2010 Year in Review: Qwest finally gets bought out

The News: While Frontier's (NYSE: FTR) acquisition of  Verizon's (NYSE: VZ) lines in 14 states was big news in 2010, CenturyLink made an even more ambitious move in 2010 by crafting a deal for Qwest--the last of the three remaining RBOCs. CenturyLink Qwest dealIn a single stroke CenturyLink (NYSE: CTL) will become an even larger ILEC with expanded presence that will span over 37 states, not to mention a strong presence in the large business and government markets.

One could easily argue that the fate of Qwest Communications could have been sealed back in 2005 when it lost out to Verizon in bidding on MCI. The idea that Qwest would soon be auctioned off began in earnest in the spring of 2009 when rumors emerged the ILEC wanted to sell off its long-haul assets. According to various reports, Qwest felt it received too many getting low-ball offers and rumors of a sale quickly died.

But with AT&T and Verizon not expressing any interest, I figured that the most logical suitors for Qwest would either be a larger competitive carrier like tw telecom, or maybe a consortium of independent players like Windstream and CenturyLink could buy the RBOC. Frontier was also a possibility, but given the work it had to do to integrate Verizon's lines into its fold, taking on another acquisition would have been a distraction.

But as the story goes, CenturyLink ended up being the suitor, having made an agreement to pay over 22.4 billion stock for the Colorado-based ILEC. After resolving CLECs and the DoD, CenturyLink has received 14 state approvals and the District of Columbia for the merger.  

In a recent interview with Bloomberg, Qwest's outgoing CFO Joseph Euteneuer, who will become Sprint's (NYSE: S) financial chief after the merger is complete, said that its merger with CenturyLink is just one example of an ongoing trend service providers will continue to go through to scale.

"In looking out at the landscape of the telecom market, we really believe that consolidation is something that really needed to happen in this marketplace similar to what happened with cable TV," he said in an interview with Bloomberg at the recent MIT Sloan School CFO conference.

What's significant about it?: Qwest and CenturyLink are on the surface different companies, but their roots as small town telephone operators is relatively similar. Not only is the deal another sign of continued industry-wide consolidation of the Tier 2 ILEC industry, for CenturyLink the deal is all about scale on both the network and services fronts. Still, the success of the merger won't be seen until the network, back office and cultural integration is complete.

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