Verizon blames net neutrality plans as it sells off wireline operations

The company is selling phone and Internet businesses in California, Florida and Texas

Verizon Communications will sell its local wireline operations in California, Florida and Texas for $10.5 billion, citing uncertainty around federal Internet regulation as one reason for the move.

Following the sale to Frontier Communications, Verizon will concentrate its operations in the Northeast where its wireline business is growing faster, company executives said. The sale includes Verizon's voice, DSL (digital subscriber line), and FiOS fiber-optic Internet and TV services, but not Verizon Wireless or Verizon Enterprise Solutions.

Local wireline phone service has been a shrinking industry for several years, and Verizon and other carriers see mobile as their greatest growth opportunity. Verizon Chairman and CEO Lowell McAdam cited the Federal Communications Commission's upcoming net neutrality proposal as another potential threat to the growth of wired services.

The plan, set for a vote on Feb. 26, would regulate Internet service as a utility. It was formulated after the FCC's former net neutrality rules were struck down by a federal court last year in a case brought by Verizon. The agency's efforts to re-regulate the Internet have created uncertainty in the telecoms industry, McAdam said. He warned against the new proposed rules, also alluding to AT&T's recent acquisitions of two carriers in Mexico.

"Washington should be very thoughtful how they go forward here," he said. "This uncertainty is not good for investment, and it's not good for jobs here in America."

The sale of the wireline operations has been in the works for several years, Verizon executives said.

The Frontier transaction, as well as a deal to sell or lease more than 11,000 of its wireless towers, will help the carrier sharpen its focus and create value for shareholders, Verizon said. Last year, Verizon Communications bought out Vodafone's 45 percent stake in Verizon Wireless for about $130 billion, taking on billions in debt to do so. The moves announced Thursday will help to restore Verizon's credit rating, executives said.

In the three states, Verizon has about 3.7 million [m] voice connections and about 2.2 million [m] high-speed data customers, including 1.6 million on FiOS Internet and 1.2 million on FiOS Video.

That's a big chunk of the carrier's national business: In the remaining nine states it serves, plus the District of Columbia, it had 16.1 million [m] voice lines and 7.0 million [m] high-speed data connections at the end of last year. But the California, Florida and Texas networks are largely built out and offered less growth potential, the company said. For example, the Dallas metropolitan area is the oldest FiOS market in the country. Northeastern markets such as New York, with its high concentration of multifamily dwellings, give the carrier more chance to expand.

Frontier, based in Stamford, Connecticut, serves consumers and businesses in 28 states. The deal is subject to regulatory approvals and is expected to close in the first half of 2016.

Verizon's wireless tower deal is just the latest by a U.S. mobile operator to shed physical assets to better focus on mobile data services, their best source of revenue growth. American Tower, an owner and operator of communications sites, will acquire exclusive rights to lease and operate more than 11,300 Verizon cell towers and will buy 165 towers outright. It will pay about $5 billion upfront and take on leases with an average term of 28 years. Verizon will sublease capacity on the towers.

Also on Thursday, Verizon said it would return about $5 billion to shareholders by buying back its own stock.

Stephen Lawson covers mobile, storage and networking technologies for The IDG News Service. Follow Stephen on Twitter at @sdlawsonmedia. Stephen's e-mail address is stephen_lawson@idg.com

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