A tie-up with Frontier could provide a much-needed boost to Verizon’s fibre proposition without giving rise to any major competition concerns
Acquiring Frontier would boost Verizon’s fibre coverage by 10m premises
On 5 September 2024, in the US, Verizon announced that it had entered into a definitive agreement to buy Frontier Communications, valuing the company at $20bn (£15.2bn), including debt. According to Verizon, the strategic acquisition of the “largest pure-play fibre internet provider” in the country will significantly expand its fibre footprint, accelerating the delivery of high-capacity broadband services (while boosting its ability to compete with AT&T and T-Mobile, as well as a number of cable providers). The deal would bolster the 7.4m fibre customers Verizon currently has across nine US states and Washington, DC with the 2.2m Frontier has spread over 25 states. It would also add 7.2m locations to Verizon’s fibre coverage, with Frontier committed to rolling out to an additional 2.8m by the end of 2026.
The deal represents a reunion of sorts for the two companies, which have traded assets in the past
According to the Federal Communications Commission (FCC), the transaction is only expected to deliver a relatively small increase in Verizon’s overall coverage of about 3.5 percentage points. This isn’t enough of an uplift (from Verizon’s ~9% coverage) to match the footprint of AT&T, which reaches around 15% of US premises, although it would make Verizon’s fibre customer base larger than that of its major rival. The acquisition would also represent a reunion of sorts for Verizon and Frontier. In April 2016, Verizon sold its TV and internet business in California, Florida and Texas to Frontier for $10.54bn (£8.03bn), which included a portion of its fibre infrastructure and customers, and saw 9,400 Verizon employees transfer to Frontier. While the transaction would therefore see Verizon regain some of the fibre network it sold almost a decade ago, Hans Vestberg (CEO, Verizon) has cautioned against conflating the two events, stating that the previous Verizon/Frontier deal involved a “totally different type” of asset.
Verizon’s rivals are moving to shore up their positions in the fixed and mobile markets
Verizon is not the only large operator in the US to be securing partnerships or acquisitions of late, especially when it comes to scaling up fibre assets. In May 2023, AT&T launched its Gigapower joint venture (JV) with investment company BlackRock, which will deploy fibre to selected metropolitan areas across the US and will operate on a commercial wholesale open access basis. T-Mobile has also sharpened its focus on fibre, this year forming JVs with private equity firms EQT and KKR to acquire Lumos Networks and Metronet, respectively. At the same time, T-Mobile is seeking to consolidate the mobile market through the purchase of regional player UScellular, the fifth largest provider in the country. The proposed deal has been the subject of a letter from six Democratic Senators that urged the Department of Justice (DOJ) and the FCC to closely scrutinise and consider challenging it.
Limited overlap in the operators’ networks could help seal regulatory approval
The latest Verizon/Frontier transaction has been unanimously approved by both boards and though support from shareholders and regulators will also be required, the parties expect it to be completed in around 18 months. While the deal further consolidates an already concentrated market, it may be able to come through the merger review process largely unscathed. Given that mobile services are unlikely to be found to be a direct substitute for fixed broadband and that the two operators own broadly complementary fibre networks geographically, the acquisition may therefore not give rise to serious concerns about the loss of competition. However, like the proposed T-Mobile/UScellular merger, there is uncertainty regarding whether and what issues will arise during any antitrust investigation in light of the forthcoming presidential election in November. Since the next President would determine the political make-up of the FCC, the election could have an influence on whether commitments are required to get the transaction over the line, as well as how extensive they are.
