COMPTEL PLUS Scorecard: Competitive Providers

Whose profile is rising: Cable operators, independent ILECs

Although the consolidation of the competitive telecom service provider market clearly is far from over, the moves by Comcast and Windstream represent two new players that are coming out of their traditional shells.

Comcast has high hopes for its commercial business initiatives with a $2.5 billion commercial revenue goal for 2011.

In hopes of making that goal, Comcast made a bid to acquire Chicagoland-based Cimco Corp. After clearing the necessary regulatory hurdles, Comcast completed the acquisition of Cimco earlier this month. 

While Comcast has been selling a rebranded HFC-based service to SMBs, it has expressed a desire to crack into the more lucrative medium-sized business market.

In addition to acquiring a number of smaller independent ILECs (D&E, Iowa Telecommunications and Lexcom), Windstream took a different turn last November when it announced it would acquire NuVox Communications for about $643 million.

With the NuVox acquisition completed in February, the independent ILEC instantly gained about 90,000 business customers in what it calls "complementary markets" in 16 Southeast and Midwest states with an emphasis on SMBs.

So what's next for cable and independent ILECs in their CLEC drive?

First on the agenda will be to get their respective houses in order. This means integrating obvious things such as networks, back office, billing systems and company cultures, but even more importantly ensuring that the acquisitions will provide minimal, if any, customer disruptions.

Once these carriers get their feet wet in the competitive carrier waters, it would not be surprising to see Windstream and Comcast go after other remaining CLECs to expand their respective service footholds.    

Whose profile is falling: Remaining CLECs become acquisition targets

The profile of the remaining CLECs aren't necessarily fading, but rather their profile may be gaining momentum as potential takeover targets by cable operators or other independent telcos like Windstream.    

Even though a good part of the CLEC market has consolidated over the years through bankruptcies and other competitive providers buying one another-something that will likely continue-it's clear as Windstream and cable operators gain confidence in their CLEC abilities, it's likely the industry could see them are a number of more regional players that could be ripe for the taking.

Financial analysis firm Stifel Nicolaus believes that the competitive telecom provider acquisition targets could include the likes of tw telecom, PAETEC, XO Communications and CBeyond. Such a theory is not totally off the mark as the investor ice starts to crack. One example to point to is Abry's recent agreement to purchase RCN Corp.

Cable operators (Cox, Comcast and Cablevision's Optimum Lightpath) are certainly becoming a threat not only to existing CLECs, but also to the incumbent operators because they are aggressively targeting mid-sized business customers with telco-like T1 access and Ethernet services. 

"Everyone in the business services market absolutely needs to be concerned about what the cable companies are doing," said Brian Washburn, in an xChange magazine article.

CLECs obviously have two choices going forward: be snapped by aggressive cable operators or they will start buying one another.

COMPTEL PLUS Scorecard: Competitive Providers