When PAETEC bought McLeodUSA, along with it came a fiber footprint of 13,000 regional route miles and 4000 metro route miles connecting 20 states. PAETEC has never owned much fiber before, they lease nearly all the connections in their network from both ILECs and CLECs, and the natural question was whether that might change. It now looks as though change is not in the cards.
Within PAETEC’s earnings conference call yesterday is what I consider a strong indication that they in fact wish to remain a fiber-free telecom, and divest the fiber. Here is the quote:
In the second quarter of 2008, we had made the strategic decision to suspend many direct fiber sales without supporting network revenue
In other words, they’re not offering dark fiber of any sort to anyone. In addition, the company stated they are reducing capex for last mile connections, i.e. they are not planning to hook up many (or any) new buildings to McLeod’s metro fiber. Put that together, and what you have is a fiber footprint that they simply don’t want to run – they want someone else to run it so they can lease capacity from it.
So who do they sell it to? Well, there are basically two candidates. The first is the voracious maw of Zayo, and the second is TW Telecom. I doubt Level 3 would bid, they have passed on these assets before and aren’t ready anyway. Qwest would probably be precluded by the FCC or FTC on competitive grounds. I suppose CenturyTel or Citizens is possible, but they have been focusing on ILEC facilities and selling off CLEC ones. And of course these assets are not worth the effort of AT&T or SBC given the regulatory hoops they would have to jump through.
But this would fit the profile of Zayo, bringing them another step closer to national scale while picking up unwanted fiber assets, in fact it would look alot like the Citynet Wholesale acquisition if it happened. TW Telecom I think is less likely, the deal wouldn’t be large enough to make it worthwhile for them – they are a position to make a bigger move, no sense in making a smaller one that might distract from it.
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