billion for network investments is a Christmas gift. I am assuming that Frontier has lower opex costs, so margins for the CT market will fall into its sweet spot, offering an opportunity to grow its business in other ways. 
Carol Wilson 12/17/2013 | 12:56:59 PM
Re: SNET Ritch,

Interesting point about Frontier's lower operating costs. 
brookseven 12/17/2013 | 1:45:26 PM
Re: SNET I am not sure that Frontier has lower costs.  They definitely have a different model of operating than an RBOC and have experience in absorbing RBOC properties.  Frontier has its corporate HQ in CT and might find it as an attractive bit of the property.

Now one thing on the wireline side at AT&T (and I think this might be different now) was that SNET was still harmonizing with Ameritech/PacBell/SWBT.  So, there may have been some network difference that were just easier to dump than fix.  Given the amount of challenge that they have with that in BellSouth maybe it is just too much.

Outside of PacBell, the rest of AT&T wireline is contiguous.  Any issues there?




Aloysious 12/17/2013 | 2:22:39 PM
Re: SNET I find it rather hilarious that AT&T and Verizon want to dump off the areas that it doesn't find profitable all the while receiving state/federal dollars for years to service those areas.

Oh, and they are the only companies in those area for a reason....they made it that way with some of their absurd franchise agreements.

Now, they are dumping them off with laughable VoiceLink-like services?

Not a chance. Glad to see New York fight off Verizon's attempts to make a few more bucks....all the while still receiving top dollars from the cities/states in tax breaks.
DOShea 12/17/2013 | 2:27:33 PM
Whose idea? This seems like a property Frontier would naturally be interested in, and I wonder how much they drove this deal to happen, and if AT&T was really actively looking to sell or not. Could the big telcos be at the stage where they will let any landline properties go if they meet a motivated enough buyer?
Carol Wilson 12/17/2013 | 2:52:16 PM
Re: SNET Wow, after all this time, it's still a challenge to blend different methods of operating? I remember writing about SBC's acquisition of SNET and it seems like centuries ago. 
Carol Wilson 12/17/2013 | 3:00:50 PM
Re: Whose idea? Interesting thought, Dan, that Frontier might have driven this deal. I don't believe AT&T and Verizon would sell any assets - Verizon isn't likely to sell its landline networks where there is a heavy percentage of FiOS deployment. There were only pockets of FiOS in what they sold Frontier. 
mendyk 12/17/2013 | 3:02:24 PM
Re: SNET This may be less an issue of lower opex than lower (read more realistic) expectations for business performance. The Tier 1s are convincing themselves that they can't afford to keep lower-margin products. Frontier thinks otherwise. And as at least one previous poster has pointed out, the margin decks may be stacked in favor of wireless right now at the Tier 1s. The obsession with margins seems to be a strong trend now across the business landscape in general, even though margin erosion is almost a certainty as products mature.
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