Frontier Selling Wireline Assets in Northwest for $1.35B to Cable Entrepreneur
Frontier Communications agreed to sell its wireline operations in the northwest U.S. for $1.35 billion to investment firms, including one founded and run by a cable entrepreneur Steve Weed. It continues a trend of asset sales of around that size by telcos throughout the country. More wireline assets in other parts of the country may also be on the block, noted Wells Fargo's Jennifer Fritzsche. She and others noted that some of Frontier's assets now being sold were themselves previously acquired from others.
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The operations in Washington, Oregon, Idaho and Montana include some unionized workers, union officials told us. The Communications Workers of America declined to comment and we couldn't reach local officials there or at the International Brotherhood of Electrical Workers. Of the 1,000 employees who will switch to the new company, about 800 belong to CWA and IBEW, "and the buyer will assume responsibility for the existing collective bargaining agreements," a Frontier spokesperson emailed us. Unions in other states have complained about Frontier (see 1901150013) and other telcos' service. Frontier customer complaints in Washington state have increased in recent years but not in some of the other three states, we found.
The asset sale "reduces Frontier’s debt and strengthens liquidity,” said CEO Dan McCarthy Wednesday. "We will be working very closely with the new owners to ensure a smooth, successful transition.” There have been issues during similar transitions involving other companies. Weed's company declined to comment.
Washington state’s attorney general got 248 consumer complaints about Frontier in 2018, according to the AG’s online consumer complaint database, which doesn’t list reasons for complaints. That was up from 188 the previous year and 182 in 2016. This year has seen 95 complaints about Frontier so far. The Washington Utilities and Transportation Commission got 96 complaints in 2018, the same as the year before but a decrease from 2016 when it got 110, a spokesperson said. The UTC will review the deal to ensure it’s in the public interest and would have 11 months from when the company files, she said.
The telco had far fewer complaints in Idaho and Montana, where CenturyLink is the largest ILEC. The Idaho attorney general’s Consumer Protection Division received 23 customer complaints about Frontier over the past four years, a spokesperson said. A Montana Public Service Commission spokesperson said six out of 61 ILEC complaints this year were about Frontier. It was 13 out of 216 the previous year, four out of 227 in 2017 and 14 out of 281 in 2016, he said.
The Oregon Citizens' Utility Board's take is "one of caution before digging into the details," Outreach Manager Samuel Pastrick emailed Wednesday. Frontier serves tens of thousands of residential and business customers in the state, he said. "Any sale of Frontier's Oregon assets must represent good value and consideration for their customers, particularly those who have not historically or do not currently benefit from the IP transition."
“We have a proven track record of customer satisfaction by providing fast, reliable internet connectivity combined with great service and support," said Weed in Frontier's announcement. Eric Zinterhofer, founding partner of Searchlight Capital Partners, which is helping buy the operations along with Weed's WaveDivision Capital, noted Weed and colleagues have built "best-in-class fiber networks" that "will enable us to accelerate the deployment of superior next generation products.” Weed started and was CEO of Wave Broadband; WaveDivision Capital's managing directors Harold Zeitz and Wayne Schattenkerk came from there. Wave Broadband was sold last year. "Given WaveDivision ran and sold a cable company in this geographic region," Fritzsche emailed investors shortly after the deal was announced, "they know the market very well and clearly have operational experience."
The analyst still "firmly" thinks the fragmented rural "LEC group overall needs to see consolidation. While some may see this as the first domino to fall there, the bigger trigger event to this could be the path of" CenturyLink's consumer division. That company may consider selling that business (see 1905090008).
Besides DOJ and the FCC, the Committee on Foreign Investment in the U.S., Montana, Oregon and Washington regulators and some local video franchise authorities will review the transaction, Frontier said. It expects to complete the sale within a year. "CFIUS must review the transaction because a Canadian venture fund is one of the limited partners in Searchlight," said Frontier's spokesperson, without identifying the fund. "We intend to keep key public utility commissions, local franchise authority and government officials apprised of the transaction throughout," she emailed us. "We believe this transaction will benefit the communities served."
Frontier stock closed up 6.9 percent at $1.85. As of March 31 in the four states, the carrier had about 150,000 fiber broadband and as many copper broadband connections. It had 35,000 video ones.