Frontier sizing up fiber JV with Stonepeak – report

Frontier Communications may indeed be taking a page from the Gigapower playbook.

Frontier, a telco that's in the midst of a massive fiber network upgrade, is in talks to form a joint venture focused on fiber network investments, Bloomberg reported Wednesday, citing unnamed sources said to be familiar with the plan.

The JV could supply a capital injection of $500 million to $1 billion, Bloomberg reported. "Deliberations are ongoing and no final decisions on terms, including the size of the joint venture, have been made," the report added.

Frontier has been asked for comment.

Stonepeak investments in the communications and digital infrastructure sector include Cologix, DigitalEdge, VerticalBridge, Delta Fiber and Astound Broadband. Per its website, Stonepeak has about $65.1 billion of assets under management.

Frontier's strategic review continues

Word of a potential tie-up enters the picture as Frontier pushes ahead with a strategic review of the company that could entail several options, including potential partnerships, JVs, divestitures and mergers.

Frontier has delayed its investor day until it can obtain more insight from the strategic review. "That work is going on right now very intensively," Frontier CEO Nick Jeffery said on the company's Q1 2024 earnings call.

New Street Research has estimated that the value of Frontier's stake in a potential joint venture could be worth $11 per share or about 40% of the current stock price levels, analyst Vikash Harlalka said in a research note issued in the wake of today's Bloomberg report. "We will update our model once we know more details about the number of locations and the actual funding plan."

Frontier is in the midst of a fiber network upgrade that will cover about 10 million locations.

Frontier has yet to decide what to do with an additional 5 million locations in a "Wave 3" footprint that has been deemed less attractive to build to than the current 10 million-location target. Frontier has said that 1 million to 2 million locations in the Wave 3 footprint are candidates for fiber upgrades, but believes that partnerships or JVs might be the best path forward in the remaining 3 million locations in that footprint.

New Street and others believe that Frontier could explore a joint venture to help fund its fiber network build activities, perhaps akin to Gigapower, the AT&T-Blackrock JV that intends to build fiber to 1.5 million locations (and possibly more) that fall outside AT&T's legacy wireline footprint.

In a recent report, New Street again suggested that Frontier should separate its Wave 3 footprint into a joint venture, holding that the move, among other benefits, would help Frontier accelerate its generation of free cash flow (FCF). New Street's model is based on 3 million locations inside Wave 3.

"Frontier investors are clamoring for FCF," New Street analyst Jonathan Chaplin explained in the report. "If Frontier funds the Wave 3 opportunity themselves, they may not see FCF until the end of the decade. The easiest way to capture the Wave 3 opportunity, while providing a path to FCF in the next two years, would be moving the investment off balance sheet and into a JV (structural separation)."