AT&T Selling Connecticut Operations To Frontier

Buyer: No Deep Staff Cuts After $2 Billion Deal

AT&T has reached a deal to sell its wireline business in Connecticut to Frontier Communications for $2 billion in cash, ending a 15-year venture that led to thousands of job losses as the number of regular phone lines declined, technology improved and the company moved support operations elsewhere.

Stamford-based Frontier, which operates in 27 states, will take over the old Southern New England Telephone Co. business, which legally still has that name. The operations include 2,700 employees, 900,000 wireline telephone connections, 415,000 Internet connections and 180,000 U-verse video subscribers for a total of $1.25 billion in annual revenues, along with the network itself and a lease at AT&T's New Haven offices.

Frontier will use the U-verse brand name for video services, but not for its bundled voice, video and Internet, as AT&T does. And, the Frontier president said in an interview, the acquisition will not mean higher prices or deep job cuts — although it will bring changes for customers.

The merger, announced separately by both companies, would close in late 2014 after regulators' approval. Frontier will not cut overall employment numbers among the Connecticut employees it inherits, including 2,400 members of the Communications Workers of America, said Dan McCarthy, the Frontier president and chief operating officer. But he said that jobs will change, so some disruption will happen.

Maintaining the overall head count might seem tough to achieve considering that Frontier said it would save $200 million in annual expenses, including $75 million in immediate savings when the deal closes and $125 million in the following three years — an aggressive target totaling well more than 15 percent of total expenses.

"There are certain services that were being performed in other parts of the country," McCarthy explained. "We see moving some of that back into the state."

AT&T, based in Dallas, will keep its growing wireless business in Connecticut.

"We will continue to invest in Connecticut to serve our wireless and business customers, will maintain a significant employee presence here and will continue to be involved in the community," said Patricia Jacobs, president of AT&T New England. "The fact that Frontier is headquartered in Connecticut will help ensure a smooth transition for customers and employees."

Proceeds from the sale would go toward upgrades of AT&T's wireless network nationwide and in Connecticut, AT&T said.

Big Differences

For customers, at the very least the deal means that many bills would come from a different place, more installation and repair work would come from local offices and some bundled services would break apart. AT&T now sells network access to other telecom providers, a business that would move to Frontier. AT&T sells DirecTV, which will end; Frontier sells Dish elsewhere and has not decided what satellite service it will sell here.

The deal highlights a convergence in the telecom industry that has not slowed since the 1996 Telecommunications Reform Act. Cable service providers such as Cox and Comcast not only offer phone and Internet service but, in some cases, content of their own. Traditional phone companies such as AT&T and Verizon are on all platforms with less and less emphasis on wireline phone, leaving an opening for Frontier to buy up old-line phone business even as it competes for Internet data and television dollars.

All of this is supposed to bring lower prices, but that hasn't happened across the board, either because there are too few competitors or because the cost of content such as sports programming keeps climbing.

State and federal approvals are needed for the SNET deal. Connecticut Attorney General George Jepsen and U.S. Sen. Richard Blumenthal, the former attorney general, both said they would look closely at the deal, especially as it affects basic phone service. "My focus will be on evaluating the effect that this transaction will have on quality of service provided at reasonable rates, as well as the impact on competition, Connecticut's workforce and the state's efforts to streamline and improve the use and control of utility poles," Jepsen said in a written release.

Frontier uses a district system, under which it would have an Eastern headquarters, in New Haven, where AT&T's state headquarters is now based; a main Connecticut office in Hartford; and districts, each with a general manager, in Hartford, Stamford, New Haven, New London and a Litchfield County location to be named. That tiered system is consistent with saving costs even though it adds levels of management, McCarthy said.

Clearly, the cultures of AT&T and Frontier are very different. Frontier, which does not now sell service in Connecticut, focuses largely on rural areas throughout the country — and said that Connecticut is 48 percent rural. And McCarthy said that AT&T's higher centralized, corporate expenses in areas such as surveillance, engineering and planning give Frontier a way to cut costs without lopping payroll.

"We don't own a plane, for instance. We don't have the overhead," McCarthy said. "Our systems are much less expensive to operate than theirs ... and that's been our hallmark as a company."

AT&T now has a total of 4,600 Connecticut employees. Among the 1,900 not going to Frontier, there will be "no significant effect" on employment levels, a company spokeswoman said. It's not known whether John Emra, the Connecticut president for AT&T, will remain with the company. He's not moving to Frontier in his present job, McCarthy said.

Frontier has 200 people at its Stamford headquarters, a number that could grow, although that decision has not yet been made, McCarthy said. The company, formerly known as Citizens Utilities and later Citizens Communications until 2008, has made several acquisitions, including the wireline service in all of West Virginia and parts of 13 other states from Verizon in an $8.6 billion deal that tripled the company's size in 2010.

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