Warwick Valley Telephone acquires Alteva

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Top M&As 2011Deal size: $17 million

Why it's relevant? While the majority of 2011's attention on the cloud arena has centered on the activity of the large incumbent carriers like CenturyLink (NYSE: CTL) and Verizon (NYSE: VZ), smaller independent telcos like Warwick Valley Telephone (WVT) are being no less aggressive.

Like many traditional one of the remaining independent smaller ILECs that emerged at the turn of the 20th century, Warwick Valley Telephone has in recent years been expanding into more profitable areas like business services and its acquisition of Alteva is a key piece of that trend.

Complementing its previous acquisition of nationwide business service provider USA Datanet, the $17 million Alteva acquisition helps the rural-based service provider advance its dream of being more than just another voice-only service provider with a host of unified communications (UC) and cloud services for SMBs, as well as managed services.

Upon completing the deal, WVT combined its CLEC operations--USA Datanet operations (which primarily serves small businesses under 35 employees and Alteva (serving businesses with over 35 employees and multisite businesses).

When the deal was announced, WVT said that by combining USA Datanet with Alteva it will be able to "better capitalize on the growth that both service providers had been experiencing independently in the fast growing market for UC and hosted applications for business and enterprise customers."

Already, it looks like the acquisition and strategy is paying off as the service provider reported that its higher margin UC revenues increased by nearly 200 percent year-over-year and that it has a strong backlog of UC orders. In addition to finding an emerging revenue source, the advent of UC and cloud into their business allowed WVT to reallocate their existing landline employee base to service the new services.

Taking it a step further, the ILEC said that it is considering extending the UC-based services over its broadband networks to residential subscribers, but no date has been confirmed yet on that type of service.

Like its larger counterparts, WVT's drive into the cloud for businesses and possibly residential customers is a way to offset the ongoing wireline voice line loss it has continued to suffer from a two-pronged attack of wireless substitution and being lured away by cable operators offering triple play bundled packages.

And while the landline voice loss is an inevitability that neither WVT nor any traditional ILEC will be able to overcome, offering emerging services like cloud and UC as part of right-priced bundles that take into consideration the business customer's unique needs is a way to make up for those losses.