Put your assessment of Verizon-Frontier landline deal on hold
Bill Weber has been a satisfied customer of Verizon Communications for eight years. He gets his home phone, wireless, Internet and pay-TV services from the company.
Weber, 74, a professor emeritus of history at Cal State Long Beach, now can look forward to starting over mostly from scratch with a company that he says has a “lousy reputation” for treating customers fairly.
Weber is among the hundreds of thousands of Californians who stand to be affected by Verizon’s pending $10.5-billion sale of its broadband and landline operations here and in Texas and Florida to Frontier Communications.
If state and federal officials give the deal a green light, all of Verizon’s landline phone, Internet and TV services — everything but wireless — in the three states will shift to the new provider, probably by the middle of next year.
“It’s very alarming,” Weber told me. “I don’t know what to expect.”
Financial analysts are generally upbeat about the deal, but that reflects the projected benefits to the corporate players, not consumers.
Verizon’s chief executive, Lowell McAdam, said at the time that “these transactions will further strengthen Verizon’s focus on extending our industry leadership position in our core markets.”
Maggie Wilderotter, Frontier’s chief executive, said Verizon’s landline operations “align with Frontier’s disciplined strategic focus and enhance our footprint with rich fiber-based assets.”
I honestly wonder if corporate leaders know how ridiculous they sound when they spout such gobbledygook.
If he chose to speak English, what McAdam would have said is that Verizon, which has been touting a wireless future for a while, doesn’t want to go to the trouble and expense of extending broadband lines to less-profitable rural areas. California, Texas and Florida have plenty of those.
Better to bail out of the business before federal authorities do something crazy, like require that broadband service be as ubiquitous as phone service. As President Obama noted last month: “The Internet is not a luxury, it’s a necessity.”
And if Wilderotter had been more plain-spoken, she would have said that Frontier, based in Stamford, Conn., sees an opportunity in expanding its landline operations as the bigger telecom players concentrate on mobile service.
It remains to be seen, though, how Frontier will profit from an aggressive pursuit of rural business.
The company reported a second-quarter loss last week of $28 million, compared with profit of $38 million a year earlier. Its stock has fallen more than 35% over the last six months.
To hear Frontier tell it, buying up unwanted landlines makes perfect business sense. The company spent about $8 billion in 2010 purchasing Verizon’s landline operations in 14 states — and then had to shell out billions more upgrading Verizon’s neglected technology.
Frontier spent $2 billion last year on AT&T’s landlines in Connecticut. It now operates in 28 states but remains a bit player compared to the telecom industry’s big dogs.
“Our focus is on expanding broadband to rural America,” Steve Crosby, a Frontier spokesman, told me. “We’ve done well so far.”
He said current Verizon customers in California won’t see any difference in service or pricing after Frontier takes over.
“The expectation is that nothing will change — no rate increase,” Crosby said. “We have no plans for that.”
He also said that customers unhappy with having problems outsourced far and wide can look forward to call centers and other operations being based 100% in the United States.
Nevertheless, complaints about Frontier’s service are easy to find online. The company was named last year by the website 24/7 Wall St. as one of the nation’s worst companies to work for.
A question hangs over how Frontier can afford not only to maintain Verizon’s existing California landline networks but also to invest in reaching far-flung communities outside urban centers.
The company is carrying more than $8 billion in debt from past acquisitions. Relative to its equity value, that’s higher than the industry average, according to investment research firm Morningstar.
Verizon, for its part, is looking pretty shrewd. The sale to Frontier, if approved, will fill the company’s war chest as federal authorities prepare to auction off new wireless spectrum, potentially making Verizon a more powerful force in mobile services.
When I mentioned that Verizon hasn’t shown much enthusiasm for expanding broadband service to rural areas, Les Kumagai, a company spokesman, acknowledged that such moves represent “a more challenging space.”
“Frontier is good at that,” he said.
We shall see. But it’s hard to escape the impression that Verizon landline customers are about to board a budget airline that makes its money not from top-quality service but from cutting as many frills as possible.
Morningstar analyst Michael Hodel said Frontier should benefit from acquiring Verizon’s landlines in California, Texas and Florida. But he said the company could face trouble if it lacks the financial strength to maintain those networks.
“Frontier still operates at a disadvantage to its cable rivals in most areas, whose superior networks can offer a full complement of services and consistently faster data speeds,” Hodel said.
Other analysts recently have upgraded Frontier’s stock, saying the Verizon deal should boost the company’s bottom line. Financial services firm Raymond James called Frontier’s expansion “an attractive buying opportunity.”
So in answer to any concerns that Weber and other Verizon customers may have, I say wait and see.
And don’t lock yourself into any long-term contracts.
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