form425.htm
Filed
by Frontier Communications Corporation
Pursuant
to Rule 425 under the Securities Act of 1933
Under
the Securities Exchange Act of 1934
Subject
Company: Frontier Communications Corporation
Registration
Statement No. 333-160789
The
following is a transcript of Ken Arndt's appearance on the television show
Decision Makers, first aired on November 8, 2009:
Bray Cary: The
proposed sale of Verizon to Frontier Communications has been generating plenty
of headlines, and here to help us get a better understanding of the transaction
and what all’s at stake is Ken Arndt, who’s the Senior Vice President, Southeast
General Manager of Frontier Communications. Again, thank you for
joining us.
Ken Arndt: Thank
you for the opportunity.
Bray Cary: Well,
Ken, a lot of conversation going around – people getting nervous about their
telephones. You guys are right now serving about 35% of West
Virginia. You all announced that back in May that you are going to
purchase the Verizon operations in West Virginia. And that’s got to
be approved by both the FCC and the Public Service Commission here in West
Virginia. And, I guess the only guys fighting you all right now are
the communication workers – the union workers – for Verizon, and we’ll get into
all that, but first, you all currently serve about 35% of West
Virginia. Is that right?
Ken Arndt: That’s
correct.
Bray Cary: And
where is that? Because that’s a third of phones down in this part of
the state, at least – no one’s heard.
Ken Arndt: We serve
markets like Bluefield/Princeton. We serve the eastern panhandle –
Charleston. We serve places like Hundred and Welch, West Virginia – a
lot of rural areas throughout the state.
Bray Cary: And, did
you all build those out or have those been acquisitions that you’ve had over the
years?
Ken Arndt: We
actually acquired those – the majority of the properties in the state we
acquired through GTE. The former Verizon properties here in the state
– GTE, as well as some Alltel properties.
Bray Cary: Tell us
just a little bit about Ver, I’m sorry, Frontier. You all have
started to acquire a lot of rural telephone systems throughout
America. Tell us about the size, the scope and a little bit of your
history.
Ken Arndt: Frontier, the
Corporation, has been around for about 70 years. The company actually
grew through acquisition. We - our corporate parent, we just recently
renamed our Company Frontier, we, our corporate parent was named Citizens
Communications. And we currently serve 24 - in - we are a
telephone operator in 24 states today, mostly in rural America, although we do
serve some urban markets like Rochester, New York, Elk Grove, California, which
is a suburb of Sacramento, and Burnsville market which is a suburb of
Minneapolis / St. Paul. So, we’ve grown the company through
acquisitions over the past really 10 years, our most recent large acquisition
was three years ago where we bought Commonwealth Telephone Enterprises which was
the 13th largest
telephone company in America and they were headquartered in
Pennsylvania. So we continue to grow and expand and again we are in
24 states with 5,000 employees.
Bray Cary: And Ken
what, what - are you all focused on trying to build these kinds of systems, is
that the kind of operator you want to specialize in?
Ken Arndt: We
believe that the future is in broadband. We believe the future of the
landline network, which is what we are, we are a landline provider, we don’t
provide wireless or cellular service. We do provide wireless data,
but we are a landline provider. And - which means that we have
connectivity to the home or business. And we believe that via
broadband, via growth and investment in the broadband network, that that is
where our growth, and our future growth lies.
Bray Cary: Does
that mean that we would see a major expansion of broadband into the homes in
West Virginia, because we have one of the worst penetration rates of any
state.
Ken Arndt: In
Verizon territory you do, not in Frontier’s territory in West
Virginia. In Frontier’s footprint, we cover about 92% of the
households in the state. That compares to 60% in the Verizon
footprint.
Bray Cary: Well, you know,
it’s been well storied, well documented, all of our politicians
talk. If you get really more than a couple of miles outside of a
county seat in West Virginia it’s very difficult to get broadband service at
least on the hardline.
Ken Arndt: In Verizon’s
territory.
Bray Cary: And how quickly if
you all are successful in your acquisition – getting it
approved. After approval, after you all take over, what would be the
timeline that it would take to build that out?
Ken Arndt: From a timeline
perspective, and we’re actually finishing our engineering plans right
now. In fact, our engineering plans will be finished by December
15th
of this year. But my expectation is that within, you know, the first
18 months we would make a substantial increase, raising that 60% exponentially
in the first 18 months and making a large investment and bringing in the
individuals – the engineering talent and the construction talent to be able to
get it done as quickly as possible.
Bray Cary: And do you have to literally
rebuild the lines? Do you have to put a different kind of line
in?
Ken Arndt: In some cases,
yes. What we’re focused, we actually, along with the state, filed for
broadband stimulus funding for what’s called the middle mile. And
the, not to get too technical but, from your home or business that line comes to
a central office and then the central office – that main location –
interconnects with other central offices through out the state and the country.
What that middle mile allows us to do is provide an upgrade, that network that
interconnects those central offices throughout the state and then we will focus
on the last mile buildout which will increase speeds, availability and
redundancy.
Bray Cary: And would it be
fair to say that within five years of your acquisition that we will see a
significant improvement in the availability of broadband in West
Virginia?
Ken Arndt: I would say within
18 months.
Bray Cary: I’ll take 18
months, I was trying to give you a little cushion. What do you think the future
of telephone, just regular telephone service is, hardline –
Ken Arndt: It is an
interesting question and I’ll use some numbers to kind of support my approach.
In West Virginia today, in 2007, Frontier lost 2.7% of our access lines, so that
means 2.7% of the customer base left, either to cable companies, to wireless, to
CLEC or just moved out of the state. In Verizon’s footprint, they lost 6.7%, so
almost 3 times the rate. In 2008, our access line loss declined to 2%, Verizon’s
access line (loss) increased to 8.8%. Now, you’re saying, why is that? Well
we’ve put together, and obviously you have to look at some of the markets we’ve
served, we’ve put together unique packages, unique approaches that continually
add value to landlines. While we’re not naive to believe that there isn’t a
substitution going on – there is wireless substitution, people are getting rid
of their landlines – but we’re continuing to drive inherent value into that
landline, through packaging, providing unique services and some really unique
technologies that will be coming down the pipe in the near term.
Bray Cary: And the broadband
that you’re talking about , I mean clearly, and everyone acknowledges; hardline
broadband, particularly through fiber is much faster, much more robust – much
bigger pipe to get data through versus wireless, which is still in its infancy,
at least in the development stages.
Ken Arndt: That’s
correct.
Bray Cary: Alright Ken, we’re
going to take a quick break and we’ll come back and we’ll get into some of the
other stuff. We’ll be back on Decision Makers, after this.
Bray Cary: We’re back with Ken
Arndt, Senior Vice President from Frontier Communications. Again,
thanks again for being with us. Let’s talk a little bit, I want to
finish up just on your service. Some phone companies, Verizon being
the primary one, have started a cable television provider through those same
lines. Is that something you all will be looking at?
Ken Arndt: Well, as part of
this acquisition, we are acquiring some FiOS properties, primarily out
West. FiOS is the Verizon service where they provide cable over that
service. We have not at this point went beyond, we do have the
technology in our laboratories. We have been trialing the
technology. But we also provide satellite service. And at
Frontier, we believe in providing kind of service ubiquity, not trying to
differentiate between the haves and the have-nots. And satellite to date
provides a very robust service, in fact I’m a little biased, but I believe it is
actually better than cable service today. So that is our primary
delivery mechanism for cable programming. It is bundled into our
service offering. We bill for it. We take the customer
calls for it, for the satellite service. So that is our primary
approach. Now we have built and in West Virginia, in Charleston, as
an example, we have built fiber to the home communities. Where we
have built fiber optics directly to the home. It is primarily for
high bandwidth and delivery and we will be introducing next year some unique
cable programming delivery via broadband that I think a lot of people will
enjoy.
Bray Cary:
Alright. Now let’s get into the approval
process. The first hurdle you have to have is approval by the West
Virginia Public Service Commission to do this and the only real opposition that
has surfaced has been from the Verizon union, the CWA, Communications Workers of
America, and their main argument is financial instability and they’re looking at
some other Verizon transactions – not with you all – that have hit because the
companies weren’t well funded or weren’t stable have hit some rough waters. You
all, on the other hand, have a track record of being able to take acquisitions,
do them right, get them through…and I did a little research. Standard &
Poor’s has given you all double B corporate rating on your debt…and for those
people that may not know that is a very good rating and it says the outlook is
stable and it takes into consideration your acquisition of the West Virginia
Verizon. The other thing that’s been pretty noticeable is since the date of May
13th
, when you announced this to today, your stock is essentially unchanged.
Typically, stocks go down when acquisitions…so both of those speak volumes about
the stability of your company and the confidence that Wall Street has, so it
would appear to run totally counter to what the union is
suggesting. So, where are you on all that?
Ken Arndt: Um, you know, from
a financial standpoint, and, you know, to me it’s about the facts. And if you
are looking to invest in companies you are going to invest in stability. And
when you look at Frontier, we are a Fortune 1000 Company. We are on the S&P
500. And after this acquisition we will be a Fortune 500 Company. And when you
look at our finances today, we have $2.2 billion in revenue. That revenue stream
will grow to approximately $7 billion in revenue. Our debt ratio
today sits at 3.8 times EBITDA. So 3.8 times after what is left over after
our expense, if you take out expense from our revenue, our debt is 3.8
times. That gets reduced, day one, without any synergies or anything
else, that gets reduced to 2.6x. So we grow our revenue three times, we
decrease our debt; we become almost investment grade from a rating perspective,
day one. That’s a great opportunity.
Bray Cary: Well that I guess,
as I was looking at what your financials says, and by the way Standard &
Poor’s – those guys have no dog in hunt so that’s a very reliable evaluation.
I don’t understand what the concern is, and yet I’m hearing a lot of noise
about it, but I don’t understand what the facts are.
Ken Arndt: There’s another
company called Fairpoint Communications. Fairpoint was a company that was
smaller then, they were about 125,000 access lines. We’re 1.6 million
access lines. They were a very small company that bought a market, the
Verizon markets in the Northeast United States, Vermont, Maine,
Massachusetts. They had to create brand new billing systems, from
scratch. And you know, if you’ve ever experienced switching over to new a
new system, it’s fairly difficult. So they created brand new, purpose built,
billing and back-office systems just for this acquisition
Bray Cary: And Ken, you
all, you’re announced plans are to bring your Southeast headquarters to
Charleston, West Virginia. So West Virginia will become a headquarter
state. It will become a very key, pivotal point of your operation.
What is the timing of this if it goes as expected?
Ken Arndt: If it goes as
expected, the headquarters, we expect it to be running in the state of West
Virginia and the entire Southeast Region, I expect to be running it, by late
May.
Bray Cary: Late May of
2010. So Public Service, their hearings are in January, then they
will rule on that some time relatively shortly after the hearings, and then the
final step, I guess, is the FCC and then shareholder approval
Ken Arndt: We already have
shareholder approval. That actually happened a few weeks ago, so we
have shareholder approval and the overwhelming support of the Frontier
shareholders. Verizon shareholders do not have to approve this;
Frontier shareholders have overwhelmingly approved the transaction.
Bray Cary: So the two
governing bodies approve it and you guys are ready to go.
Ken Arndt:
Correct.
Bray Cary: Alright, well Ken
Arndt, thank you. I guess everybody ought to get used to hearing
Frontier Communications, because statewide it’s going to probably be our
telephone provider and broadband provider for the future. Ken thank
you very much and we’ll be back with more on Decision Makers after
this.
Forward-Looking
Language
This
communication contains forward-looking statements that are made pursuant to the
safe harbor provisions of The Private Securities Litigation Reform Act of 1995.
These statements are made on the basis of management’s views and assumptions
regarding future events and business performance. Words such as “believe,”
“anticipate,” “expect” and similar expressions are intended to identify
forward-looking statements. Forward-looking statements (including oral
representations) involve risks and uncertainties that may cause actual results
to differ materially from any future results, performance or achievements
expressed or implied by such statements. These risks and uncertainties are based
on a number of factors, including but not limited to: our ability to complete
the acquisition of access lines from Verizon; the failure to obtain, delays in
obtaining or adverse conditions contained in any required regulatory approvals
for the Verizon transaction; the failure to receive the IRS ruling approving the
tax-free status of the Verizon transaction; the failure of our stockholders to
approve the Verizon transaction; the ability to successfully integrate the
Verizon operations into our existing operations; the effects of increased
expenses due to activities related to the Verizon transaction; the ability to
migrate Verizon’s West Virginia operations from Verizon owned and operated
systems and processes to Frontier owned and operated systems and processes
successfully; the risk that the growth opportunities and cost synergies from the
Verizon transaction may not be fully realized or may take longer to realize than
expected; the sufficiency of the assets to be acquired from Verizon to enable us
to operate the acquired business; disruption from the Verizon transaction making
it more difficult to maintain relationships with customers, employees or
suppliers; the effects of greater than anticipated competition requiring new
pricing, marketing strategies or new product or service offerings and the risk
that we will not respond on a timely or profitable basis; reductions in the
number of our access lines and High-Speed Internet subscribers; our ability to
sell enhanced and data services in order to offset ongoing declines in revenue
from local services, switched access services and subsidies; the effects of
ongoing changes in the regulation of the communications industry as a result of
federal and state legislation and regulation; the effects of competition from
cable, wireless and other wireline carriers (through voice over internet
protocol (VOIP) or otherwise); our ability to adjust successfully to changes in
the communications industry and to implement strategies for improving growth;
adverse changes in the credit markets or in the ratings given to our debt
securities by nationally accredited ratings organizations, which could limit or
restrict the availability, or increase the cost, of financing; reductions in
switched access revenues as a result of regulation, competition and/or
technology substitutions; the effects of changes in both general and local
economic conditions on the markets we serve, which can impact demand for our
products and services, customer purchasing decisions, collectability of revenue
and required levels of capital expenditures related to new construction of
residences and businesses; our ability to effectively manage service quality;
our ability to successfully introduce new product offerings, including our
ability to offer bundled service packages on terms that are both profitable to
us and attractive to our customers; changes in accounting policies or practices
adopted voluntarily or as required by generally accepted accounting principles
or regulators; our ability to effectively manage our operations, operating
expenses and capital expenditures, to pay dividends and to repay, reduce or
refinance our debt; the effects of bankruptcies and home foreclosures, which
could result in increased bad debts; the effects of technological changes and
competition on our capital expenditures and product and service offerings,
including the lack of assurance that our ongoing network improvements will be
sufficient to meet or exceed the capabilities and quality of competing networks;
the effects of increased medical, retiree and pension expenses and related
funding requirements; changes in income tax rates, tax laws, regulations or
rulings, and/or federal or state tax assessments; the effects of state
regulatory cash management policies on our ability to transfer cash among our
subsidiaries and to the parent company; our ability to successfully renegotiate
union contracts expiring in 2009 and thereafter; further declines in the value
of our pension plan assets, which could require us to make contributions to the
pension plan beginning no earlier than 2010; our ability to pay dividends in
respect of our common shares, which may be affected by our cash flow from
operations, amount of capital expenditures, debt service requirements, cash paid
for income taxes (which will increase in 2009) and our liquidity; the effects of
any unfavorable outcome with respect to any of our current or future legal,
governmental or regulatory proceedings, audits or disputes; the possible impact
of adverse changes in political or other external factors over which we have no
control; and the effects of hurricanes, ice storms or other severe weather.
These and other uncertainties related to our business are described in greater
detail in our filings with the Securities and Exchange Commission, including our
reports on Forms 10-K and 10-Q, and the foregoing information should be read in
conjunction with these filings. We undertake no obligation to publicly update or
revise any forward-looking statement or to make any other forward-looking
statements, whether as a result of new information, future events or otherwise
unless required to do so by securities laws.
Additional
Information and Where to Find It
This communication is not a substitute
for the definitive prospectus/proxy statement included in the Registration
Statement on Form S-4 that Frontier filed, and the SEC has declared effective,
in connection with the proposed transactions described in the definitive
prospectus/proxy statement. INVESTORS ARE URGED TO READ THE DEFINITIVE
PROSPECTUS/PROXY STATEMENT BECAUSE IT CONTAINS IMPORTANT INFORMATION, INCLUDING
DETAILED RISK FACTORS. The definitive prospectus/proxy statement and other
documents filed or to be filed by Frontier with the SEC are or will be available
free of charge at the SEC’s website, www.sec.gov, or by directing a request when such a
filing is made to Frontier, 3 High Ridge Park, Stamford, CT 06905-1390,
Attention: Investor Relations.
This
communication shall not constitute an offer to sell or the solicitation of an
offer to buy securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of such
jurisdiction.
Frontier’s
stockholders approved the proposed transactions on October 27, 2009, and no
other vote of the stockholders of Frontier or Verizon is required in connection
with the proposed transactions.