Jana Partners claims stake in Frontier, encourages company to sell

Frontier Communications is gaining some attention from the private equity sector. Activist investment firm Jana Partners has taken a stake in the company and is encouraging Frontier to sell itself, according to Reuters.

Jana’s managing partner Scott Ostfeld confirmed the news to the outlet on Tuesday, adding a “large communications company” is investing alongside the firm but did not give out the name.

As for why Frontier should consider a sale, Ostfeld said the operator’s depressed valuation and “strong position” in the fiber broadband sector would make it “an attractive asset” for wireless carriers and private equity-owned telcos.

Frontier in August doubled down on its long-term fiber plans with a $2.1 billion fiber securitization offering, which covers 600,000 locations in Frontier’s Dallas market and raised the company’s debt to around $3,400 per passing.

At an investor conference last month, Frontier CEO Nick Jeffery said the fiber securitization gives the operator a “very clear path” to hit 10 million passings through the end of 2025.

Frontier and other telcos saw their stocks take a downturn, after the Wall Street Journal published an investigative exposé claiming at least 2,000 copper cables in the U.S. are contaminated with lead.

For Frontier’s part, the company has said lead-sheathed cables make up a “single percentage” of its 650,000-mile copper footprint.

Analysts at New Street Research argued it’s too soon for Frontier to consider a sale, for a few reasons. First, Frontier continues to make progress on upgrading its copper network to fiber and it’s “close to fully funded” for its 10 million passings goal.

The firm noted Frontier also has “big opportunities” with the Broadband Equity, Access and Deployment (BEAD) program, decommissioning copper (though Jeffery has said that’s about 3-5 years away) and driving up fiber penetration in markets such as Dallas.

The company is actually planning to move its HQ to Dallas from Connecticut, a play it expects will boost the state and local economy by $3.8 billion and increase jobs in the area.

“Frontier has developed the formula for alchemy - in this case, converting copper to gold,” said NSR’s Jonathan Chaplin. “If you are sitting on a pile of copper that will become gold with the passage of time, you wouldn’t sell it for a penny less than the price of gold (less the upgrade costs).”

Chaplin also argued Frontier has the chance to acquire other fiber assets, eventually making its company more attractive to the bigger telecom players.

“Frontier, and its current owners, should capture the value of the capabilities they have built by acquiring other assets that aren’t being as capably managed,” he said, while noting other fiber providers like Metronet and Ziply are moving along with deployments but “aren’t operating at close to the scale that Frontier is.”