Well, the telecom M&A season is open already, but the first target was not in the fiber business, nor was it in the CLEC, data center, VoIP, or equipment sectors. It was an energy company. Competitive telecommunications provider PAETEC (news, filings) announced today that they are buying US Energy Partners, which sells electricity to 3500 customers in western New York state. PAETEC had given indications before that it was interested in the energy sector, apparently they meant it – and what better place to start than in their home turf up in western NY.
The price tag of $3M is of course small relative to PAETEC, as is US Energy Partner’s footprint. So in many ways this isn’t a big move at all, they aren’t really risking too much. But it is interesting nevertheless. US Energy isn’t a utility, they’re an Energy Service Company (ESCO). As I understand it so far, an ESCO is to the energy utilities what a CLEC is to the ILECs in telecom. They sell energy to consumers and businesses via the local utility infrastructure, and seek to make money by running the rest of the business more effectively. What PAETEC seems to want to do is to take that business model and expand it so that they can bundle both telecommunications and energy services to their enterprise customer base, initially in the 14 states that have favorably restructured energy sectors.
Will this sort of thing catch on? Are more CLECs and ESCOs going to be hooking up? I’m sure I don’t know, but certainly energy is an increasingly important subject to the whole sector internally. Thus, buying this energy business could help the company address both the needs of its customers and the rapidly changing power requirements of its own networks and data centers. On the other hand, PAETEC seems to have so many side projects going on that they must always be careful to maintain their focus.
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