Consolidated Communications buys SureWest

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The deal: Consolidated Communications (Nasdaq: CNSL), an independent ILEC, acquired Roseville, Calif.-based SureWest last July for $324 million.

Out of the deal, Consolidated immediately expanded its network and customer base with a presence in two new markets: Kansas City and the Sacramento, Calif.

What's interesting is that the SureWest deal does not give the Mattoon, Ill.-based telco a contiguous footprint since it has operations in Illinois, Pennsylvania and Texas where it serves customers with a suite of traditional voice, data and video services to residential and business services. 

A key point of the SureWest deal is the customer breadth and network assets. At the time of closing, SureWest served 130,000 residential subscribers and 15,700 commercial businesses in both Kansas City and Sacramento, Calif. regions.

Why it's significant: By purchasing SureWest, the telco immediately gained a sizeable fiber-based last mile network in both Kansas City and in California. Consolidated on its own had operated FTTH networks in Texas with plans to continue building them out in Greenfield areas.

Being traditional ILECs, however, Consolidated and SureWest also both have a strong copper-based network from which they can deliver IPTV and higher speed broadband services. Prior to the merger, the two telcos had been building out a strong base of copper-based IPTV and fiber-based TV subscribers.

Over its own copper network, Consolidated can deliver up to 20 Mbps to at least 65 to 70 percent of the company's ILEC lines today. 

"Even in SureWest land or Consolidated, I am not sure of any areas where we are not getting the speeds we need over the copper network," said Steve Childers, CFO of Consolidated at a recent investor conference. "We are really comfortable with the loop lengths and the quality of the copper network."

Besides traditional consumer services, Consolidated's SureWest deal also enhanced its wholesale and business services portfolio. On the wholesale side, Childers said it has 650 towers it is building out fiber to both inside and outside of its footprint.

Already, it appears that the acquisition is creating positive results for Consolidated. In Q3 2012, the telco reported revenues of $157 million, up from $92.5 million in Q3 2011.

Bob Currey, President and CEO of Consolidated Communications, said in the earnings release that "the results from the newly acquired SureWest assets were better than expected."

Neither Consolidated nor SureWest are the largest ILECs, but their marriage illustrates the necessary and ongoing consolidation of the independent ILEC space. Smaller telcos are looking to scale their operations by either being bought out or purchasing another company that complements them. Of course, the main challenge that Consolidated will face in the near-term in the California market is a lack of brand equity, something that it will have to tackle as it integrates the operations of the two companies into one.