Global Capacity snaps up MegaPath's wholesale unit

Global Capacity, a connectivity service provider, is upping its network reach by signing an agreement to acquire MegaPath's Network Services business unit.

Financial details of the deal were not disclosed. After gaining necessary regulatory approvals, the acquisition is expected to close in December 2014.

By acquiring MegaPath's Network Services, Global Capacity said it will create a $300 million company focused on making it simpler and more efficient for business customers to purchase network connectivity for their diverse sets of domestic and international locations.

A key point of the acquisition for Global Capacity is scale.

When the deal is completed, Global Capacity will have an aggregated central office-based network that will serve over 50 markets and reach 14 million businesses. It will also gain 300 new employees.

"When you think of Global Capacity, we had One Marketplace as a PoP aggregation model so we interconnected our network, which sat at Tier 1 interconnect facilities such as Equinix or Telx and reached into the competitive supply at that PoP base," said Ben Edmond, chief revenue officer for Global Capacity, in an interview with FierceTelecom. "What we're acquiring from MegaPath is that Central Office-based aggregation of LEC networks and the associated transport, backhaul and PoPs that go along with it."

Edmond added that the MegaPath Wholesale assets are also complementary from a market reach perspective.

"When you think about that reach it's very complementary to what Global Capacity is winning today, which is in the smaller rural markets across the country," Edmond said. "MegaPath has dense assets in the top 50 markets across the country and combining the two into Global Capacity gives us a great accelerator going forward."

For its part, MegaPath said it will continue to operate its managed voice, data, security and cloud services businesses, adding that this sale enables them to focus on these growth segments.

The service provider continues to expand its IP-based service portfolio. It recently introduced a new Unified Communications (UC) service, enabling it to target the growing mobile nature of its business clients and a self-install SLA option for its Hosted Voice Product suite.

"Selling this piece of the business to Global Capacity provides funds to do two things: de-lever our balance sheet and also allow us to have more resources for our fastest growing markets, which is our cloud services business and our managed services business," said Craig Young, Chairman and CEO for MegaPath. "We had to make a decision on whether to create value-added services for our customers and let somebody else that understands the network business from a wholesale standpoint as one of our largest partners, or do we want to do all three of them?"

One area that MegaPath plans to spend more capital on after it closes the Global Capacity deal will be security. In particular, the service provider wants to help its business customers be able to better meet the emerging Payment Card Industry Data Security Standard (PCI DSS).

"All of the security breaches happening everywhere definitely provide a big challenge for us," Young said. "We plan on spending a lot more money in the PCI compliance space and it costs money to do that." 

But MegaPath's ties with Global Capacity won't end as MegaPath will also become the service provider's largest wholesale customers.  

While both companies will continue to be run by their respective management teams until the deal closes, Global Capacity's current President Jack Lodge will lead the combined company. Both Global Capacity and MegaPath said that customer service and support will not be impacted by the closing process.

Purchasing MegaPath's wholesale business is just one of several moves Global Capacity has made in recent years to expand its reach. In addition to expanding its presence into areas such as Canada and the UK, the service provider has signed a number of interconnection agreements with other service providers, including PEG Bandwidth and 24/7 Mid-Atlantic.

For more:
- see the release

Related articles:
Global Capacity, PEG Bandwidth target the rural market interconnection gap
MegaPath adds self-install SLA option to its Hosted Voice product suite
Global Capacity extends international presence into Canadian market
Global Capacity, 24/7 Mid-Atlantic Network strike wholesale arrangement
Global Capacity extends network presence in the UK, updates Ethernet tariff capabilities

Updated article on Sept. 9 with quotes from Global Capacity and MegaPath.