Verizon close to multi-billion-dollar deal for Frontier

The US operator is in advanced talks to buy Frontier and an announcement could come in a matter of days, presuming there are no last-minute hitches, the Wall Street Journal reported late on Wednesday, citing the usual unnamed sources familiar with the matter.

It's a – presumably controlled – leak that pleased the market, Frontier's shares rocketing by just over 10 cents to north of US$38 when the news broke.

The WSJ puts Frontier's market value at above $7 billion and as such notes that any deal would be "sizeable."

The fact that Frontier is up for sale comes as no surprise though. There has been talk of an acquisition since late last year and in February the company brought in a new director with extensive experience in telecoms M&A and confirmed that it was working on a strategic review geared towards unlocking shareholder value; in plain English, that last point usually means a sale of some sort.

The identity of the likely buyer was less of a sure thing. While picking up Frontier would be a logical move for Verizon, which is looking to bolster its fibre network business, there was no shortage of options for the telco.

Earlier this year we picked AT&T as a more likely purchaser, given that it has a relatively new wholesale arrangement with Frontier. But the operator appears to be taking an organic expansion approach, and just this week revealed it has inked five-year a fibre equipment deal with Nokia.

T-Mobile US was also in the frame, being the only one of the big three mobile operators without a significant fixed network business. It has chosen to buy its way into the market, but not by picking up Frontier. Six weeks ago it partnered with KKR to create a joint venture company with a view to spending the best part of $5 billion on Metronet.

An investment buyer was also a very real possibility for Frontier, but if current press reports prove correct it seems Verizon will be the one to sign the cheque.

The WSJ points out that should the deal come to fruition there will be element of circularity to it; Frontier spent $10.5 billion to buy network infrastructure from Verizon in 2016.

There has been a lot of water under the bridge since then, including a bankruptcy filing from Frontier, which spent heavily to build out its network. It emerged from Chapter 11 in the spring of 2021, having cut $11 billion from its debt burden and significantly reduced interest payments, and with a clear focus: to upgrade its copper network to fibre.

That doesn't come cheap, of course, and the need to keep spending at a time when rising interest rates have impacted on the ability of all companies to raise cash is something of a concern for Frontier.

It has a goal of passing 10 million homes with fibre by the end of 2025. As of the end of June, its running total stood at 7.2 million, which represents a million new locations in nine months. At that rate, it might struggle to hit its target, but with Q2 additions standing at 388,000, it is starting to pick up the pace.

Clearly that footprint is enough of a draw for Verizon.