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Frontier Launches Product with AT&T

Zacks Equity Research

Frontier Communications Corporation (FTR) in collaboration with AT&T, Inc. (T) has launched new voice and data services. Frontier’s customers can now enjoy AT&T’s mobile broadband network along with wireless devices and applications as a part of Frontier’s bundled services.

The services launched are in accordance with the three year agreement that took place in November 2011 between Frontier and AT&T. Under the terms of the agreement, Frontier’s customers would be provided with an access to AT&T’s wireless broadband services that included access to over 29,000 AT&T’s Wi-Fi Hot Spots. Further, the agreement offered Frontier’s customers a variety of AT&T smartphones, tablets and applications and use of 4G network.

We expect that Frontier’s tie up would undertake sales of AT&T’s products over the next three years and support a strong portfolio of broadband, voice and satellite TV services. The deal would also fuel subscriber growth while retaining the old customer base. It would also boost Frontier’s competitive position against CenturyLink, Inc. (CTL) which has a similar deal with another tier 1 company – Verizon Communications Inc. (VZ).

Apart from the AT&T deal, Frontier also made a lucrative agreement with Verizon to acquire 4.8 million access lines in 2009. In April this year, Frontier completed the transfer of Verizon’s assets from 14 rural states, positioning itself as the largest rural telecommunications company in the U.S. and fifth largest incumbent local exchange carrier (:ILEC). It is anticipated that these conversions would boost earnings and provide cost synergies of approximately $650 million by the end of 2012.

Overall, Frontier is progressing well in its profitability enhancement through lucrative deals, cash flow management and customer retention and wins, new product deployments as well as broadband expansion.

However, intense competition, a highly leveraged balance sheet and regulatory pressure may limit the earnings potential of the company.

We maintain our long-term Neutral recommendation supported by a Zacks #3 Rank (Hold).

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