Verizon’s wireline transaction with Frontier Communications
In the previous part of this series, we learned about the possible initiation of a sale of Verizon’s (VZ) data center assets, according to a report by Reuters. Recently, Marni Walden, Verizon’s executive vice president and president of Product Innovation and New Businesses, reiterated the company’s rationale for the wireline transaction with Frontier Communications (FTR) across three states. She spoke about this at the Citi Internet, Media & Telecommunications Conference on January 6, 2016.
Referring to the transaction, Walden stated that “when you looked at Texas, Florida and California, there was really no way for us to get scale. The investment that was needed didn’t make sense, and so what we said was we were really going to focus on the Washington to Boston corridor, huge population center, a place that we can invest. We can get a return and really focus our energy there.”
Financial dynamics of the wireline transaction
According to Verizon, the ~$10.5 billion wireline transaction is expected to be completed by the end of 1Q16. Frontier Communications has stated that the expected proportion of homes passed by Verizon’s Fios in these wireline assets was ~54% as of February 5, 2015. Fios is a fiber-based voice, broadband, and IPTV (Internet protocol television) offering. It’s similar to AT&T (T) U-verse. Both offerings can be compared to offerings of cable players such as Comcast (CMCSA) (CMCSK).
At the end of 2Q15, these assets had ~1.6 million Fios Internet and ~1.2 million Fios video subscribers. Meanwhile, voice connections and high-speed Internet subscribers stood at ~3.5 million and ~0.58 million, respectively, at the end of that quarter.
For diversified exposure to Verizon, you could invest in the iShares MSCI USA Minimum Volatility ETF (USMV). The telecom company made up ~1.4% of USMV at the end of November 2015.