Consolidated's Udell carves out new broadband, business services strategy

David Aufhauser

Bob Udell

Bob Udell, COO of Consolidated Communications (Nasdaq: CNSL), is in the process of leading his company through another transition as it integrates the SureWest assets it purchased last July. Udell said the SureWest deal helped it advance its strategy of leveraging common assets across its consumer, commercial and wholesale business services units. Sean Buckley, Senior Editor of FierceTelecom, recently caught up with Udell to talk about the SureWest acquisition and the company's overall growth strategy.

FierceTelecom: To begin, can you highlight some of the big points of the last year that took place at Consolidated Communications? 

Bob Udell: While the industry isn't the analyst's or the shareholder's favorite place to focus right now, we did have a good year. It really culminated at Super Bowl Sunday last year where we finally came to terms with SureWest on the deal and began collaboratively working with them towards the close. It's one of the fastest closes of a carrier transaction in California from the time of announcement till the close at the end of June. It's a strong property. What it did for Consolidated is that it helped us advance our strategy of leveraging common assets across three customer groups: consumer, commercial and wholesale. It really accelerated it by giving us a nice growth market in Kansas City, Mo., that spreads across Kansas City, Kan., and Kansas City, Mo., and strong ILEC and CLEC assets in the Roseville, Calif., and Sacramento, Calif., area.

FierceTelecom: Speaking of big transitions in 2012, Consolidated acquired SureWest last July. How integral is that deal to your growth strategy? 

Udell: Well, you wouldn't necessarily plan to be in the geographies that we're in but what we're seeing in our desire to transition our businesses from the traditional telephone business of 20 or 30 years ago to a broadband company, we identified through history both organic facility deployment and market expansion opportunities as well as acquisitions that helped us to expand our broadband service opportunity across our three customer groups, and SureWest was a perfect fit for that. The asset in Kansas started as a cable overbuilder about 13 years ago known as Everest. It has got some great assets that were consumer or residential-growth initially that has spread to include a great commercial team. We brought our wholesale relationships to that market and have done a few deals that help us expand our market there. We're taking the experience we have in growing organically and using multiple customer groups to justify facility expansion out of our traditional ILEC territories and exploiting it in both California and Kansas now.

While SureWest was historically more consumer-focused it's been easy to refocus some of that energy on commercial and wholesale development with a little shorter payback lifecycle and yet exploit some of the great skills. For example, we took Ed Butler, who managed SureWest's sales efforts company-wide. He now leads the business sales organization for Consolidated across all six states and the five major markets that we serve. We have leveraged the technical skills on the IPTV side and the marketing/communications resources and integrated some of those great skills functionally into our company. We really organized it as one company with leaders from both legacy businesses in very important positions driving our strategy faster than we otherwise could have.

FierceTelecom: You mentioned how you want to realign the focus of the SureWest assets more on the commercial market. Can you give us some details about that strategy?

Udell: We're doing a metro Ethernet-based product growth strategy across the commercial or business-to-business markets. We're seeing that even though we started with multi-site businesses a few years back that  that's picked up momentum and more and more businesses are finding that a preferred platform because it allows us to layer on more sophisticated and user-driven type services on top of it. For example, with the North Pittsburgh Systems Inc. acquisition we did in 2007 we began expanding that CLEC opportunity, which had stalled during their sale process, and recharged it with a metro Ethernet over fiber product. We then complemented it with Type-2 metro Ethernet over Copper (EoC) alternative where we could not justify a fiber build right away. That's really reinvigorated our sales force there and we are taking that copper product to California this quarter. What that does is it gives us a platform for medium to small businesses in the sub-$1000 a month range in spending and allows them to integrate voice and data over the same pipe and layer on data services for customers that look for more hosted cloud services. It allows us to increment into the cloud service product line and data center hosting without making that an exclusive business focus of ours, but more of a complement to our network-based network revenue occurring opportunities.

FierceTelecom: Another revenue driver that has come up at both the legacy SureWest and Consolidated is wholesale services such as Fiber to the Tower (FTTT). What will be the combined strategy going forward?

Udell: The SureWest acquisition didn't change our strategy but rather accelerated it. I think what's important about the scale we have now and how SureWest enabled that is it has allowed us to structure ourselves with more resources supporting each of the customer group areas of focus. To pick up on your theme of wholesale or carrier, our focus in that space is to treat with an account management structure all of those carriers or entities like universities that act like carriers with the appropriate facilitated consultative relationship like we do with our business customers that allows them to use us because we're easiest to do business with. Whether it's AT&T (NYSE: T) buying access services into our customer base or if it's the wireless companies with backhaul, we have account teams that pull from the engineering resources, project management resources, the design and the architecture to configure our services across a common IP backbone so that we can give them the bandwidth they need and use those revenue opportunities to expand our footprint.

FierceTelecom: Switching to consumer, can you give us a sense of your IPTV evolution plans, which now includes the SureWest copper, HFC and FTTH assets?

Udell: It has given us a larger scale on which to launch our programming options. We have got some difference in platform across the state with Microsoft Media Room in California, a Scientific Atlanta (Cisco) HFC platform in Kansas and Missouri, and a Minerva-based platform in the East markets of Illinois, Texas and Pennsylvania. The neat thing with all of those architectures as they have evolved over the past ten years is you can make them, once you get to DOCSIS 3.0, you can make them look like, smell like, and sound like digital offerings that allow you to be somewhat consistent with your product packaging across all of those markets even though the platforms are different. The world is evolving to an IP-like infrastructure so it really becomes a basis of looking at what the best cost options [are] to produce the quality, or enhance the quality that we want to offer our customers. We're looking at the Kansas architecture and saying we have whole-home DVR in all the markets and a good competitive product. However, if we wanted to consolidate head-ends and leverage our super-regional head-end in Illinois that provides our HD signals for Pennsylvania and Texas and leverage that in Kansas, how would we do that? Well, maybe we'd want to start to move towards an IPTV architecture, which would help us on set-top box costs. That kind of scale discussion is now possible because we see those platforms converging over time.

FierceTelecom: Given the diverse set of copper assets that Consolidated and SureWest bring to the table, are new enhancements like bonding, VDSL2 and vectoring part of the copper network migration road map? 

Udell: It is. We have gotten a lot more out of ADSL2+ than we ever imagined might be possible. We're safely doing bonded ADSL2+ out beyond 12,000 feet for an HD product and consistently delivering 24 Mbps in order to support that triple play product offering. ADSL2+ and bonded ADSL2+ are here to stay. We are beginning to experiment with VDSL2 bonded and are seeing 60 to 70 Mbps options there, but obviously the loop lengths are tighter. It does extend the life of your copper. One of the advantages of these independents that we've been selective about pursuing is their copper networks have been historically well-maintained, well-built and don't have a lot of bridge taps in rural areas because that was their market focus. They did not have the big NFL markets to delineate their capital.

FierceTelecom: Finally, one of the large trends that Consolidated is helping to drive is the consolidation of the independent telco market. Do you think we'll see more of that this year?

Udell: I think so. There's a right time for everyone who is an independent or feels like they don't have the scale necessary to be a sustainable long-term business. We're at a point where we feel good about our scale. Last year was a nice example of if you look at our third quarter results where revenue was flat to growing. I think there will be some companies that look at their profile and still struggle with those decisions. I think we're a good partner and have the balance sheet and the infrastructure. We're good at integration and focusing our grass-roots marketing strategy in complement with our ability to leverage the integration experience we have of pulling businesses together on a common platform.

We're going to look at opportunities and I think there's some out there that will continue to surface as their current equity holders look for a return or families have to deal with succession planning. I also believe that we're also broadening our prospect list based on the evolution of the technology. A cable company that five years ago on a Hybrid Fiber Coax network with analog channel lineups wasn't attractive to us. Now that subscriber base represents an opportunity for additional scale, for leveraging the assets into commercial opportunities that may have not yet been exploited. We'll continue to look at tuck-ins of fiber business or scale in new markets that we think we can leverage our capabilities to expand the value.