Frontier Communications reported in a Securities and Exchange Commission (SEC) 8-K filing that the wireline assets it is acquiring from Verizon (NYSE: VZ) in California, Texas and Florida performed well during the second quarter with revenues rising year-over-year to $1.45 billion.
Likewise, adjusted EBITDA was $416 million, up 3.7 percent year-over-year from $401 million in the second quarter of in 2014, and adjusted EBITDA margin of 28.7 percent was up from 27.8 year-over-year and sequentially.
Jennifer Fritzsche, senior analyst for Wells Fargo, said in a research note that the results would allay investor fears about the performance of the assets.
"Solid results from VZ's assets in CA, TX, FL," said. "Both the top line and EBITDA growth are encouraging, as there seemed to be much concern that results would not be as strong."
Fritzsche added that Frontier "still has $6.6B left to raise in the high yield market to complete the financing of this deal," adding that "the release of this 8K as a step closer to moving on this capital raise."
A key element of Frontier's strategy for these markets will be to enhance the existing broadband network reach, particularly in rural parts of each of the three states.
While it declined to take money from the second phase of the FCC's Connect America Fund (CAF-II) for the rest of its wireline network, Verizon said in an FCC filing that it conditionally accepted the CAF-II offer of $32 million in California and a $17 million annual amount in Texas. These funds will be set aside for Frontier when it completes its acquisition of Verizon's assets in these three states.
For its own part, Frontier has already set broadband expansion plans for these markets. In an FCC filing, the service provider said that it would leverage the CAF-II funding for which it is eligible to bring broadband services to underserved areas of California and Texas.
In California, the service provider plans to use $32 million in CAF-II funding annually over the next six years for broadband deployment in former Verizon high-cost service areas. During this six-year period, Frontier forecasts that CAF-II funding could enable it to bring 10/1 Mbps broadband service to nearly 77,000 rural locations within this territory. Meanwhile, in Texas, Frontier has accepted $16.5 million in CAF-II funding. This would allow the telco to bring broadband services to nearly 37,000 locations in high-cost areas.
- see this SEC filing (PDF)
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