January 16, 2007 8:25 AM PST

Verizon to spin off some assets for $2.7 billion

Verizon Communications plans to spin off part of its telephone and DSL business in rural parts of the New England and combine it with independent phone company FairPoint Communications in a deal worth $2.7 billion.

Verizon said Tuesday that it will create a separate business unit that will combine its local exchange businesses in Maine, New Hampshire and Vermont with FairPoint's business. FairPoint executives will manage the former Verizon assets and employees. Verizon will own about 60 percent of the new company, and FairPoint will own the remaining 40 percent.

The deal is expected to be finalized within a year, the companies said.

The combined business will be the eighth-largest phone company in the U.S., serving approximately 1.6 million access lines, 234,000 high-speed data subscribers, and 600,000 long-distance customers, FairPoint said in a statement.

The deal is expected to add value to Charlotte, N.C.-based FairPoint, which operates 31 local exchange companies in 18 states. As of September 30, 2006, the company had about 308,858 access lines. In the majority of the rural communities where FairPoint operates, it is the incumbent telephone provider, serving fewer than 2,500 access lines.

Verizon's operations in Maine, New Hampshire and Vermont that will be merged with FairPoint generated about $1.2 billion in revenue in the year that ended December 31, 2005. FairPoint said it also expects to generate $60 million to $75 million in annual cost savings when the operations are combined and fully integrated.

The deal comes as Verizon has been aggressively expanding its fiber-to-the-home network, called Fios, to compete against service packages offered by cable companies. The new Fios network will enable Verizon to offer customers a so-called triple play package that includes high-speed data, telephone and TV services. The company expects to spend about $20 billion over the next few years to build the network.

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