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Friday
Feb062015
DateFriday, February 6, 2015 at 1:57PM

Frontier Communications to Acquire Verizon’s Wireline Operations in CA, FL, and TX

Frontier Communications Corporation (NASDAQ: FTR) announced on Wednesday, February 4th that it had agreed to acquire wireline operations in California, Florida, and Texas that belong to Verizon Communications Inc. (NYSE: VZ).  The transaction is for approximately $10.54 billion and should benefit Frontier as it continues to create scale through M&A.

Valuation Analysis and Deal Metrics

Transaction Facts

  • The transaction is being financed through $10.54 billion in cash.
  • The acquisition includes Verizon’s wireline voice, broadband and video operations.
  • Expected to close by the first half of 2016.

 Strategic Considerations

  • Transaction will allow Frontier to double in size.
  • Frontier expands its footprint, primarily in areas where it did not have a significant presence.
  • Frontier’s experience with its newly acquired U-verse properties should benefit the integration of its FiOS markets. 
  • 54% of the acquired network is FiOS enabled, repositioning Frontier’s business mix more heavily to fiber-based services.
  • The acquired wireline operations generated revenue of approximately $5.7 billion for Verizon in 2014.
  • Frontier’s lower cost structure is expected to reduce costs by $525 million in the first year after the close and by $700 million by year three post-close.

 JSICA’s Take

  • A comparison of the multiples of priced transactions since the beginning of 2012, shows Frontier paid relatively lower multiples in the deal.
  • Since the beginning of 2012, the average EV/LTM Revenue on priced transactions was approximately 1.9x, which is 0.1x higher than the FTR-VZ transaction multiple.
  • Since the beginning of 2012, the average EV/LTM OIBDA was 6.0x, which is 1.5x higher than the multiple in the transaction.
  • The average EV/P_ OIBDA since the beginning of 2012 was approximately 4.7x, which is 1.2x higher than the FTR-VZ transaction multiple.

 

AuthorJared Taylor | Comments Off | | | Print ArticlePrint Article
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Monday
Sep302013
DateMonday, September 30, 2013 at 2:10PM

Verizon Announces Agreement To Acquire Vodafone’s 45 Percent Stake in VZW

 On Monday, September 2nd, Verizon Communications Inc. (NYSE: VZ) announced that it had entered into an agreement with Vodafone Group Plc (NASDAQ: VOD), to acquire Vodafone’s 45 percent stake in Verizon Wireless for $130.0 billion.  Once the transaction closes, Verizon Communications will have 100% ownership of Verizon Wireless. 

 Valuation Analysis and Deal Metrics

Transaction Facts

  • The acquisition will be financed through cash, Verizon common stock, and other items.
  • $58.9 billion will be in the form of cash, $60.2 billion through stock, $5.0 billion in notes payable, $3.5 billion through the sale of Verizon’s 23.1 percent stake in Vodafone Omnitel N.V. to Vodafone, and the remaining $2.5 billion will come in the form of other items.
  • Transaction is expected to close by Q1 2014.

Strategic Considerations

  • Transaction provides further exposure to the growth of the U.S. wireless market.
  • Provides Verizon Communications with full ownership and control of Verizon Wireless.
  • Full ownership comes with no integration risk.
  • Potential growth opportunities present with mobile.

 JSICA’s Take

  • Compared to priced deals in the wireless industry since the middle of 2009, Verizon Communications paid higher multiples in the transaction.
  • The average EV/TTM Revenue from mid-2009 to the end of 2013 was approximately 1.6x, compared to the Verizon-Vodafone transaction multiple of 3.7x.
  • Since mid-2009 to the end of 2013, the average EV/TTM OIBDA was approximately 7.4x, which was 1.7x higher in the transaction. 
AuthorJared Taylor | Comments Off | | | Print ArticlePrint Article
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Thursday
May102012
DateThursday, May 10, 2012 at 12:33PM

Verizon Toys with 1-800 Mobile Data Pricing Concept

Verizon CTO Tony Melone Says New Business Model has a “51-49 Chance”

Earlier this year, and to the chagrin of net neutrality advocates, AT&T announced it was considering different pricing plans that could alleviate the pain consumers feel when they obliterate their data plans too quickly every month. The idea was to base mobile data pricing models—to some extent—on the old-fashioned “1-800” pricing model. An application provider would essentially foot the bill for consumers to access its content via a mobile device, and then the consumer’s data plan would not be depleted. It sounds like a great way for consumers to try new apps that don’t use data and possibly avoid excessive overage charges, but as mentioned above, hard-line net neutrality advocates do not like it.

At the CTIA show in New Orleans this week, Verizon came forward with a similar announcement, according to CNET.  Verizon cto Tony Melone “said that there is a more than 50-50 chance that carriers will adopt a business model that allows destination services, such as Google or Netflix, to pay for clear access to their customers.” Melone continued, “As we move away from flat rate pricing, there is room for a 1-800-type of service where certain destinations could offset the cost of the network to get customers to those destinations.” But of course… “There are net neutrality issues that have to be addressed, too.” He later adjusted his odds of this pricing model coming to fruition to 51-49.

CNET explains that broadband providers see 1-800 pricing as “just another creative business model for keeping up with growing demand on the network,” but it really goes beyond that. Without the networks who invest billions, and the customers who collectively pay billions, the Googles of the world wouldn’t have a business at all—so why can’t they help offset the costs, and maybe give consumers a break?

Well, as CNT explains, “Consumer advocates and others who have supported the notion of net neutrality say that selling priority offers an unfair advantage to companies that are large enough to have money to pay for such preferential access for its customers.” In other words, a start-up app developer entering the market with very little funding might not be able to shoulder the “1-800” cost. The theory then is that this app might be lost in the app store behind all the apps who do pay the providers, and it will never reach a critical mass necessary to attract further funding—thus depriving the world of the next “Angry Birds.”

In reality, things might play out differently for some content providers versus others. But, don’t consumers benefit at least from getting some of their favorite apps and services could be “free?” CNET said AT&T cto John Donovan “said it’s tricky to balance the deployment of new technology to satisfy demand for new services from customers with the cost of deploying such services.” Clearly, the same principle is at play in the USF Contributions Reform FNPRM, where the FCC plans to consider broadening the contributions base to include broadband connections for the first time. In the coming months, expect to see the debate over new pricing models for broadband heat up—there will certainly be quite the power-struggle between net neutrality advocates and service providers (again).

AuthorCassandra Heyne | Comments Off | | | Print ArticlePrint Article
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Wednesday
May092012
DateWednesday, May 9, 2012 at 12:45PM

Verizon Moves to End Dry DSL, Congressman Asks “Why?”

Rep. Mike Doyle Questions Verizon CEO McAdam about FiOS, Wireline Deployment

Verizon’s recent decision to stop offering standalone DSL to new customers (and try to push existing customers to uncut the cord) is not going unnoticed on the Hill. On May 7, 2012, Representative Mike Doyle (D-PA) sent a letter to Verizon president and ceo Lowell McAdam asking a series of questions about Verizon’s latest consumer-unfriendly business decision. Rep. Doyle opened by stating that he is “following with great interest Verizon’s proposed transactions with SpectrumCo and Cox,” and that he shares Verizon’s goals of putting spectrum to good use. Doyle quickly moves past wireless though, and cuts right to the chase: “I am concerned about continued investment in the wireline telecommunications and broadband infrastructures in this country.”

Doyle asks Verizon to respond to 5 questions, including:

  • What percentage of the country, especially in Verizon’s LEC footprint, will be served by FiOS in the next 5-10 years? Doyle requests deployment plans for Pennsylvania specifically.
  • Will Verizon continue to deploy FiOS in previously-planned markets, particularly markets where Verizon intends to engage in joint marketing agreements with cable companies?
  • Will Verizon target new customers in areas where it plans to have joint marketing agreements with cable companies?
  • What will happen to Verizon’s DSL market—will Verizon continue to invest in it?

Lastly, Doyle asked: “What was the reason behind Verizon’s recent decision to couple ‘standalone DSL’ service with voice service as of May 6, 2012 for new subscribers or those customers seeking to make changes to their service?” Doyle also requests, “Please provide information that illustrates customer rates for (1) standalone DSL, (2) DSL and voice service packages, and (3) triple play FiOS packages.”

Doyle noted in his letter that the House Energy and Commerce Committee has not yet scheduled a hearing about the proposed Verizon-SpectrumCo/Cox deal, but is this letter a hint that a hearing could be in the pipeline—if Verizon does not respond to the letter in a way that satiates Doyle? The Senate Judiciary Committee held a hearing about the deal back in March, where a Verizon representative vehemently argued that the deal would be good for consumers. But, as we well know, many doubts remain about this deal.

It may not have been in Verizon’s best interest to upset the status quo by discontinuing a service that hundreds of thousands of people actually use—especially since standalone DSL is an affordable option that is (was) widely available. The decision might not sting as much if Verizon were not simultandously seeking approval for joint marketing agreements with cable companies, which many critics take as a sign that Verizon wants out of the wireline broadband business. DSLReports.com noted, “It seems pretty clear Verizon intends to let DSL shrivel and die but won’t acknowledge as much. As a result huge chunks of the country stand to be left on last-generation broadband infrastructure nobody wants to update, and few are asking (or seem to be concerned about) what happens next for these users.” Rep. Doyle seems concerned, and maybe other lawmakers will follow suit now that the ball is rolling.

AuthorCassandra Heyne | Comments Off | | | Print ArticlePrint Article
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Sunday
May062012
DateSunday, May 6, 2012 at 5:06PM

Verizon’s Dry DSL Departure Conundrum 

Is Verizon Sending Mixed Messages about Copper?

About a month ago, reports and evidence surfaced that Verizon planned to start requiring standalone DSL (or “dry DSL,” “naked DSL”) customers to subscribe to landline telephone service tied to their broadband connection, and it looks like Verizon’s new policy is set to kick in on May 6, 2012. New customers seeking standalone DSL need not apply at Verizon, and existing standalone DSL customers might be forced to add a landline if they want to make changes to their accounts or if they move. On May 3, 2012, a large band of consumer advocates sent a letter to FCC Chairman Julius Genachowski, urging the FCC to consider the impacts of Verizon’s business decision to push customers off standalone DSL accounts.  Signatories include Access Humboldt, Access Point Inc., Blue Casa Telephone, Consumers Union, Future of Music Coalition, Institute for Self-Reliance, Lightyear Network Solutions, Lingo Inc., Media Working Group, Mountain Area Information Network, National Alliance for Media Arts & Culture, National Association of State Utility Consumer Advocates, Primus Telecommunications, Public Knowledge, Vonage, Women in Media & News, and Writers Guild of America, West.

The consumer advocates note that the FCC once took on the task of examining “the competitive consequences when providers bundle their legacy service with new services, or ‘tie’ such services together such that the services are not available independent from one another to end users”…but the docket has been idle since 2005. In light of Verizon’s new policy, the consumer advocates believe it is time for the FCC to refresh the record and at least “work with Verizon to explore its planned discontinuance of standalone DSL, and, if possible, to delay the implementation of a policy that would further reduce the affordability and availability of broadband services to consumers.” They are also concerned about what Verizon’s standalone DSL ditching might mean for number portability, wholesale broadband access, and the competitive OTT voice market.

The letter explains that an estimated 385k customers, or 10% of Verizon’s DSL subscribers, might be impacted by Verizon’s new policy. What’s interesting is that Verizon is on one hand trying to force cord-cutter customers to take back a landline, while simultaneously sending other market signals indicating that Verizon wants out of the landline—and copper loop—business. The Hill’s Hillicon Valley quoted Public Knowledge spokesman Art Brodsky as saying that Verizon’s plan to force standalone DSL customers back to POTS is actually “further evidence that Verizon is bailing on the landline side of the telecommunications business.” Verizon is also reportedly trying to push DSL customers to FiOS in areas where FiOS is available…and then we also have the business of large ILECs (namely AT&T, but Verizon too) trying to strong-arm state legislators to end Carrier of Last Resort obligations.

It all amounts to quite the conundrum—Verizon wants to boost its bottom line by making people bundle broadband and landline, yet they also want to move customers away from DSL and possibly abandon landline service completely in some places. I’m personally no stranger to Verizon’s distaste for dry DSL customers. I wanted to upgrade my blazing-slow 756kbps dry DSL connection several months ago, and Verizon only allowed me to upgrade if I also opened a landline phone account—which I had previously dumped in 2006. Even with the landline, I can only get 3 Mbps DSL in downtown DC (my inability to switch to Comcast for broadband is a tale of woe for another time, perhaps).

Verizon’s recent business decisions impact consumer choice and the competitive marketplace, which the consumer advocates rightly observe. But what is the FCC’s role in the situation? Should the FCC dictate whether or not Verizon (or any broadband provider) must offer standalone broadband service? It might be interesting if the 2005 docket is refreshed, but one probably shouldn’t expect any swift action.

AuthorCassandra Heyne | Comments Off | | | Print ArticlePrint Article
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