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Frontier, Verizon Get FCC Approval for Landline Spinoff

The FCC on Friday approved the sale of Verizon Communications Inc. (VZ) landline assets to Frontier Communications (FTR), just as the carriers had been pressing the agency to move more quickly so they could avoid “needless additional costs.” That happened as CLECs pushed back against the Verizon-Frontier deal, fearful of continued wholesale provisioning problems.

Verizon and Frontier sought the FCC’s approval no later than mid-May so they could close their $8.6 billion, 14-state transaction by June 30. Analysts at investment bank Stifel Nicolaus said on May 20 the permissions would come soon because FCC commissioners don’t want to be seen as holding up progress. But some CLECs first wanted the agency scrutinize the wholesale aspects of the arrangement, and then impose tough conditions on the combined company’s back-office operations. Competitive service providers including Integra Telecom, tw telecom inc. (TWTC), Cbeyond (CBEY) and One Communications, all wholesale customers of Verizon, want to make sure Frontier can meet or exceed Verizon’s monthly performance for certain metrics. Stifel Nicolaus analysts Rebecca Arbogast and David Kaut said late Friday the FCC appears to have kept those requirements intact.

Any whiff of OSS problems brings to mind the FairPoint Communications debacle. The North Carolina-based ILEC filed for bankruptcy last year after taking on too much debt to buy 4.8 million Verizon access lines, and then botching the transition from Verizon’s legacy OSS platforms. But Verizon officials have called Frontier-FairPoint comparisons “fear-mongering and irrelevant,” according to recent reports. And, in all fairness, Frontier is more financially sound than FairPoint was when it took over Verizon’s New England wireline business.

Frontier took voluntary measures to address CLEC, regulator and consumer fears, though. The Connecticut-based operator earlier this month made a list of concessions – including a focus on OSS, wholesale and interconnection terms, as well as higher-speed broadband deployments – in hopes of spurring the FCC to sign off on the Verizon sale. Rebecca Arbogast and David Kaut, telecom analysts at Stifel Nicolaus, wrote in a May 20 client memo that the compromises “seem to us a reasonable price to pay.”

“The question is,” they added, “will they be sufficient?”


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