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Frontier Completes Its Verizon Deal, and It's Not Going Well

By Daniel B. Kline – Apr 8, 2016 at 9:29AM

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The company has experienced outages and problems as it takes over systems in three states.

Frontier Communication (FTR) completed its takeover of some former Verizon (VZ -2.34%) territories in California, Florida, and Texas on April 1, and the transition has not gone as smoothly as planned. That's actually an understatement. In reality, the first days of the company's $10.54 billion bet on buying enough customers from what were formerly Verizon's wireline operations has been a borderline disaster.

What's gone wrong?
In taking over the Verizon systems, Frontier added 3.3 million voice connections, 2.1 million broadband connections, and 1.2 million FiOS video subscribers, more than doubling its size. The company had a long time to prepare for the move since it received the final regulatory approval it needed to complete the deal back in early December, 2015.

At the time that approval was granted, the company seemed confident and ready to move forward. "With this final approval, we look forward to completing our transaction with Verizon, which represents a significant transformation for Frontier," said CEO Daniel J. McCarthy. "We will transition our revenue to a more diversified mix, improve our growth prospects, create sustainable value for our shareholders and provide a great experience for our new Frontier customers in California, Florida, and Texas."

That may all end up being true, but the first days of the transition have been plagued by outages, trouble with billing systems, and difficulties with on-demand content, Ars Technica reported. These problems, which Frontier has acknowledged, may not be fully resolved until mid-April, according to a second Ars story. "Given the complexity of the transaction, disruptions are not unexpected but they are never welcome and we have apologized to affected customers and are working around the clock to address all issues," Frontier said in a statement reported by the tech website.

The company has also launched a website where consumers can track service updates.

The company is being upfront with its customers by detailing progress on a special website. Source: Frontier.

Frontier has been here before
While this is not great news for Frontier, shareholders can take heart in the fact that the company has stumbled while integrating a new purchase before without taking too big a customer hit. During the cable/broadband provider's previous expansion effort in its home state of Connecticut, it had similar difficulties.

That deal, which involved the company purchasing AT&T's (T -2.12%) former U-verse operation in the Nutmeg State, started poorly, as well, with the company generating more than 900 complaints with the state Department of Consumer Protection, 200 with the state attorney general's office, and 240 with the state's Public Utilities Regulatory Authority during its first month, The Hartford Courant reported. That equalled more complaints in just over a month than the combined yearly total of every other provider in the state, according to the paper.

Those early failures integrating the AT&T properties could have been a disaster because Frontier operates entirely in markets where most consumers have at least one other choice for Internet and pay television. But the company's Connecticut stumble, which occurred late in 2014, did not cause it to lose a massive amount of customers. Instead, Frontier largely followed industry patterns in 2015, losing a small number of video customers while gaining some in broadband.

Can it recover?
This is disappointing because you would have expected Frontier to be more ready than it was with AT&T; but it's possible that there are simply some problems that can't be prepared for. For investors, while this is a troubling stumble, some solace can be taken in the fact that consumers do not appear to jump to other providers at the first signs of a problem.

Frontier has addressed its transition problems publicly, and appears to be well on its way to solving them. If that proves true, which the company's past history suggests it should, then this could just be a glitch on the way to much better things for the brand.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Verizon Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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