A Frontier-Stonepeak JV could be worth $7.5B – analyst

A potential JV between Frontier and Stonepeak could target about 1.8 million locations to fiber, establishing a present value of $2.2 billion and a future value of $7.5 billion, according to New Street Research's latest analysis.

Jeff Baumgartner, Senior Editor

July 10, 2024

3 Min Read
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The value of a fiber-focused joint venture between Frontier Communications and Stonepeak could eventually surge to about $7.5 billion, according to the latest estimates from New Street Research.

Bloomberg reported last week that Frontier is in talks with Stonepeak to form a JV focused on fiber network investments, with the proposed JV possibly supplying a capital injection of $500 million to $1 billion. Frontier has not commented on the report, but the telco has moved ahead with a strategic review that could result in potential partnerships, JVs, divestitures and/or mergers.

Frontier is in the midst of a network upgrade plan that ultimately will bring fiber to 10 million locations. There's another 5 million locations in a "Wave 3" footprint that's been deemed less attractive to build to than the current 10 million location target. Frontier has said that 1 to 2 million locations in Wave 3 are candidates for fiber upgrades, and that it might need to explore partnerships and JVs to cover the remaining 3 million locations in that Wave 3 footprint.

With a potential value of $7.5 billion in a Frontier-Stonepeak JV, Frontier's stake has a future value of $4.8 billion and a present value of $1.7 billion, or about $6 per share, New Street analyst Vikash Harlalka explained in a research note about the reported pursuit of the JV. He also estimates that Stonepeak's stake would be worth $2.6 billion in the future via a $500 million investment.

Related:Frontier sizing up fiber JV with Stonepeak – report

Total funding for the JV could eclipse $3 billion to upgrade 1.8 million locations to fiber, Harlalka added. That's a bit below an estimate of 3-4 million locations in the Wave 3 footprint that were part of a prior analysis of Frontier's JV opportunity.

"Assuming that the Bloomberg report is correct, we would assume that the $500MM-$1BN is the equity funding from the partners with each partner contributing $500MM each," the analyst explained. "We assume they will raise $2BN in debt in the same 2:1 debt-to-equity ratio as the TMUS-Lumos deal, bringing the total funding for the JV to $3BN."

In April, T-Mobile confirmed that it is partnering with EQT to acquire Lumos, a fiber network operator focused on the Mid-Atlantic. The plan is to expand Lumos' fiber network from about 320,000 homes today to 3.5 million US homes by the end of 2028. T-Mobile is initially putting in $950 million for a 50% cut of the new JV, and will invest another $500 million into the JV between 2027 and 2028.

Frontier's JV opportunities have also been likened to the Gigapower joint venture between AT&T and BlackRock. Gigapower is initially focused on building open access fiber networks to 1.5 million locations outside AT&T's legacy wireline footprint. Gigapower, which plans to participate in the $42.45 billion Broadband Equity Access and Deployment (BEAD) program, has also expressed interest to go beyond that initial 1.5 million buildout goal.

Related:Frontier should rip a page from the Gigapower playbook – analyst

Harlalka also believes that a Frontier-Stonepeak JV, if successful, could expand its buildout scope to additional locations, or that Frontier could form joint ventures with additional partners to cover more locations in different markets.

The analyst also reiterated that New Street believes the JV path will enable Frontier to accelerate its ability to generate free cash flow and "to pursue attractive opportunities that would be difficult to fund otherwise."

About the Author(s)

Jeff Baumgartner

Senior Editor, Light Reading

Jeff Baumgartner is a Senior Editor for Light Reading and is responsible for the day-to-day news coverage and analysis of the cable and video sectors. Follow him on X and LinkedIn.

Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.

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