TDS expands broadband, business reach with $267.5 million Baja purchase

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Telephone and Data Systems, Inc. (NYSE: TDS) on Tuesday reached an agreement to acquire Alamogordo, N.M.-based cable operator Baja Broadband for $267.5 million, giving it an expanded base of video, data and business customers. 

By purchasing Baja, TDS will gain 74,000 video subscribers, 56,000 high-speed broadband subscribers and 15,000 digital voice subscribers serving residential and commercial customers in Colorado, New Mexico, Texas and Utah. Baja generated annual revenues of $82.4 million in 2012, and has about 285 employees.

Each of Baja's markets come with unique characteristics. In Utah, there's a strong population of early retirees, while the New Mexico region boasts a strong military presence.

Subsidiary TDS Telecom gains benefits on the operational side as well.

"It brings a lot of bilingual talent to our customer care environment," said Drew Petersen, vice president of government and regulatory affairs for TDS Telecom, in an interview with FierceTelecom. "We operate in 31 states today, and we're adding a few with this acquisition so in an attempt to be customer centric this is really attractive to us."

With Baja in its pocket, TDS will have another platform to deliver broadband and video besides its own copper and fiber-based platforms. TDS Telecom's video play has consisted of bundling both its own home grown IPTV service and satellite with its broadband and voice services.

About 96 percent of Baja's existing cable network has been upgraded to deliver consumer and commercial broadband data and video services.

While the initial benefit of the acquisition will give it an expanded video services footprint, it also has implications to expand its business services opportunities, particularly its managedIP services set.

Over the past year, TDS Telecom managedIP service subscribers grew 77 percent as it added 41,100 new ILEC and CLEC customers.

"We've had great success in selling our managedIP voice over the Internet products in all of our core markets," Petersen said. "We think that's a product we can bring into the Baja marketplace and penetrate the commercial space."

Up until now, Baja had been mainly focused on upgrading its cable network support DOCSIS 3.0 capabilities while selling similar residential voice and data services to smaller businesses.

A key piece that TDS Telecom wants to bring Baja's business customers is its Hosted and Managed Services (HMS) suite, which TDS has developed over the past years through key acquisitions of other cloud and data center companies such as Visi and Vital Support Systems.  

"We think right off the bat there's a real synergistic opportunity to bring our commercial entities to these markets," Petersen said. "There are a bunch of fledgling small and medium sized businesses in these areas so we're hoping that we'll be able to pay substantial attention commercial marketplace in Baja's markets and double down with some of the broadband and video investment they made to fortify speeds to compete aggressively on the broadband side."

To serve Baja's customers with cloud-based services, TDS currently has a large HMS operation in Scottsdale, Ariz., and a data center in Gilbert, Ariz.

"HMS is a geographically agnostic series of products we offer, but people like to see their data and be close to it and know it's domiciled locally so that's something we'll contemplate," Petersen said.

Having already purchased, in previous years, other ILEC properties that included HFC plant, Petersen said this won't be TDS' last acquisition of a cable operator.

"It has been four years since we made a core acquisition in the telecom business and this is a big one with the amount of homes passed being about one-third of our existing customers, which shows our commitment to this business," he said. "We're going to be looking at other cable operations in very short order because we think there's a lot of opportunity in serving that small and mid-sized rural and suburban marketplace."

After meeting regulatory approvals, TDS said the deal is expected to close in the third quarter this year.

For more:
- see the release

Earnings roundup: Wireline telecom earnings in the fourth quarter of 2012

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