Frontier, Verizon Win Big in FCC OK of Deal Without Conditions

“This transaction is likely to result in tangible potential benefits for customers through improved broadband service and investment, and certain synergies and cost savings,” the chiefs of the International, Wireless and Wireline bureaus said in the order. They concluded the deal is “unlikely to have adverse competitive effects,” noting the companies don’t compete against each other in the affected exchanges. “Applicants have filed additional evidence in the record that adequately addresses other potential harms, and we find that certain issues raised in comments are not transaction-specific and are therefore outside the scope of our review.”

Frontier “applauded” the FCC action, noted it still needs state regulatory approval in California and Texas, and expects to close the deal at the end of 1Q. “We are pleased the FCC moved swiftly and smartly to approve this acquisition,” said Daniel McCarthy, Frontier's CEO. “By doubling our size, we will add scale and scope to our operations, strengthen our product and service offerings, and improve the customer experience." Verizon said it looked forward to “receiving the remaining regulatory approvals in the coming months.”

Consumer advocates and others are putting up the biggest fight in California. The California Public Utilities Commission expects to seek comment on a proposed decision on Nov. 3 and vote on an order on Dec. 3, said Ana Maria Johnson, program and project supervisor of the CPUC Office of Ratepayer Advocates. An administrative law judge is looking at the physical condition of Verizon’s network, among other things, with evidentiary hearings scheduled for Sept. 24 and 25 (see 1508260051).

In its order, the FCC noted that several competitors raised concerns about maintaining access to interconnection agreements and wholesale inputs after Frontier’s takeover of the systems, and they asked for related conditions. They voiced particular interest in the continuation of “evergreen” Verizon interconnection agreements that remain in effect despite passing expiration dates. The applicants said Frontier would adhere to all relevant Verizon interconnection agreements, unbundled network element rates and existing wholesale volume and term agreements, the commission noted. Frontier said it has no plans to terminate the evergreen agreements and wouldn't seek a “rural exemption” from certain Telecom Act interconnection and wholesale duties, nor convert any nonrural lines into rural lines, the FCC added, citing the assurances favorably. The commission also noted Frontier explanations regarding its experience with necessary operations support systems in response to criticisms.

Comptel had sought conditions, but took solace in the Frontier commitments cited by the FCC. “We are pleased that the Commission has recognized the importance of the wholesale issues we raised, and we are confident that the Commission will be holding Frontier to its commitments so that competition will be promoted," Comptel General Counsel Angie Kronenberg told us. “We also have been very happy that the California PUC has undertaken a thorough review of the transaction and anticipate that it too will ensure Frontier lives up to any pro-competition commitments.”

The Competitive Carriers Association had also sought conditions. “We appreciate the continued commitments from Frontier and we’ll be vigilant to ensure those commitments continue to be honored,” CCA President Steve Berry told us.

The Communications Workers of America had raised concerns before urging expedited FCC approval after the group reached agreement with Frontier on a contract extension and additional jobs (see 1508050035). “CWA is pleased that the FCC has recognized that the transaction is good for employment, broadband expansion, and quality of service,” Telecom Policy Director Debbie Goldman told us.

The FCC accepted Frontier-Verizon claims that the deal would improve broadband services and result in synergies of about $700 million through consolidated operations. It concluded Frontier was more likely than Verizon to accelerate broadband in the affected markets, and it specifically cited Frontier’s commitment to deliver broadband speeds of 25 Mbps/2-3 Mbps to an additional 750,000 households across its entire footprint by 2020. As for the synergies, the commission said, based on the record, Frontier seemed likely to achieve its estimated cost savings, which should help it invest in infrastructure.

Some parties raised concerns about Frontier’s financial condition post-deal, the FCC noted. Upon request, Frontier provided additional information on its finances, including a declaration from its chief financial officer that the deal would strengthen the company’s financial profile and improve scalability so that it can provide high-quality service over the long haul, the commission said. “While we cannot predict with certainty whether Frontier will be free of any financial difficulties after closing, no commenter has disputed the additional information in the record, and we are not persuaded that the transaction is unduly risky,” it said. “We find no persuasive evidence that Frontier is an underfunded or an irresponsible buyer unlikely to fulfill its obligations.”

The commission noted concerns about the state of Verizon’s copper network and whether Frontier would be unable or unwilling to make improvements, as well as pole-attachment objections from Florida Power & Light and Lumos Networks. But the agency then cited Frontier and Verizon’s rebuttals and said: “We find that Frontier is more likely to improve service quality and invest in infrastructure improvements, including for voice services, than Verizon would be absent the transaction, and we therefore disagree with commenter assertions that service quality concerns should function as a reason to deny or condition the proposed transaction.” The commission also found the pole-attachment concerns weren’t relevant to the transaction.

Representatives of Florida Power & Light and the Greenlining Institute, both of which opposed the deal, didn't comment; nor did representatives of Lumos and the California Emerging Technology Fund, which had also called for FCC conditions.