Frontier could be the perfect fit for T-Mobile fiber JV: New Street Research

T-Mobile and Frontier sitting in a tree, D-E-P-L-OY-ING. New Street Research analyst Jonathan Chaplin told Fierce the pair could be a match made in heaven as reports surfaced that the wireless operator is looking to pursue a fiber joint venture or commercial partnership.

Bloomberg reported this week T-Mobile has hired Citigroup to help it find a partner for a joint venture that could be worth up to $4 billion. The move comes more than a year after T-Mobile launched a fiber pilot program in New York City.

T-Mobile declined to comment. But Chaplin told Fierce that Frontier Communications seems like a natural fit for the role for a number of reasons. Frontier is currently working toward a goal of reaching 10 million locations with fiber by the end of 2025. It ended Q3 2022 with 4.8 million locations passed.

According to Chaplin, T-Mobile is likely looking for an operating partner rather than just an investor to supply capital. And in terms of operational execution, Frontier has a leadership team that can’t be beat, he said. Plus, the pair have similar company cultures and market positions as disruptors, Chaplin added.

“T-Mobile isn’t interested in just investing $2 billion in a fiber venture. They’re doing this because there’s a prospect it’s going to become a much bigger strategic initiative,” Chaplin said.

While T-Mobile has historically preferred to lease rather than own fiber for its cellular network, it has recently indicated it is at least interested in learning more about terrestrial networks. The New York pilot aside, CEO Mike Sievert responded to a question about fiber on T-Mobile’s Q3 2022 earnings call by saying it is “interested in adjacencies that would very smartly utilize” its brand, 5G network and team.

“We have some partnerships that we're pursuing now called T-Fiber at a very small scale, so we can make sure that we're learning,” Sievert continued. “We're also learning a lot about what it takes to be a home broadband operator.”

For Frontier, a joint venture could give it the capital necessary to target markets beyond the scope of its current plan and could potentially tee up a mobile partnership as well, Chaplin said. Frontier is currently in phase two of a three-phase fiber build plan. Phase two (or Wave 2 as the company calls it) will see it add 6 million new fiber locations to reach its 10 million target. But it is also eyeing an opportunity to reach as many as another 5 million locations in Wave 3. Executives have said previously that the scope of phase three will be dependent on its ability to secure government subsidy funding.

“They’ve got a bunch of assets that they can’t get to because they’re using all of their available capital to go after other assets,” Chaplin said of Frontier. “And then there’s a big subsidy opportunity through the BEAD program that the Frontier guys on their own can’t get to as well.”

Making it work

To be clear, Chaplin said the idea of a T-Mobile-Frontier tie-up is purely speculative at this point. If there were discussions between the pair, he said, then T-Mobile wouldn’t have hired Citigroup to help it find a partner.

In a note to investors, Chaplin said a $4 billion joint venture could help T-Mobile reach at least 1.4 million homes.

But he told Fierce T-Mobile and its partner – especially if it is Frontier – will need to work out who will own the customer relationships in the markets covered.

There are a few options for how this could shake out: first, one of the companies is granted exclusivity in the joint venture markets; two, the pair do a 50-50 split; or three, the partners have a jointly-owned asset that they both market.

Chaplin said he doesn’t think Frontier would be thrilled to just be responsible for deploying the infrastructure and let T-Mobile own the customers, nor does he think T-Mobile would just want to contribute capital and let Frontier be the face of it all. Either arrangement is possible, though, given Frontier has a wholesale business already and T-Mobile is actively seeking knowledge behind the scenes.

In terms of the third option, Chaplin said while there aren’t too many examples in the U.S. of operators having jointly owned assets, the model is both popular and successful in Europe.