- Verizon's CEO of its Consumer Group stressed the company's focus on mobility and fixed broadband
- He sounded a bit like AT&T's CEO, who has also been stressing 5G and fiber
- After Verizon purchases Frontier, the company will pass 30 million homes with fiber
After Verizon confirmed this morning that it’s buying Frontier Communications for $20 billion in cash, Fierce Network spoke with Verizon Consumer Group CEO Sowmyanarayn Sampath to delve deeper to find out: Why Frontier? And why Fiber?
“This is exactly the kind of deal we’ve wanted to do. It goes back to the foundation of our strategy," he said. "There are two businesses we are in: premium mobility and broadband. We’ve divested a lot of non-core assets, and we’re focused on mobility and broadband.”
He added that with Verizon's wireless, fiber and fixed wireless access (FWA) networks, the company has “unmatched scale.”
And so, it begins
Sampath's focus on wireless and broadband is uncannily similar to the message that AT&T CEO John Stankey has been delivering about AT&T’s focus on 5G and fiber. Stankey told investors at the company's 2022 Analyst & Investor Day that it planned to support most of its expected five-fold increase in traffic with fiber and to use its 5G network for high-value mobile data.
For Verizon and Frontier, when the deal closes, Verizon says it will pass 30 million homes with fiber. Currently, Verizon passes 17.8 million locations with fiber and aims to pass 20 million by the end of 2026. Frontier passes 7.2 million locations with fiber today and has a goal to pass 10 million by the end of 2026.
Frontier actually passes about 15 million homes with broadband, but only about half are currently fiber. However, Sampath said by the time the deal closes in late 2026 or early 2027, Frontier will pass close to 10 million locations with fiber. "That’s what we’ll inherit," he noted.
Churn rates improve with fiber
Yesterday, Sampath said at a Bank of America conference that churn rates improve by about 50% for postpaid mobility customers that also take fiber-to-the home, and churn rates improve 40% for the fiber customers who also take wireless. And he mentioned those churn rates again today.
When Fierce asked why churn rates aren’t as good for customers who take both mobile and FWA, Sampath told us, “We get a good churn benefit with fixed wireless and mobility as well. But fixed wireless is a newer product and still settling down. As that product matures, you’re going to start seeing that gap narrow.”
He noted that Verizon has only been offering FWA for two years and it boasts a net promoter score of about 35.
Vestberg speaks
Earlier today, Verizon CEO Hans Vestberg spoke with analysts about the Frontier purchase. He touted the fact that Verizon has fiber (via its 20-year-old Fios product), it has wireless and it has FWA.
“With Frontier’s fiber added to our portfolio, we will be the only carrier that will have size and scale in both fiber and fixed wireless access,” said Vestberg.
Vestberg also said one of the primary reasons for the purchase of Frontier is that it will expand Verizon’s addressable markets. The acquisition will result in a combined company with 9.6 million fiber subscribers. Verizon’s Fios footprint currently has 7.4 million subs in nine states in the Northeast, Mid-Atlantic and Washington, D.C. And the acquisition of Frontier will give Verizon 2.2 million fiber subscribers across Frontier’s 25-state footprint largely in the West and upper Mid-West. There is very little overlap between the two footprints across 31 states. (See map below.)
But some analysts noted that even with Frontier, this still leaves Verizon with no fixed infrastructure in 80% of the country and with less fixed infrastructure than AT&T.
Sampath said, “If you think about it, 30 million homes will have fiber. The rest of the markets will have fixed wireless access. And this is just where we are today. Over the next couple of months we will talk about how we expand our fiber ambitions more broadly.”
Frontier's benefits
Aside from expanding its addressable market, Vestberg said the deal will deliver “substantial financial benefits.” It is expected to be accretive to revenue and adjusted EBITDA growth immediately after close of the transaction. In addition, the deal is expected to result in $500 million in opex run-rate cost synergies by year three.
Another synergy is that Verizon will be able to leverage its mobile stores throughout Frontier’s territory to market fiber.
Verizon President of Global Networks and Technology Joe Russo said on this morning’s call with analysts, “After 20 years of leading in Fios, we have some really industry-leading customer experience metrics across how we operate the network, how we interface with customers, how we dispatch, etc. So, our expectation is we’ll leverage the power of the Verizon systems and processes post close to bring to bear those benefits to customers in the Frontier footprint.”
Wolfe Research analyst Peter Supino agreed, writing, “Verizon's mobile and retail assets can drive superior fiber market share.”
Regulatory hurdles
The transaction has been unanimously approved by the Verizon and Frontier boards of directors and is expected to close in approximately 18 months, subject to approval by Frontier shareholders, receipt of certain regulatory approvals and other customary closing conditions.
LightShed Partners analysts Walter Piecyk and Joe Galone wrote in a note, “We foresee no major challenges in gaining regulatory approval for this transaction. Verizon is likely to emphasize how their balance sheet allows them to expand fiber investments and reduce consumer costs through bundling. Since there is no overlap between the companies’ wired internet services, regulatory concerns in this area should be minimal.”