Verizon Sells Phone Lines in 14 States to Frontier

By AMOL SHARMA Verizon Communications Inc. agreed to sell local phone businesses in 14 states to Frontier Communications Corp. in a deal valued at $8.6 billion, the latest move by Verizon to focus on markets that are better tailored to its fiber-optic services. The transaction allows Verizon to shed 4.8 million rural phone lines and transfer 11,000 workers to Frontier, which provides phone services in small towns and rural areas. It will triple the size of Frontier. Verizon has shed millions of rural phone customers in recent years to focus on its wireless business and populous markets that are better tailored to its FiOS TV and Internet services, which are expensive to deploy. "These are good properties, but they're much more rural in nature, and they really don't fit with the strategy we have for FiOS and broadband," Verizon's chief financial officer, John Killian, said in an interview. Mr. Killian said Verizon is satisfied with its remaining landline markets and doesn't anticipate additional sales. Once the deal closes, Verizon will have roughly 30 million access lines in the U.S. Frontier will have seven million lines. Frontier is paying $5.3 billion in stock, with Verizon shareholders receiving one Frontier share for every 4.2 shares of Verizon stock, leaving them with about 68% ownership of the combined company. Frontier will also contribute cash after raising about $3.2 billion through a new debt offering, and will assume a small amount of Verizon debt. Other small companies have struggled after similar deals with Verizon. Hawaii Telcom Communications Inc., which was created after private equity firm Carlyle Group purchased Verizon's Hawaii assets in 2005, filed for bankruptcy protection last year. FairPoint Communications Inc., which bought Verizon's New England landlines last year, had to pay Verizon to manage its networks for months, until it could get up to speed. Maggie Wilderotter, chief executive of Frontier, said the company is prepared for a complex integration. She expects cost savings of about $500 million a year from eliminating corporate and administrative overhead and other measures. Ms. Wilderotter said a high priority will be making capital investments to extend high-speed Internet access to more customers. Partly because of those increased investments, Frontier will be reducing its annual dividend from $1 a share to 75 cents a share. Write to Amol Sharma at amol.sharma@wsj.com