Cincinnati Bell sees M&A opportunities for IT, out-of-territory expansion

Cincinnati Bell
Cincinnati Bell may not be following its larger brothers CenturyLink and Windstream into the multibillion-dollar M&A game, but it sees potential in acquiring other companies that could enhance its network expansion and IT product set.

Cincinnati Bell may not be following its larger brothers CenturyLink and Windstream into the multibillion-dollar M&A game, but it sees potential in acquiring other companies that could enhance its network expansion and IT product set.

Ted Torbeck, CEO of Cincinnati Bell, told investors during its fourth quarter earnings call that while it is actively looking at targets, it does not want to pay a premium for any asset.

“We are not going to overpay as we see multiples being higher than what we are willing to pay, but we are going to continue to look,” Torbeck said. “We are very bullish on the IT front as well as expanding out of territory.”

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Initially, the out of territory expansion will focus on the Midwest states where it has nearby presence to its home market in Cincinnati.

Leigh Fox, COO and president of Cincinnati Bell said “we are looking at growing the Midwest presence and then looking at relationships.”

UcaaS, NaaS rising

While the service provider would not name any specific M&A targets, Cincinnati Bell cited unified communications as a service (UCaaS) and network as a service (NaaS) as key areas of interest.

The service provider recently launched a NaaS offering, a fully managed solution that bundles integrated SD-WAN capabilities to connect multiple, remote business locations.

With the NaaS service, Cincinnati Bell will bundle various functions, including cloud integration, security, switching, Wi-Fi, management, monitoring and SD-WAN. Customers pay a single, predictable monthly price for equipment and support.

A key area of focus for Cincinnati Bell is helping their business customers migrate to the cloud.

“We are very focused around helping people migrate to the cloud,” Fox said. “We are looking at areas where our relationships can bring products around cloud-based voice or UCaaS where companies may not be selling that or may not be a core competency of theirs and then around just managing infrastructure in general.”

Cloud pressuring hardware sales

As Cincinnati Bell helps customers transition to the cloud, the service provider is seeing some near-term revenue pressure on its hardware business.

During the fourth quarter, IT Services and Hardware revenue for the quarter was $96 million, down $9 million from the fourth quarter of 2015 due to declines in lower margin Telecom and IT hardware revenue. 

Telecom and IT hardware revenue was $38 million for the quarter, compared to $49 million in the fourth quarter of 2015. Full-year Telecom and IT hardware revenue was $206 million, down $25 million compared with the prior year.

Fox said he expects the downward trend in hardware sales will continue throughout 2017.

“We were down year-over-year this year in hardware and expect that trend to continue as companies look at migrating the cloud and what they spend,” Fox said. “We saw a little bit that in the fourth quarter plus a little bit of disruption based on kind of decisions around the election.”