Covad, MegaPath decide to merge

Could Covad and MegaPath's agreement to merge be a sign of more consolidation of the competitive telecom industry? Well, the CEOs of Covad and MegaPath think so.

In a Light Reading article yesterday, D. Craig Young, CEO of MegaPath and the executive chairman of the new combined company, said that the merged company will leverage the proceeds it gets from growth and complementary assets to expand the company internally and through other purchases.

"We do expect more consolidation in the competitive carrier industry, and we will be one of the consolidators," he said.

What's making Young so confident about the combined company's growth drive are the assets the two providers bring to the table. Upon completion of the deal, which has to gain the usual state and regulatory approvals, it will create one of the largest U.S.-based managed service local exchange carriers. The newly combined service provider will be able to sell MegaPath's managed service suite, one that includes hosted VoIP, managed security and MPLS-based VPNs, as a wholesale offering to Covad's current customers. What's more, MegaPath will be able to extend its service suite over Covad's nationwide network footprint.

But not everyone agrees that the deal is a signal of new consolidation of the CLEC market. Brian Washburn Research Director, Network Services thinks that the marriage is really a combination of two companies with complementary assets. "As for general consolidation...I'd say no," he said. "Folks might see more consolidation take place in the same time frame and call it a 'trend', but if you look at the deal, it looks like a pooling of investors with mutual interests across two private companies... very different from classic raising money for an acquisition. There's certainly room for more consolidation of smaller players, but I'd put this in a different category."

For more:
- see the release here
- Light Reading has this analysis

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