Verizon (VZ) announced on Thursday that it will acquire fiber-optic internet provider Frontier Communications (FYBR) in an all-cash deal valued at $20 billion. This move marks Verizon’s strategic effort to expand its subscriber base and strengthen its position in the highly competitive U.S. telecom market.
Competing with Rivals
As Verizon seeks to stay competitive with major rivals like AT&T (T) and T-Mobile (TMUS), the acquisition will allow the wireless giant to better leverage bundling options and unlimited data plans that have become the industry standard. The offer of $38.50 per share represents a 37.3% premium over Frontier’s closing price on September 3, the day before rumors of the acquisition emerged. Despite the deal, Frontier shares were trading slightly below the offer price at $35.10 after a sharp 38% surge, while Verizon’s stock showed only marginal movement.
Strategic Benefits for Verizon
Frontier brings 2.2 million fiber subscribers across 25 states, which will combine with Verizon’s existing 7.4 million fiber customers located in nine states and Washington, D.C. Verizon CEO Hans Vestberg emphasized that the acquisition would enhance their ability to compete in new markets. The combined companies will have access to 25 million fiber passings—potential customer locations connected to fiber networks—narrowing the gap with AT&T, which has 28 million.
A Modest Boost to Verizon’s Fiber Network
The deal, expected to close in about 18 months, also allows Verizon to regain a presence in regions it previously exited. In 2016, Verizon sold parts of its fiber network and customers in California, Texas, and Florida to Frontier for $10.54 billion. However, analysts have tempered expectations, with MoffettNathanson analyst Craig Moffett noting that while the acquisition expands Verizon’s fiber coverage from under 10% of the U.S. to roughly 13%, the growth is still considered modest. “It’s a step from small to a little less small,” Moffett said, underscoring the challenges Verizon faces in reaching a significant scale with fiber.
A Strategic, Yet Limited, Move
Verizon’s acquisition of Frontier Communications is a tactical effort to increase its fiber footprint and gain access to new territories. However, the scale of the deal offers only moderate growth potential, leaving Verizon trailing behind its competitors in terms of nationwide fiber coverage.