TC2's David Rohde on Telecom

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Local telco cash flow pushes another player to the fore

By David Rohde Posted August 15, 2011

Well, that didn’t take long! We understand that the Qwest name is about to be relegated to the history books.

CenturyLink, the once-obscure consolidator of local telcos in non-RBOC areas, is about to put its brand name on all its Qwest accounts. That’s as it’s preparing for its next takeover – Savvis, the hosting and cloud provider that’s expected to further ramp up CenturyLink’s enterprise sales energy.

Maybe it’s time to get used to another name too. “Windstream,” another of these independent telco operators that you’d run into only incidentally depending on the location of your branches or stores, is buying PAETEC, a niche enterprise carrier, but one that’s important to its customer base. PAETEC has been known particularly in the Verizon ILEC region as a key CLEC especially to middle markets and certain verticals such as education, healthcare, and professional offices. Not long ago PAETEC itself snapped up another CLEC, McLeod, known throughout the middle of the country.

Like Century, Windstream is leveraging the still-strong cash flow from being a consumer-oriented local telco in order to transition its business – before the idea of a “telephone company” in the copper wireline sense becomes obsolete.

Before the inevitable big bang, such as a prospective combination involving Sprint, takes place, the players in the next tier are bulking up and diversifying – short of buying a wireless network, which will take tens of billions of dollars. The idea is to combine things like SIP, local fiber, and national competence in at least the business middle market before the well runs dry on plain old wireline telephony.

Next up I would not be surprised to see a combination of two national second-tier players with complementary strengths, such as lots of broad middle market presence (like a TW Telecom) and a player specializing in on-net fiber just in big metro areas for top Fortune companies (like AboveNet). Keep watching!

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