Windstream getting ready to acquire EarthLink, says report

Windstream fiber network assets as of Oct. 2016 (screenshot)
Windstream's Network Fiber Assets as of October 2016. Image: Windstream

Windstream is apparently joining the M&A hunt again with talks to acquire EarthLink, a deal that would give it a broader set of assets to fend off growing competition from cable and other competitive carriers.

RELATED: Windstream says dark fiber IRUs allow it to rapidly scale West Coast network

Citing people close to the talks, Reuters reported that the deal, which could be announced sometime early next week, would have Windstream owning a bit more than half of the overall company.

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However, these sources said that although the two companies are in advanced talks, neither service provider has finalized a deal, and they could both walk away.

Neither Windstream nor EarthLink would provide comment on any pending deal to Reuters.

The proposed deal marks off what has been a busy week of acquisitions in the wireline segment of the telecom industry. If Windstream moves ahead with an acquisition of EarthLink, it follows CenturyLink’s move to acquire Level 3 Communications for $34 billion, designed to deepen its fiber network reach to business customers.

At the same time, CenturyLink just announced it is selling its data center business to a venture capitalist consortium, while GTCR announced it is buying Inteliquent and combining it with voice provider Onvoy.

“We would not be surprised to see this speculation prove to be true,” said Jennifer Fritzsche, senior analyst for Wells Fargo, in a research note. “In light of the continuing M&A in the space (most notably CTL / LVLT), we believe carriers will need to be aggressive in building scale.”

Windstream and EarthLink are scheduled to report their third-quarter earnings results on Monday.

Both companies have been no stranger to conducting M&A to scale their businesses.

Windstream completed a tax free spinoff of some of its assets into a publicly traded real estate investment trust (REIT) called Communications Sales and Leasing. Earlier, the service provider established itself on the nationwide front by acquiring PAETEC for $2.3 billion in 2011.

Purchasing EarthLink could also potentially complement Windstream’s fiber expansion efforts with a broader array of fiber assets and service capabilities. In October, Windstream announced it would expand its long-haul and metro network presence on the West Coast by establishing dark fiber indefeasible rights of use (IRUs) with other dark fiber providers, for example.

EarthLink has also been expanding its business lines through acquisitions and organic growth. Over the years, the service provider has purchased a number of competitive carriers including New Edge Networks, One Communications and ITC Deltacom.

If a deal actually happens, it will be interesting how Windstream works with the two parts of EarthLink’s business. While the most desirable part of EarthLink’s business for Windstream will be its business service assets, EarthLink also has a declining dial-up internet service for consumers. An acquisition would raise questions on whether Windstream would just continue to operate it or spin it out.

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