Verizon Communications (NYSE:VZ) and Frontier Communications (NASDAQ:FTR) Indulge in a Deal


An agreement took place between Frontier Communications Corp. (NASDAQ:FTR) and Verizon Communications Inc. (NYSE:VZ) in which both the companies decided to buy wireline assets valued at $10.54 billion in places like California, Texas and Florida. Wireless networks are getting more popular by the day and more consumers are getting inclined towards wireless mode of communication which is making Frontier Communications (NASDAQ:FTR) lose its subscribers.

The deal that the two companies decided on is likely to be completed in the year 2016 which will enable Frontier Communications (NASDAQ:FTR) to double the size of its subscribers. In the past few years Frontier (NASDAQ:FTR) has expanded through the several mergers. The small rural telecom company purchased wireline operations from Verizon (NYSE:VZ) in the year 2010 in 12 American states. This deal allowed the company to triple the size of its subscribers.

The company had 2.9 million users in the year 2009 and by 2010 the number had increased to 7.9 million. However, the number of subscribers had been declining since then as more and more users are taking up internet as well as voice services. In the 3rd quarter of the year 2014, the company just had 5.3 million subscribers. As more people are diverting towards wireless communications, the only way for Frontier (NASDAQ:FTR) to survive and increase its subscribers is through the acquisition of other companies.

In November the company acquired the assets of AT & T (NYSE:T) which were worth $2 billion. The acquisition enabled the company to include 900,000 voice connections, along with 450,000 internet connections as well as 70,000 video connections. Moreover the acquisition of Verizon will enable Frontier (NASDAQ:FTR) to include 3.7 million voice connections along with 2.2 million broadband internet connections as well as 1.6 million and 1.2 million FiOS internet users and FiOS TV users respectively.

This will not only help the company in gaining more subscribers but will also enable it to generate more revenues per user. Moreover 57% of the market attained by Frontier (NASDAQ:FTR) support FiOS, and Verizon invested more than $7 billion in those markets in order to get fiber-based network which is faster and more efficient. As per the Wall-Street journal, as a result of this transaction Frontier’s (NASDAQ:FTR) fiber-enabled connections will boost the company’s subscribers from 14% to 31%.

The company will also be able to increase its revenue base. In 2014 $5.7 billion revenue in sales was generated by the three states. In the past few year the sales of Frontier (NASDAQ:FTR) have been going down and the major source of revenue for the company has been its segment of voice connections. On the other hand FiOs has been the main segment for Verizon’s revenue production. Through this deal with Verizon, Frontier (NASDAQ:FTR) is hoping to see a 35% increase in its cash flow for every share in the initial year and also wants to be able to cut cost by $525 million.

Investors have taken this deal positively and the company’s shares have increased 3% since the announcement of the deal was made.

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