Frontier exploring sale of some non-core assets – report

Frontier Communications is reportedly exploring a possible sale of assets in four states – Arizona, Nevada, New Mexico and Utah – that are deemed non-core as the telco pushes forward with its fiber upgrade plan.

TMT Finance reported (subscription required) that Frontier has asked Jefferies to look into such a sale, noting that the assets in question generate about $100 million in revenues and $40 million in EBITDA. Frontier as a whole generated about $1.45 billion in the second quarter of 2023 alone.

Frontier has been asked for comment.

Assets in question represent just 1% of Frontier's locations

Using FCC fabric data, New Street Research analyst Jonathan Chaplin estimates that there are about 217,000 homes and businesses in the areas served by Frontier in those four states. He also estimates that about 18% of the locations in those areas are eligible for the Broadband Equity Access and Deployment (BEAD) program (13% unserved and 5% underserved).

If Frontier were to secure such a deal, it would represent about 1% of its locations and have no material impact on New Street's thesis on the company's BEAD opportunity and broader fiber deployment/upgrade plan.

Using the company's average revenue per customer, the $100 million in revenues generated by Frontier in the states in question implies about 58,000 customers and 27% penetration, Chaplin estimated. That penetration level, he added, would also imply them to be "markets with limited competition – no FWA [fixed wireless access] and perhaps little or no Cable."

Related:Frontier, CWA bury the hatchet

Unloading non-core assets would add fuel to Frontier's fiber focus

Chaplin thinks the move would make sense from Frontier given the inefficiencies it faces operating and maintaining locations in areas that represent just 1% of the company's total assets.

"It would likely be cheaper combined with another operator with operations in those states" and to use the redeployed capital and resources toward markets where Frontier can deploy fiber, he reckoned. "Selling non-strategic assets was always just a matter of time."

In his "conservative" view, the Frontier assets in question could be worth 3.5x EBITDA, or about $140 million. A range of $140 million to $230 million is a "reasonable range for copper [assets]; we would set our sights towards the low end for these assets," Chaplin added.

Word of Frontier's exploration comes as the company continues to make progress with a fiber network upgrade plan targeting at least 10 million locations by 2025. Frontier recently crossed the halfway point of that project. With BEAD opportunities included, Chaplin could see Frontier's total fiber build cover 11 million to 13 million locations.

Related:Frontier hints at out-of-footprint fiber buildout opportunity

Frontier is also evaluating an additional 5 million locations in a "Wave 3" portion of its footprint that is deemed to be financially less attractive to build fiber without some help from sources such as government subsidies.

Frontier has said it is weighing multiple options for Wave 3, including additional funding, divestments and/or partnerships and joint ventures.

On Wednesday, Frontier shares rose 66 cents (+4.13%), closing at $16.63 each. Shares today were up 2 cents to $16.65 each.