Consolidated's Enventis deal shows ongoing need to diversify its revenue base
Consolidated Communications' move to acquire fellow independent telco Enventis for $350 million may not be on par with the blockbuster deals its independent ILEC counterparts CenturyLink (NYSE: CTL) and Windstream have made in recent years, but it's significant in that it is a sign of another smaller telco branching out of its all-voice service roots.
By acquiring Enventis--a company that went by the name of HickoryTech until the beginning of this May--Consolidated adds more fiber to its diet to fulfill its growing business service desires. Specifically, it gains a 4,200-mile fiber network that spans Minnesota, Iowa, the Dakotas and western Wisconsin.
An added bonus is that Consolidated gains access into the Fargo, N.D., area with a fiber network that Enventis previously acquired from IdeaOne in 2012.
"Enventis' fiber footprint extends from the Minneapolis hub, up to Duluth, through Fargo, down to Sioux Falls and over to Des Moines," said Bob Currey, chairman and CEO of Consolidated Communications, during the conference call announcing the deal. "The demographics are very good with unemployment of 3-4 percent and strong commercial growth, and the attractiveness of these markets complements our existing diversified footprint very well."
Having an expanded fiber network in the Midwest will enable Consolidated to broaden the reach of its facilities-based Ethernet service for both businesses and other service providers, including wireless operators.
While it did not break out specific numbers, the telco reported that a 21 percent rise in Metro Ethernet revenue drove up overall first-quarter 2014 data, video and Internet services revenue to $68.2 million.
New and existing multi-site businesses that reside in both of these telcos' territories will also bear benefit from this acquisition. Consolidated can use the expanded fiber footprint to serve both its own multi-site business customers that need access into markets like Minneapolis, while Enventis' customers could gain access to other markets, like Illinois and Texas, from one service provider.
But the fiber assets are only one part of the total equation.
Consolidated will also enhance its growing cloud services portfolio. Just last week, Enventis announced that it expanded its own growing business cloud services suite to include a cloud Wi-Fi service, a hosted unified communications service called Cloud Compute and a data protection service. Part of that offering includes an expansion of its SingleLink UC service.
Apart from offering some hosted services in some markets via partnerships with other providers, Consolidated has not made a major cloud services push yet.
Stopping short of announcing any specific plans, Bob Udell, president and COO of Consolidated, said that the company could potentially leverage Enventis' model of layering on its data center and cloud services on top of its Metro Ethernet product in other markets.
"We actually have been partnering on a market by market basis with third-party cloud service providers and have been exploring that in a more aggressive way over the past couple of quarters," Udell said. "This gives us a more nicely packaged alternative to consider and we would consider expanding it to our other markets if we could digest and see a nice clean path to doing so."
News of this acquisition shouldn't be all that surprising. With much of its SureWest integration behind the company, it was only a matter of time until Consolidated made another deal.
During the Wells Fargo Securities Tech, Media & Telecom Conference in November, Consolidated's CFO Steve Childers said the telco was interested in looking at other service providers that could potentially enhance the reach of its fiber network to deliver metro Ethernet to businesses and fiber to the tower (FTTT) services to wireless operators.
Consolidated has never been shy about making deals, particularly those that complement its operations and can contribute to its goal of driving new organic growth. Over the past 10 years, the telco has been quite active on the M&A front, making three key purchases: TXU Communications in 2004; North Pittsburgh Systems in 2007; and SureWest in 2012.
Each of these deals added something new to the company. TXU immediately tripled the size of Consolidated, while it exceeded its synergy guidance with North Pittsburgh and SureWest.
Like Enventis, Windstream and CenturyLink, Consolidated's latest move is part of a broader trend to diversify its revenue base as its voice business continues to decline.--Sean