While consolidation of the competitive market is an ongoing phenomenon, CLECs Covad Communications and MegaPath last week reached an agreement to officially merge. Calling it a "merger of opportunity," the marriage of the two providers will be able to combine Covad's wholesale expertise with MegaPath's managed service capabilities. FierceTelecom sat down with Pat Bennett, CEO of Covad and Dan Foster, Chief Sales & Marketing Officer, MegaPath to talk about the deal and the state of the competitive telecom market.
FierceTelecom: Covad and MegaPath just crafted a deal to merge. What drove the two service providers to get together at this point in time?
Bennett: Naturally, MegaPath has been great customer of Covad's for a long time so we have had this relationship for many years. In past years, when we looked at doing this previously but for one reason or another we just didn't. But now as Covad has started to focus strongly on the wholesale side of the business, it became pretty clear that the opportunities, the strength and the direct presence in the market--particularly to be able to add some of the types of services that MegaPath offers commercially on the wholesale side of the business--the fit of the two companies has never been better than it is today.
There's also the market conditions which are certainly improving and started to improve at the end of 2009 and into 2010. We think with that market improvement along with continued pressure on pricing particularly on bandwidth, that the opportunity to consolidate by bringing these two companies together made a whole lot of sense.
Foster: One of the compelling reasons for the merger is the complementary nature of the assets. You see that in the sense of the customers. What we lacked as a business was the opportunity to control the infrastructure a bit more for some of our customers. Having people in vans, rolling trucks and conducting circuit fixes. On the flip side, if you talk to some of the Covad distribution partners they'll tell you that they are increasingly seeing our customers move towards this notion of IP convergence and the need more application-ready infrastructure. That's where the QoS, MPLS-based network security and the voice offerings really made for a nice marriage.
FierceTelecom: How is this deal being structured? Is it a merger of equal assets?
Bennett: Yes, it's a straight merger where we are combining assets. The intention is that as the two companies come together the wholesale side of Covad, which represents the major focus of the business today, will continue to go under the Covad brand and MegaPath will continue to go to market under the MegaPath brand. As Dan was saying before because Covad's direct business has not been the primary focus for the past two years, the retail piece of Covad fits nicely into the commercial piece of MegaPath and MegaPath's business fits nicely into Covad's wholesale strategy.
FierceTelecom: What capabilities do both companies bring to Covad and then to MegaPath?
Foster: When you look at the combined entity, it gives us a lot more growth capital. As I look at the life-cycle of a customer, they want to buy more services over that connection if you will. That's the other part of this merger that we feel fits on both sides (commercial and wholesale) because you can grow with that customer base by creating more advanced services. Those have been illustrated with Covad's wholesale Ethernet product and at MegaPath hosted services. This solidifies our opportunity to put forth a compelling roadmap for our customers and partners.
Click here to go to part two of the interview