US Network M&A In 2016, About Those Polls

January 21st, 2016 by · 19 Comments

As we do every year on Telecom Ramblings, we kicked off January with a pair of reader polls asking about US network operators a) Who is likely buying, and b) Who is probably selling.  The results this year were quite interesting.  While the top picks for both buyers and sellers were perennial favorites, the next layer showed significant shifts from last year.

ScreenHunter_18 Jan. 21 06.55 ScreenHunter_17 Jan. 21 06.55

XO won the title as most popular consolidation target as it always does.  But it had to come from behind, as both FiberLight and Integra led the poll for several days.  The pair are two of the last independent supra-regional fiber providers.  EarthLink and Sprint's wireline business are logical enough national targets, while Lumos and Alpheus have regional depth that could be of interest to an acquirer.  But Windstream as a target?  Hmmmm...  And somehow serial network asset buyers Zayo and Lightower made the top 10 as consolidation targets, yet it doesn't seem like the multiple would cooperate and who would be the buyer?  Let's look to the other poll for answers to that question.

Yep, Zayo is the clear winner here, and given the past 8 years I'd be shocked if they weren't.  Level 3 was a clear second choice, although I put their primary M&A interest overseas and not in the US at present.  But the next three are interesting: Comcast, CS&L, and Crown Castle.  Comcast has yet to actually buy any significant network assets, at all, but in 2016 is expected to be moving into the large enterprise space.  If people see them as a buyer, I think the target would have to be infrastructure big and deep enough to move that needle.  From the top 10 targets, I'd have to be looking at Zayo or Lightower, who I was surprised to see there as well, but I seriously doubt that egg is ready to hatch yet.  CS&L is a new entrant this year, and with the planned purchase of PEG Bandwidth perceptions shifted rapidly.  Crown Castle is also new this year after making several buys in 2015, and would surely be focused on fiber-to-the-tower assets.  Lightower is lower down the list this year, but still there.  GTT and Birch have been very active consolidators, and they were my two picks alongside Zayo.  And of course there's Google holding down the #10 slot - also perhaps one of the few that could buy Zayo if they wanted to, which I'll believe when I see it.

So given these poll results, what deals appear to be on the mind of the sector?  Let's mix and match:

  • Zayo could buy anybody (who saw Allstream coming?), but FiberLight is most obvious to me
  • Level 3 and XO?
  • Comcast or Google and Zayo or Lightower?
  • Windstream and Integra?
  • CS&L and ... I'm going to go with EarthLink's fiber assets
  • Crown Castle and FiberLight? (ooh, a bidding war)

Any other thoughts from out there?

 

Categories: Cable · CLEC · Fiber Networks · ILECs, PTTs · Mergers and Acquisitions · Metro fiber

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19 Comments So Far


  • Tony says:

    Comcast will TRY to buy Level 3. It’s obvious, just saying…

    • Profile photo of Rob Powell Rob Powell says:

      Hmmm, not many saw Level 3 as a consolidation target this year. But if Comcast wanted to…

    • Profile photo of David Rohde David Rohde says:

      I hope not and I think not. The enterprise market wants both Level 3 and, ultimately, Comcast in some form to be big, credible players. Merging them would be a backwards step. Forward ideas and ones I could easily see in 2016 are Level 3 buying Colt and Comcast buying either or both of Zayo and T-Mobile. Deutsche Telekom is bound to hold out for much more money than they thought TMo US to be worth earlier this decade, but Comcast ownership would force TMo to be more enterprise-relevant than they really are right now despite Legere’s pretensions. Two companies that have wasted their time and should have already sold are XO and Sprint. Masa Son should have trusted his gut (or embraced his fear) and unloaded Sprint for a moderate loss last year. Now it’s sliding toward irrelevance. Very sad story. Interesting discussion as always here.

  • schmuckinsurance says:

    Word is that Comcast ran the numbers on L3 pre-TWC and decided on TWC. Other than acquiring Univision for a pretty penny in a crowded private equity auction or a merged S/TMUS, what are Comcast’s other inorganic options in getting a growth vehicle other than Zayo/L3?

    • Anonymous says:

      I would think Sprint Wireline or XO are more viable targets for Comcast. Comcast lacks their own national backbone and is leasing a lot of it today. Of the two, XO is probably a better fit.

      I’m surprised that Altice didn’t make it on the list. To make any money in pay TV I think you need scale to get lower price per channel. I expect they will acquire some smaller cable co’s. ABRY is probably ready to get rid of RCN?? Maybe WOW??

      I also think its about time Level 3 made a move in APAC. Its a weak spot in their offerings today. HGC perhaps? Pure speculation, not even sure if HGC is on the market. Of course if they pick up Colt as has been speculated for quite sometime they would also acquire the KVH assets filling the APAC need.

      • Cable Apologist says:

        Comcast doesn’t want or need their own national backbone. They continue to dominate consumer/mass market SMB without one, and are extending that lead.

        If they make an inorganic move at all, it will more than likely be about consumer/mass market SMB wireless rather than Enterprise. Maybe T-Mobile or Sprint if they can’t put together a convincing Google Fi-like MVNO play.

      • Profile photo of David Rohde David Rohde says:

        Sprint looks good only if you’re looking at this as mere puzzle pieces. The systems / customer accounts / products part of it is just as important or more important. Sprint is a seriously degraded brand in everything it does. And if you’re thinking, well, I don’t care about that, I just want to pay a little for the network – well you can’t just pay a little. Sprint has all that debt INCLUDING short term maturities, especially 2017. Taking over a dollar of debt is just about like adding a dollar to the purchase price of the company. Make that $30+ billion in Sprint’s case. And it’s very unclear what Sprint’s admittedly huge spectrum is worth as an offsetting asset, given where it sits. XO? Maybe. You get a national backbone (honestly, and I’m exaggerating here, but so what compared to extensive metro and last mile) and nothing else interesting or strategic. I say Zayo and T-Mobile are potentially way more interesting to Comcast, with good reason.

      • Anon says:

        Does anyone know the expiration date on XO’s IRUs/lease with Level(3)?

  • Tim Dawson says:

    I wouldn’t be surprised if Level 3 made a play on Zayo. The executives know each other and cultures are similar. That would be a force for others to contend with.

    • TelcoMike says:

      I’m pretty sure that the Zayo senior management is no fan of Level 3(esp the CEO) and would fight off a play by L3.

      • Profile photo of David Rohde David Rohde says:

        And I would add that that combo is more of a deal for deal’s sake than anything else. I think what Rob has been telling us in his coverage year to year of this is that consolidation will happen but it’s no slam dunk to say that any one carrier will definitely buy or sell in a given year “just because.” Level 3 and Zayo have tremendous strategic additives to provide to other ecosystems. Level 3 as part of an emerging global competitor (whether in its name or others, and yes they need more firepower in APAC as well as taking Colt) or someone else’s. Zayo, if sold, will be at a large premium and the ones that can afford it and would be motivated to do so, in my view, is a very big cableco that needs to even more dramatically diversify away from, excuse the term, “television.”

        • Anonymous says:

          terrific insight and you have to appreciate the irony of cableco “television” diversification….
          where does TDS/USCC fit into the consolidation discussion? seems like a great way to get wireless assets for someone looking for that fit

  • J says:

    Comcast will be buying T-Mobile to get access to the mobile device to deliver their content. That is exactly the reason why AT&T bought DirectTV (only in that case it was mobile delivery buying content rights). In fact, T-Mobile is slowing their investments this year just for the very fact they are anticipating a buyout.

    As for the wireline industry, I’d expect XO to purchased, but that has been talked about forever. On the other hand, I think it’s finally time for Integra to be purchased. I think that Windstream would be the most probable buyer with them gaining access to Integra’s West Coast assets, which would be a perfect complement to their east coast/midwest network. However, Windstream has their own problems right now and may not be able to digest that large of an acquisition. With financing getting harder to come by and more expensive, I’d expect this to be the year that big moves happen and Integra would be my bet for the wireline side.

  • Anonymous says:

    Comcast and T-mobile seems a very strong possibility. Would comcast also have the $$ to pursue Zayo or similar assest providing the missing piece to there enterprise business strategy providing access to Tier 1 Markets they are not in today.Question is can comcast ignore NYC , LA, Dallas type markets and be competitive in enterprise and where would you spend the money if you were comcast if you cant do both

  • Profile photo of toddforthree toddforthree says:

    If you take Lvlt’s words at face value that they want one network and one set of systems, I dont see how they buy Zayo and try and integrate that company. that would be a mess to make it “one”.

  • anonymous says:

    Revenue at the 104-year-old computer-maker IBM fell 8.5% to $22.06 billion and has now dropped for 15 straight quarters. If IBM intends to survive, they need to acquire/merge with Level 3 because IBM used to own token-ring competing with ATT for enterprise networking and telecomm services. Both enterprise services are their major focus for both IBM and Level 3. with Level 3’s global network and IBM’s customer base, the combined business will be a formidable power. They may still need the last mile access. But with IBM standing behind, it should be an easier job.

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