Paetec's Cavalier acquisition is all about staying ahead of cable

Sizing up the deal:
Looking to expand its respective fiber footprint, Paetec (Nasdaq: PAET) made a $460 million all cash bid to buy Cavalier Telephone in September 2010.

In a single stroke, Paetec gained a local presence in 86 of the top 100 Metropolitan Statistical Areas (MSAs)

What's the value?
As an effort to more effectively compete with aggressive cable operators expanding their focus onto medium and larger businesses, Paetec gains almost 17,000 fiber route miles in addition to a sizeable Ethernet over Copper (EoC) footprint, from Cavalier's Intellifiber Networks subsidiary.

With the addition of Cavalier's 17,000 route-mile fiber network, the CLEC will not only be able to enhance its existing metro fiber footprint with 4,689 route miles, but also the 12,262 route mile intercity network in the Midwest and Eastern U.S. In a single stroke, Paetec gained a local presence in 86 of the top 100 Metropolitan Statistical Areas (MSAs) with 10,609 metro fiber-route miles and 37,023 fiber-route miles in addition to 1,178 colocation sites.

When asked why they were buying Cavalier, which was announced at last fall's COMPTEL Plus trade show, Arunas Chesonis said the acquisition of Cavalier fulfills two goals.

The first goal of the acquisition, explained Chesonis, allows it to connect more customers with their own fiber or get it closer to others that can complete its connection to a client's remote location that it can't build a business case to extend that fiber to a particular building.

"We've decided as a board and as a management team that we need to have a much higher percentage of our customers connected on our own physical fiber to their location or at least a majority of the distance there on metro fiber," he said. "To be able to not just service them properly, provisioned by SLAs, but also to be able to negotiate better deals with other people that couldn't provide connectivity in some place that you can't afford to go."

No less important was that the acquisition could help it change how enterprises perceive their financial footing. Such fear is not unfounded as many CLECs.

"One of our biggest issues when we're trying to get a new partner with our customers, is people still think that we're not financially viable compared to the cable companies or the different ILECS, and we just need to get up this larger entity, a big organization like they are internally," Chesonis said.   

In another effort to maintain customer service consistency with the new assets, Paetec which will run Cavalier as a company subsidiary, is retaining key members of Cavalier and Intellfiber's key executive team, including Danny Bottoms, Cavalier's current President and CEO and Clint Heiden, President of Intellifiber.

Paetec recently appointed Heiden as the Senior VP and President of National Accounts and Fiber Services. Maintaining customer service consistency over the new and combined assets will be key in achieving its goals to stay competitive.

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Paetec's Cavalier acquisition is all about staying ahead of cable
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