Sizing up the deal:
Unlike its Tier 2 ILEC compatriots CenturyLink (NYSE: CTL) and Frontier (NYSE: FTR), Windstream (Nasdaq: WIN) continued on its relatively conservative M&A path throughout 2010 purchasing either smaller independent ILECs (D&E Communications and Iowa Telecommunications) or CLECs (NuVox). One of the key fiber assets Windstream gained in 2010 was through its acquisition of Q-Comm, which included not only CLEC Norlight Telecom, but also wholesale/retail fiber provider Kentucky Data Link (KDL) for about $782 million.
Windstream's purchase of KDL via Q-Comm instantly gives it an additional 30,000 fiber route miles to add to its 16-state ILEC territory.
What's significant about it?
With a $20 million plan already in place to expand its fiber network to serve both its retail business and wholesale service opportunities, Windstream's purchase of KDL via Q-Comm instantly gives it an additional 30,000 fiber route miles to add to its 16-state ILEC territory.
A key target of the KDL purchase, not surprisingly, is to sate the ongoing hunger by wireless operators for wireless backhaul capacity.
Wireless backhaul will be an increasingly crucial business opportunity for wireline-centric operators such as Windstream. Not having a wireless business of its own, Windstream like many of its wireline-centric ILEC counterparts (CenturyLink and Frontier) have been tapping into the increasingly lucrative wireless backhaul business as a new wholesale revenue source.
However, Windstream isn't taking a ‘build it and they will come' mentality with building out its fiber networks for wireless backhaul or business services by acquiring Q-Comm. Instead, Windstream said it will "increase success-based capital expenditure investments in the near term" with a concentration on "the wireless backhaul and enterprise businesses." Prior to the acquisition announcement, KDL signed a number of unnamed enterprise and wireless backhaul contracts.
Jeff Gardner, President and CEO of Windstream, in an interview with FierceTelecom that "KDL was a company that we had looked for a while in that they had fiber assets that were complementary to our existing footprint and also had a good success in the fiber to the cell site area, which has been very active as wireless carriers have been looking for more bandwidth carry wireless data in particular."
Gardner added that the purchase of Q-Comm "was a perfect fit for us and in terms of that we get Norlight along with it. There are obviously the cost savings, but we believe KDL had the fiber assets they have are very hard to duplicate and we'll be able to monetize those assets by selling services to wholesale customers as well."
Along with expanding its wireless backhaul capabilities, the new fiber assets will also be leveraged by Windstream to target its growing base of business service clients and their need for Ethernet and increasingly cloud-based services.