Wow! I now hereby take the possible sale of the q longhaul network seriously. Why? Well, unlike all other such M&A rumors over the last year, this time the buzz generated was incredible - Telecom Ramblings had its biggest traffic day ever, and the audience came largely from within the industry itself. That doesn't mean it is true obviously, but it does mean that a heck of a lot of people who may know things are taking it seriously, so I will too. So today let's look at a few other details.
Revenues: On GigaOm they have been throwing around $3.27B as the 2008 revenues for the Qwest longhaul network. Now, they might have gotten this from Qwest I guess, and it could be right. But it looks suspiciously like the $3.27B in 'Wholesale' revenues from the 10-K SEC filing. This would be incorrect, Qwest does not segregate its longhaul revenues this way - they are spread between the wholesale and enterprise segments and are largely dominated by in-region revenues. The Wholesale segment, for instance, includes revenues generated in-region from UNE circuits as well as wholesale voice termination in their capacity as an ILEC. On the other hand, part of Qwest's enterprise revenues would need to be included, but it isn't clear which of those belong to the ILEC portion and which with the longhaul portion.
As far as I can tell, there is no published data available that can tell us just what Qwest might be looking to sell. There are many ways to package it, and perhaps it would to a great extent depend upon the buyer. Does it include wholesale voice revenues? Or are we talking mainly about fiber, transport, and IP? Using the latter assumption, I had put the revenues at under $2B - if it includes wholesale voice and approaches $3B it makes the price more reasonable although adding the voice component would lower the margins the division might have. Does anyone have further information about what assets they are really shopping?
- Sprint? I understand the fit between the assets on an intellectual basis, but Sprint just isn't in a position right now to manage such an integration, let alone raise $2-3B to buy it.
- Cavtel or Zayo? Or a whole host of other dynamic smaller players? For $2-3B in an environment where money is this expensive, it's far out of range for anybody that doesn't have revenues in the billions. At least, it would take levels of financial creativity beyond my ken to pull it off.
- Qwest becoming an RLEC consolidator after selling the longhaul network? I'm not sure their balance sheet will be quite strong enough to pull that off, but it is possible I guess. The market will probably not care much by then however.
- Qwest selling the ILEC rather than longhaul? Anything's possible I guess, but since Verizon and AT&T don't seem to want those rural access lines, and since private equity is currently rather unlikely, who would buy it? CenturyTel and Embarq are busy, and I don't think Frontier can pull off one that big, can it? And it doesn't solve Qwest longhaul's structural weaknesses, i.e. insufficient on-ramps outside their home region.
If you haven't already, please take our Reader Survey! Just 3 questions to help us better understand who is reading Telecom Ramblings so we can serve you better!Categories: ILECs, PTTs · Internet Backbones · Mergers and Acquisitions