M&A allure again follows Windstream

There has been some recent speculation that independent rural telco Windstream Communications could be positioning itself to acquire FairPoint Communications. That would be an interesting (yes, understatement) move for a company that has crafted--or at least has been stamped with--an image of a very pragmatic and conservative company, both in terms of its appetite for acquisition, and its investment in new technology and services.

Could Windstream be just what the doctor ordered for ailing FairPoint? Maybe. Windstream is in the rural-regional business, and would understand what it's getting into at a market level. In terms of technology and services, Windstream has stayed away from costly investments in fiber access, IPTV and even the high ante required to take part in the viciously competitive wireless business. Instead, Windstream has focused on DSL, and TV plays with satellite firm Dish Network and DVR pioneer TiVo, and could apply those strategies to FairPoint. Windstream also understands as well as any telco that residential telephony services no longer can be counted on as a cash cow.  

Windstream was once seen as a potential leader in the consolidation of the rural telco market, but it mostly sat on the sidelines for the better part of the last two or three years while other telcos (FairPoint, for sure, but also CenturyTel and Frontier Communications) made pricey bids for businesses that would turn them into giants. In the case of FairPoint, Windstream watched while the company bit off more than it could chew--trying to integrate its new properties and keep its business running smoothly. It was a challenge at which, we now know, FairPoint failed miserably. In the intervening months and years, Windstream has made some small acquisitions, including Lexcom, CT Communications and D&E Communications. In the course of making those deals and not making other larger ones, Windstream came out smelling like a firm that was extraordinarily disciplined about not paying more than its initial appraisal of a buyout target, not over-loading itself with debt and not over-estimating its ability to make daily operational sense of such deals.

Of course, some of that could be the veneer of retrospection. We are looking for the perfect rural telco role model, one that will prove that the small independents can grow into giants and still keep their feet on the ground with a small town-familiarity and approach to service. Now, after FairPoint, CenturyTel and Frontier, and after the worst (hopefully) of a bad stretch in the economy appears to be over, maybe it should be Windstream's turn to play the game at a higher level. But, FairPoint's experience has me wondering if that can ever be possible--for a small telco to take such a big operational leap and make it work. Windstream has seen a lot as it has watched other big acquisitions from the sidelines, and maybe that should be enough to tell the company that it should sit this one out. -Dan