The American telecommunications giant Verizon is backtracking and, to gain ground on its competitors, yesterday announced the repurchase for 9.6 billion dollars of Frontier Communications, a fiber optic company to which it had sold its lines ten years ago. This is a cash operation that valued Frontier shares at 38.50 dollars each, bringing the value of the company to around 20 billion dollars, including debt.
THE MERGERS
Frontier was born from a series of mergers over the years and owns 2 million fiber optic connections in 25 American states: the merger will bring Verizon to have about 10 million customers subscribed to the fiber service, in very important markets including the Northeast – which includes cities like New York and Boston – the Midwest and also California, Texas and Florida, three key states. But above all it will give Verizon the opportunity to modernize its telephone line, now outdated, and at the same time will bring the giant to compete on equal terms with other large American providers, including AT&T and T-Mobile, both very active in the fiber sector.
In announcing the deal, Verizon’s consumer division chief Sowmyanarayan Sampath noted that the number of cellular customers is higher where Verizon also offers fiber optic service. Wireless giants are increasingly suffering from competition from cable TV services that, in order to sell more subscriptions, offer very low-cost cell phone deals. In the meantime, Verizon continues to be targeted by its investors for a $45 billion deal to grab licenses for the 5G network: in response, the giant’s leaders said they want to make cuts to be able to fix a difficult situation that after this deal has brought Verizon a debt of $120 billion in 2024.
But the group also hopes that the purchase of Frontier will restore calm to the market: with the wireless sector slowing down and no longer having attractive dividends, Verizon is looking to expand into American homes. Of course, building fiber optic networks from scratch is very expensive and takes time, and for this reason groups tend to buy existing companies. In July, for example, T-Mobile said it would invest $4.9 billion with the private equity firm Kkr to buy the fiber optic provider Metronet.
THE GROWTH
Frontier has a very interesting story: having grown dramatically in 2016 after purchasing Verizon’s fiber optic network for $10.5 billion, in 2020 it filed for bankruptcy because it continued to burn money and its debt grew out of all proportion. Now this agreement gives new hope to the company, which aims to reach 30 million customers by 2026. Following the announcement, Wall Street gave mixed signals: at the first rumors of a possible merger, both stocks rose, while yesterday, the day of the official announcement, Verizon lost almost 1% while Frontier almost 10%. This was a difficult day for Wall Street, with the Dow Jones falling as much as 1%.
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