Frontier Buys AT&T Wireline: Provider Changes

Frontier buys AT&T Wireline

It looks like a sure thing: Frontier Communications Corp. will be buying all of AT&T’s infrastructure in Connecticut, taking over the customers, services and a couple thousand employees. As Frontier buys AT&T wireline assets, the shape of the provider world shifts.

Back in late 2013, AT&T and Frontier reached a $2 billion dollar agreement over these assets. However, this was only the first stage of the deal: Such a big change required the clearance of a couple different government agencies, primarily the FCC (Federal Communications Commission). In late July 2014, the FCC cleared the deal, and major step forward that makes the transaction likely to close by the end of 2014. So let’s take some time and analyze what it means for cable, phone and Internet services.

AT&T’s Reasoning

AT&T has actually been working on this deal for a few years. Offering rural services in Connecticut never made much sense for the provider’s current strategy: The state is far away from its other coverage areas, which mostly lie in the Midwest, and AT&T is pursuing other high-level strategies at the moment. The Connecticut assets were baggage the company didn’t want to deal with.

Now AT&T will have a bit more freedom to focus on other areas. First, it will continue growing its wireless holdings. The company bought Leap Wireless International Inc. in 2013 with this plan in mind. Leap and other projects will also allow AT&T to jump overseas into some strong emerging markets, keeping up with globalization. What this means for AT&T’s current customers in the United States is less certain. Connecticut customers will, of course, see a change. Others should not expect any big cost or package revolutions.

Frontier’s Purpose

On the surface, when Frontier buys AT&T wireline assets, it gets some obvious benefits from the deal, namely 900,000 new voice connections, otherwise known as phone service subscribers and 415,000 broadband Internet subscribers. The company will also be able to transfer 180,000 customers from AT&T’s U-Verse video service to comparable video services. That’s a lot of new revenue streams, and since this is a cash deal it comes with relatively little impact on investors (they won’t lose their dividends). Everyone seems to win.

On a deeper level, this also signals additional growth from Frontier, which has already expanded through multiple acquisitions from the likes of Verizon and after the deal will have a presence in 28 different states. It shows a continued willingness on the part of Frontier to increase its independence and become a major service provider.

There’s also a lot to be said about synergy here: Frontier owns a lot of infrastructure in New England, and incorporating AT&T’s assets into the mix will make it easier to manage the area from an administrative and procurement level. Frontier expects to save $200 million annually from this new leverage.

What it Means for You

Actually, the deal probably won’t mean much for you unless you live in Connecticut. If you’re an AT&T customer you may be worried about the upcoming service change. When Frontier buys AT&T wireline, the company has already stated that the products and services (including U-verse) will not change, at least in the long term. However, it has not yet said if prices will change, which may be a possibility.

This sounds worrying, but keep in mind that Frontier is saving now $200 million per year in Connecticut. Will it transfer these savings onto customers, or use the new lack of competition in the area to raise prices? The future holds the answer.

On the plus side, customers in Connecticut will now have access to Frontier services, including digital security through Frontier Security (which protects computers, not houses), and Frontier’s unique model of customer service, which could ultimately lead to an increase in broadband quality in the area. Frontier has already promised to provide broadband services of at least 10 Mbps to 100,000 new customers as part of its future plans in the state. There’s also a possibility that Frontier’s tactics will change in its other states, especially nearby states, which may also benefit from new business and upgrades.

Photo Credit: Mike Mozart