What’s Up at Deltacom?

January 13th, 2010 by · 14 Comments

According to an article over at Phone+, itcd has recently been playing some serious hardball with its agents.  The southern CLEC appears to have unceremoniously severed its relationship with a variety of agents and master agents.  Now, Phone+ caters to the channel and their article is of course from that point of view, but regardless it is clear that Deltacom is in the midst of reorganizing its channel sales.  This sort of thing is never fun for those involved, and I can’t say anything about the merits of the accusations on either side of the fence.  As a general matter though, this sort of event happens periodically in the sector when a carrier decides it isn’t getting what it wants out of the channel for whatever reason.  So what is Deltacom not getting?

One can never be sure about the specifics, but from an outsiders perspective Deltacom has always been somewhat revenue heavy and margin light for the amount of fiber they operate.  They have been fighting steadily to increase those margins over the past year or two while allowing revenues to stagnate.  This further move to restructure its relationship with its agents is likely just another front in that effort.  Basically, they want the revenues from the channel to be of greater value than they currently do, and as part of the plan to get there they are pruning mercilessly.  

There has been talk (some of it by me) that Deltacom might be prepping themselves to be acquired, and this new development could easily fit into that scenario of course.  However I tend to think that what a company would do to make itself attractive to a buyer is very frequently what it ought to be doing anyway to improve its operations and generate more value for its shareholders.  So I would shy away from the suggestion that this is directly tied to a buyout coming down the pipe, although I still think it highly likely that M&A lies somewhere in the company’s future.

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Categories: CLEC

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14 Comments So Far

  • One thing to remember is that Deltacom owns IFN – a big fiber network that is core to its wholesale division. Sadly, neither Deltacom employees nor agents know about it. Also, selling big pipe is a specialty. You can’t get profitable selling $400 T1’s. There just isn’t enough margin there.

    Who would the likely candidate be to buy Deltacom? Zayo or AFS?

  • CroweLovesTOFU says:

    Maybe the sum of the parts is worth more that the whole. IFN fiber assets to Zayo & CLEC business to One/Windstream?

    • bscully says:

      Break-up value is certainly the way to go with Deltacom. Certainly the fiber is of value to several market participants. The Switch assets however are only of value to someone like One Communications. These assets would be duplicate to Windstream (Nuvox) and PAETEC (US LEC). One Communications could use this to expand and they could utilize all pieces of this operation.

  • Matt says:

    I would be interested in hearing if there are any other deltacom customers that have also either been over billed or receive any frivolous charges which mysteriously appear on their invoices.

  • bscully says:

    I would tend to agree with you Rob that One Communications is the most likely interested party. I believe PAETEC is more interested in the West Coast market (Integra) at the present time.

  • Brian Scully says:

    Deltacom would be a perfect fit for One Communications. I believe the PAETEC growth will be on the west coast with Integra a possible target.

  • Rumor has it that One Comm. was looking to sell not buy. Debt issues.

    Paetec just pushed a chunk of debt out past 2013, so I don’t know if they have $600M to pick up ITC/IFN. And what are they getting besides the fiber inside their footprint that they could use? Switches? Customers and revenue? Scale won’t add margin here.

  • Former Deltacom Agent says:

    Deltacom is simply looking for revenue and stealing it from the agent channel seems to them the easiest way to get it. They don’t however understand that 30-40% of those acounts will be gone within a year or two.

  • rgrjoe says:

    There are alot of internal changes going on. Paetec is not buying ITC. There is too much debt from Paetec side to make it happen. ITC keeps laying off key people in departments that make it all work. So you do not do that unless you are looking to sell/ The overall operational costs have been lowered over the past year.
    The prime candiate appears to be Windstream . They want to enter the SMB arena and ITC’s footprint helps re-enforce Nuvox purchase. Give by year’s end to happen.

  • Anonymous says:

    A deal between Delta Comm and One Communications is the most likely. Not sure who is the buyer, but I have heard that One Communications has some debt issues.

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