Independent ILECs are in a state of transition. Unlike their larger RBOC counterparts that have battled dwindling traditional PSTN subscribership by expanding their wireless and, more recently, TV services, the remaining big three independent ILECs--CenturyLink (NYSE: CTL), Frontier (NYSE: FTR) and Windstream (Nasdaq: WIN)--don't have the same luxury.
Instead, the transition for independent telcos has been to consolidate. Through consolidation, their belief is they can provide a better experience for customers while scaling their business. Of course, none of them are going about the consolidation road the same way.
I would characterize the M&A strategies of the big three into two buckets: ambitious and measured.
On the ambitious end are Frontier Communications and CenturyLink. When Connecticut-based Frontier got the FCC's blessing to wrap its purchase of Verizon's (NYSE: VZ) rural lines in 14 states (lines that Verizon had been eager to offload because they are less strategic), the independent ILEC in one fell swoop instantly advanced its standing in the independent ILEC roster.
Telecom industry watchers, including myself, are hoping that Frontier's acquisition will have a better outcome than FairPoint's acquisition of Verizon's New England telephone lines. While it's perhaps an unfair precedent, a number of readers have already expressed concern to me that despite assurances, Frontier may not honor its promise to maintain existing FiOS rollouts and overall broadband expansion. Customers won't accept fancy PR campaigns but will want consistent service.
Staying on the ambitious end of the M&A pool is CenturyLink. Not only did the former CenturyTel decide to acquire the former Embarq, but now it has made a deal to purchase Qwest Communications. Once nothing more than the local telephone company, CenturyLink not only expands its telephone line count, but also gains instant presence in the large business and government industry segments. What's more, company CEO Glen Post said CenturyLink will maintain Qwest's (NYSE: Q) operations in its home Denver market, while expanding the combined company's IPTV fortunes.
Taking the most conservative approach of the bunch is Windstream. Unlike Frontier and CenturyLink, Windstream's CEO Jeff Garnder has chosen to strike smaller deals with a host of smaller independent telcos (D&E Communications, Lexcom and Iowa Telecommunications) and one CLEC (NuVox). All of these deals, with the exception of Iowa Telecommunications, did not even reach the billion dollar mark.
Despite getting a negative rating by Fitch Ratings for what it called an "acquisition binge," FierceTelecom colleague Dan O'Shea last December said that Windstream's approach to M&A "has not been a binge so much as a single, progressive multi-course dinner in which each plate was a bit larger than the last."
Dan is right, but I am still waiting to see when and if Windstream steps up and makes a big deal or gets bought out by the other two of the big three.
Regardless of their approach to M&A, these acquisitions reflect how the big three independent ILECs--CenturyLink, Frontier and Windstream--need to expand their reach to survive.
Once the dust settles on these deals, the proof of how successful they are will not only lie in how big these service providers become, but in how they use their acquisitions to create a new converged services identity that could include TV and fiber-based broadband, while maintaining the obvious mission of good customer service.--Sean
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