Frontier Communications Paying $2 Billion for AT&T’s Wireline Business in Connecticut

Regional telecom company Frontier Communications Corp. (FTR) said Tuesday that it is spending $2 billion in cash to purchase the wireless business in Connecticut of AT&T, Inc. (T) that serves residential, commercial and wholesale customers.  For the cash, Frontier gets AT&T’s wireless business, statewide fiber network and U-verse video and satellite TV customers in Connecticut.  This includes approximately 415,000 data, 900,000 voice, and 180,000 video residential connections of AT&T.  About 2,700 AT&T employees will make the shift to Frontier upon completion of the transaction.

Frontier, which is headquartered in Stamford, CT, currently provides communication services in 27 states, but not its home state.  AT&T generates about $1.2 billion in annual revenue from the operations in Connecticut, equating to less than one percent of its sales this year.  AT&T still operates wireline services in 21 states and says that the sale won’t impact its 2013 financial results.

Frontier estimates that the acquisition will be accretive to its adjusted cash flow in the first year and will improve the company’s dividend payout ratio by more than five percentage points in the same time frame.  Once the integration of the operations and assets is complete, Frontier sees synergies and savings of $200 million each year.

“We welcome Connecticut to the Frontier family and look forward to bringing our high-touch local engagement management model to our home state. Based upon our track record, we are extremely confident that we will leverage this opportunity to deliver an excellent customer experience and shareholder value,” said Dan McCarthy, President and Chief Operating Officer at Frontier, in a morning statement.

“This is a good business decision for both companies, good for customers and good for Connecticut,” said Patricia Jacobs, President-AT&T New England, in a separate statement.

AT&T, the nation’s largest phone company, said that it intends to use part of the proceeds from the divestment to continue the rollout of “Project VIP,” an all-IP wireless and cloud network.  As traditional phone service sales have deteriorated in recent years with consumers opting for wireless technologies, AT&T’s wireline business is less attractive than its rapidly growing wireless operations as far as future expansion.  The telecom giant is aiming to expand its 4G LTE network to 300 million people in the U.S., expand its U-verse high-speed Internet and video services and deploy its fiber network to more businesses.

Shares of FTR have jumped ahead 14 percent in pre-market activity on the news to hit their highest level in more than two years.  Shares of T are unchanged in pre-market action.