Verizon Communications Inc. on Thursday announced plans to acquire Frontier Communications in an all-cash transaction valued at $20 billion, which is expected to expand Verizon's fiber footprint nationwide.
Verizon told FOX Business that this deal would effectively accelerate the company’s delivery of mobility and broadband connectivity services to current and new customers. For one, it would expand the availability of its fiber broadband to reach 25 million homes and businesses across 31 states and Washington, D.C.
Currently, Verizon has 7.4 million Fios connections across homes and businesses.
Business strategist Marva Bailer told FOX Business that this would help build redundancy in the network. For instance, if there is a connectivity issue in one part of the country, then the company will be able to better leverage other areas of its network, so customers will not be as affected.
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"The combination of assets provides opportunity for redundancy and new destinations for high volume traffic areas or disruption, keeping quality, continuity and security for businesses and consumers," Bailer said.
According to the Harvard Business Review, between 70% and 90% of mergers and acquisitions fail as "companies too often pay the wrong price and integrate the acquisition in the wrong way."
However, on Wednesday, prior to the news being announced, JPMorgan analysts commented on the rumor of a potential acquisition between the companies, saying the deal "would support the view of increased demand from US consumers and attest to the enhanced economics for providers."
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Bank of America analysts published a note on Thursday, saying how the deal could help Verizon hold onto customers. When fiber and mobility are sold together, Verizon "enjoys a 50% reduction in mobility churn and a 40% reduction in fiber churn," according to the analysts.
Churn is the rate at which customers or subscribers stop doing business with a company. A high churn rate indicates that a high number of customers are not getting enough value from the product or service being sold.
Verizon Consumer CEO Sowmyanarayan Sampath previously said that "one of the biggest things we see is when you bundle fiber with mobility, we see up to a 50% reduction in our mobility churn. And that's really important for us. And we also see a 40% reduction in fiber churn as well when we bundle the two."
Bank of America analysts also said this type of deal could presumably boost the number of people who bundle fiber and wireless. Verizon believes up to 40% of customers could eventually choose to do so.
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The deal is expected to close in 18 months and is subject to shareholder and certain regulatory approvals.
