Windstream's Q-Comm purchase shows broadening of competitive market

Sean Buckley, FierceTelecomWindstream (Nasdaq: WIN) was back in the M&A headlines this week with its proposed acquisition of Q-Comm and its two subsidiaries Kentucky Data Light (KDL) and Norlight Communications.

Like many of the deals Windstream has made over the past year, Q-Comm is yet another smaller operator. Both subsidiaries not only expand Windstream's size, but they also bring specific pieces of expertise to the independent ILEC.

With KDL, a regional fiber centric provider, Windstream gains an additional 30,000 fiber route miles in 26 states. The addition of these new fiber network facilities could complement Windstream's previously announced $20 million fiber network expansion plan.

It should be of no surprise that Windstream's previously announced fiber builds were centered on both expanding its business base and to meet growing demands for wholesale wireless backhaul services. By adding KDL, a wholesale fiber provider that reportedly just won a number of new unnamed wireless operators, Windstream could instantly expand its own wireless backhaul customer roster.

At the same time, Windstream also adds another piece to its CLEC arsenal, which is really a new service area for the company. Norlight will enable Windstream to expand its presence as a competitive force in the SMB market with the addition of about 5,500 SMB customers. This adds to the expertise the CLEC expertise it gained through acquiring NuVox.

Perhaps the bigger trend for the company is that Windstream, once another independent telco that grew primarily over the years through the acquisition of other regional telcos, continues to expand beyond its traditional ILEC roots as a competitive wholesale and retail competitive carrier.
Unlike their larger RBOC compatriots, namely AT&T (NYSE: T) and Verizon (NYSE: VZ), Windstream does not have a profitable wireless business nor have they taken the chance on building a large telco TV business outside of reselling satellite services. And while its M&A actions aren't nearly as ambitious as the multi-billion dollar deals CenturyLink (NYSE: CTL) and Frontier (NYSE: FTR) have done, Windstream has taken a more careful and measured approach to incrementally scale its network footrprint through smaller acquisitions.

Of course, Windstream isn't the only competitive carrier on the move.
Take a look at Vertical Systems Group's latest Ethernet Leaderboard, a twice a year report. When I talked with Rosemary Cochran, Principal of VSG, she noted the main thing that surprised her when crunching the competitive carriers was that there was nothing shocking that immediately stood out. As has been the trend for multiple quarters, AT&T and Verizon dominated the top two spots with competitive carrier tw telecom (Nasdaq: TWTC) taking the third spot again.

While tw telecom continues to gain market share in the competitive telecom space in delivering Ethernet and other business-centric services, it was clear that there was a growing presence of cable and other competitive carriers making headway.

High on the list were once again were two cable operators (Cox Business and Time Warner Cable (NYSE: TWC-WI)) followed by XO Communications (OTC BB: XOHO.OB). Through its ongoing expansion of Ethernet over Copper and Ethernet over TDM XO, in particular, saw a lot of Ethernet growth in the past six months.

"XO had the largest gain on the Leaderboard," Cochran said. "XO had the most port gain as a percentage. I think that was a function of their active deployments of both EoTDM and EoC-type solutions. They have been pretty active in doing that which has allowed them to spread out beyond their fiber base."

Even though neither Comcast (Nasdaq: CMCSA) nor Windstream made VSG's top seven Leaderboard cut, I would argue that both are on the rise. Like Windstream, Comcast has not only been making competitive telecom acquisitions like Cimco, but it's laid out an aggressive plan to expand its metro fiber and Ethernet footprint this year to enhance its presence in larger business accounts.
While it's likely that AT&T and Verizon will continue to dominate, Windstream's moves and the continued rise of CLECs and cable adds up to the fact that the competitive business and wholesale telecom services landscape is broadening to a larger group of players.--Sean

P.S. As a complement to our coverage of the upcoming COMPTEL show in September, the FierceTelecom team is going to be putting out a special report chronicling the top competitive service provider leaders. Please feel free to send along any suggestions directly to me at [email protected]