As Frontier awaits Verizon lines, cable guys pounce

Competitors are pouncing on Verizon Communications’ (NYSE:VZ) move to sell 4.8 million access lines to Frontier Communications (NYSE:FTR) in 14 states, reaching out to Verizon customers in those areas and urging them to switch providers before the network changes hands.

In particular, Comcast (NASDAQ:CMCSA) has been targeting customers in Washington and Oregon, according to Donald Shassian, Frontier’s chief financial officer. Those attacks are made easier by the high-profile service problems Verizon customers saw in the Northeast after they became Fairpoint Communications customers, in a similar transaction. Frontier says it knows how to avoid the problems that beset Fairpoint. But in the mean time, while its deal is still pending (perhaps until next summer), Frontier can’t fight back in the markets it has yet to acquire.

We can’t force [Verizon] to come up with a new promotion or new incentives or change their marketing, Shassian said at an investor conference this week. It’s been challenging to compete against Comcast’s campaign like that. We can’t advertise in those markets because we don’t have regulatory approval. That [would be] poking a regulator in the chest. You can’t assume you’re going to get something. You’ve got to sit back on your heels and hope Verizon does their best.

Revenue from the assets Frontier is acquiring dipped 2% sequentially in the third quarter to just over $1 million. That followed a nearly 6% year-over-year decline in the first half of the year. While Shassian acknowledged that cable competition may be partly to blame for that third-quarter softness, it is also due to maturation of some Indiana markets, where Verizon’s fiber-to-the-premises network is thoroughly deployed. “They’re running out of runway there,” he said.

This week regulators in Oregon spelled out stipulations to their approval of the deal, including $10 million in broadband expansion and flexibility in long-term contracts for FiOS customers. The state is expected to greenlight the deal next week, when Washington regulators take their own turn.

Frontier may face its toughest battle in West Virginia, the only state in which it will have to have back-office systems converted upon the deal’s closing. Debate is already heating up in the state, which contains about 10% of the lines Frontier is acquiring. This week the Communications Workers of America held a press conference in which a Vermont firefighter — recounting his experiences with the Verizon/Fairpoint transfer — warned West Virginians of the potential threat to their 911 service posed by the Frontier deal.

A Verizon spokesperson replied, “Shame on them.”


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