One of the themes that emerged in yesterday's news orgy about the LVLT/GLBC deal was that it may act as a catalyst for other deals in the sector to emerge. Certainly we saw things snowball last year amongst the smaller metro fiber operators and CLECs, and it has seemed logical that 2011 would see it spread to the larger carriers. Yet I don't think there is yet that sort of momentum. There's less a need for a land grab here, and any deals will be much more opportunistic and driven by specific strategic needs just as Level 3 and Global Crossing had. So it's time to prognosticate. Let's look at a few of the larger potential strategic buyers out there and what might make sense for them:
TW Telecom - Because they are profitable, growing, and have debt they can easily manage, TW Telecom doesn't need to do anything and their conservative approach doubles that tendency. But strategically, they have two holes I think they will fill if the opportunity does arise: intercity assets and lack presence in much of the northeast. It's no secret that I think XO is a great fit for both of those, but until Icahn is ready to sell that is a moot point. Looking past XO, I don't see TW Telecom making any other play for another national operator, but maybe a northeastern metro fiber operator - Sidera, Lightower, or Fibertech all qualify. Zayo could be a reasonable fit, though it's less likely I think.
CenturyTel - Fresh off its purchase of Qwest, they will be busy integrating. But any new purchase will take a year to close, so they could make a move - and a sensible move (IMHO) would be to buy something to give the Qwest longhaul assets a bit more scale to chew on. What assets would fit? Ok, it would be a bit ironic, but Sprint longhaul still needs somewhere to land and CenturyTel needs a buddy in the mobile space that isn't AT&T or Verizon - there's a deal in there somewhere, I can feel it. Having Sprint's longhaul assets land in bed with the assets Sprint itself once split off as Embarq might be odd perhaps, but CenturyTel have the scale to pull off such a deal where others don't. I actually think this might be a real possibility over the summer now that a LVLT/Sprint-longhaul combination is probably off the table for a few years.
Zayo - Given its very long string of acquisitions since its inception, Zayo is obviously always in the game for more. However, at the moment there seem to be fewer more passively-0run, available fiber targets of the type they usually prefer. Meanwhile, some discussion has shifted to Zayo's backers and their potential interest in cashing out. Yet I can't really find a perfect candidate to make such a bid - though TW Telecom might be a reasonable idea. So as amazing as it seems, unless XO becomes available Zayo doesn't seem like a buyer or seller in any immediate sense to me. I'm sure Caruso will find a way to prove me wrong though.
AboveNet - Since its re-emergence into the light, AboveNet has dazzled operationally and has shown little or no interest in buying assets at current multiples. The LVLT/GLBC deal doesn't seem to change the competitive dynamic much for them, and thus they will probably stand pat. But if their outlook changed, who would they buy? It might sound strange, but I actually think that Cogent might fit pretty well. It would give them greater scale in the IP transit world, as well as an entry into the small-corporate/large-building market which seems like it would fit well along their current wholesale/large-enterprise on-net footprint and give them an entry into a variety of Tier-2 markets. Still unlikely though.
Cogent - In an interview here last month, Cogent's CEO Dave Schaeffer strongly suggested multiples are too high right now for them to buy assets. So if they're going to be involved, it would be as a seller. But while strategically I think AboveNet might fit, I think Schaeffer is just starting to have fun now that Cogent is on the edge of profitability.
PAETEC - While they're busy integrating Cavalier and Intellifiber and probably aren't immediately hungry, they could still make another move. Two directions beckon - a longhaul backbone with XO, or more CLEC assets with Integra or even Telepacific. Unless Icahn changes his stance, Integra still seems the obvious choice (if any) for now.
Earthlink - Still munching on Deltacom and One Communications, they certainly have the firepower to buy more and they probably will - but I don't think they will shoot for a national player. While they might aim in any direction, they seem more interested in piecing together regional, enterprise-focused CLEC type assets and products than the fiber assets themselves, and hence I think they'll probably take a swing at something smaller. Unless of course XO goes on the block, in which case I think they'd be a bidder.
Windstream - Having bought KDL, NuVox, and some cloud/datacenter assets, they are probably still hungry. But I think it's still for regional assets that further stitch together their ILEC footprint and address the enterprise marketplace. None of the larger fiber operators really make sense in that context, even XO (IMHO), and hence I think any M&A targets will probably be in the colo/cloud space.
Ok, that was a big pile of prognostication that pretty much everyone will disagree with somewhere (some of you everywhere). Are there any combinations out there amongst the larger fiber operators that make sense to you?
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