Verizon spin-off frees up resources

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Verizon Communications further reduced its debt on Tuesday by agreeing a $2.7bn deal to spin off part of its fixed-line business in New England and merge it with FairPoint Communications, a company focused on rural and small urban markets.

The deal, part of Verizon’s strategy to sell non-core assets in order to free up resources to build new services for its urban customers and faster-growing wireless business, is expected to reduce Verizon’s debt by $1.7bn.

The Maine, New Hampshire and Vermont ex-changes include around 1.5m access lines, 180,000 high-speed internet customers and around 600,000 long-distance customers, Verizon said in a statement.

Once the deal is completed, which is expected within the next 12 months, Verizon said its shareholders would own about 60 per cent of the new company and shareholders in North Carolina-based FairPoint the remainder.

Verizon shareholders will receive about $1bn in stock, and the new company will take on around $1.7bn of debt.

“This agreement provides a fair value for this property and allows Verizon to focus more intently on operations in other markets,” said Virginia Ruesterholz, president of Verizon Telecom. Analysts at Bear Stearns said Verizon was getting a “relatively attractive” price of around $1,800 a line.

Telecom, cable and satellite companies are increasingly aiming to sell video, internet and telephone services to each other’s customers. Cable operators such as Comcast and Time Warner Cable are rolling out telephone services bundled with video and high-speed internet offerings. In response, Verizon and others such as AT&T are upgrading their networks to offer high-quality television and high-speed internet.

The costs of doing this are considerable, with Verizon planning to spend $18bn.

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