Year in Review: Service provider consolidation picks up pace

FierceTelecom is wrapping up an eventful 2016 by taking a hard look at five of the most important trends and developments that emerged in the market this year. Today’s installment looks at the massive amount of consolidation that happened in the telecom industry.

The news: Consolidation in the wireline industry has been a reality since the days of the former Bell telephone system, but what was different about 2016 was the pace and the sheer diversity of the deals that took place.

At the top of this year’s heap was CenturyLink’s proposed $34 billion deal for Level 3, one that will make CenturyLink the second largest U.S.-based wireline-focused business provider. The telco will be a more formidable competitor to AT&T and Verizon as these telcos shift more of their attention on becoming media companies via their proposed acquisitions of Time Warner and Yahoo, respectively.

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While not as large as the CenturyLink/Level 3 deal, fellow telcos Windstream and Consolidated were also aggressive on the M&A front, announcing deals to acquire EarthLink and the struggling FairPoint, respectively.

By acquiring EarthLink, Windstream will not only scale its fiber network, but also will gain a deeper product set with SD-WAN and access into additional market verticals like retail. Likewise, Consolidated’s bid for FairPoint will deepen its fiber reach to enhance its growing wholesale and business services lines.

Regional telcos like Lumos and TDS also remained active on the M&A front. Lumos, which is in the process of separating its ILEC and fiber-centric businesses, purchased Clarity. The deal will further Lumos’ fiber reach in North Carolina, Georgia and South Carolina.

TDS Telecom, meanwhile, enhanced its reach into the St. George, Utah, market by acquiring InterLinx Communications.

Other non-traditional service providers like GTT and Zayo weren’t shy about making deals during the year either. Zayo purchased Electric Lightwave for $1.42 billion, while GTT purchased Hibernia, giving the service provider its first set of fiber assets.

Rick Calder, CEO of GTT, told FierceTelecom that the company is using acquisitions to enhance its business services line.

“One thing I would note for us is we are offensive and believe the assets we buy are complementary to our growth strategy,” Calder said. “What we see going on in the industry is defensive moves by and large and are looking for cost synergy and I think CenturyLink and Level 3 fall into that, whereas the biggest players are saying they want to become media companies.”

Why it matters: While consolidation is an inevitable reality of the wireline industry, the deals that took place in 2016 reflect the fact that there’s a lot of money to be made in using fiber assets to satisfy a growing set of customers that need fiber connections.

When all of the smoke clears, the challenge for these service providers will be to successfully integrate their purchases and also provide seamless customer support. Frontier, for example, struggled with its integration of the Verizon wireline assets, and industry watchers will be looking closely to see if these other players can avoid similar issues with their purchases.

On the wholesale side, having a broader array of fiber assets will become even more important to keep up with wireless and over the top player services that need more fiber to backhaul and transfer their services to their customers. The advent of more small cells and increased macro tower builds to accommodate today’s 4G and upcoming 5G wireless deployments will likely spur this demand.

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