Verizon Sells Rural Access Lines

As a part of its announced strategy to focus its resources and sell off wireline assets in areas where it doesn’t have a large presence, Verizon Communications Inc. (NYSE: VZ) announced today that it has completed the sale of 371,000 local access lines in Missouri to CenturyTel Inc. for $1.1 billion (see Verizon Sells Access Lines).

The sale was the third and final of Verizon’s planned 1.27 million local access-line sales in Missouri, Alabama, and Kentucky that have brought the company about $4 billion before taxes and $2.8 billion after taxes (see Verizon Sells Kentucky Lines). The proceeds will go towards paying down the company’s staggering debt load of nearly $62 billion, Verizon said in today’s release. Verizon said last October that it intended to sell off its wire-line assets in the three states.

In these troubled times, observers say it's certainly a good idea for Verizon to try to reduce its debt levels. “It would have been healthy before,” says Jeff Kagan, an independent analyst based in Georgia. “Now it’s necessary. Cash is king right now.”

F. Drake Johnstone, an analyst with Davenport & Co. LLC, agrees that it's worthwhile for Verizon to pay down its debt, but he cautions that asset sales are a double-edged sword. “They also lose their revenues from the lines,” he says, pointing out that Verizon probably has less competition, and thus more stable business, in rural areas than in the major markets. “If the company pursues this strategy too far, it could cause problems for them.”

Verizon spokesperson Bob Verettoni would not reveal how much the company stands to lose in revenues from the access lines, saying that the company will be disclosing those details in its third-quarter earnings report next month. “These assets were not strategic to Verizon,” was all he would say. “They’re probably more valuable to another company.”

Kagan agrees, saying that a “Walmart-style” service provider that focuses exclusively on rural areas is more likely to extract revenues from these areas and will probably do a better job serving the customers there as well. “Smaller, far-flung areas are not high on the priority list for big companies. I don’t think these were significant sources of revenue [for Verizon]... At this point, they need to focus on where it makes sense to upgrade their network.”

According to today’s release, nearly 1,800 Verizon employees have been transferred to CenturyTel, which bought the Missouri and Alabama line assets, and to Alltel Corp., which bought the Kentucky assets. Verizon said it will still provide wireless, long-distance, and dial-up Internet directory-publishing services to customers in the three states.

Verizon’s shares were trading down 5.29 percent today, falling $1.64 to $29.36 at closing.

— Eugénie Larson, Reporter, Light Reading
Glass2Glass 12/4/2012 | 9:49:48 PM
re: Verizon Sells Rural Access Lines The RBOC's sell rural lines to smaller carriers in part because universal service funds and other subsidies are only available to smaller carriers. As such, smaller carriers can extract more revenue from the exact same asset than can an RBOC.

This is a classic case of "one man's trash is another man's treasure" since the net present value of the asset is greater for the smaller carrier than for the RBOC, so each can agree to a given price and each can get a good deal.
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