A few days ago when I talked about the possiblity of Sprint selling off its wireline division to pay for its LTE buildout, I focused on only two potential suitors: Level 3 and CenturyLink. But a regular commenter brought up a third bidder that I neglected to mention but which may be just as likely: TW Telecom (NASDAQ:TWTC, news, filings).
While smaller than the others, tw telecom has the advantage of not being busy with another integration right now - CenturyLink has Qwest and Savvis, and Level 3 has Global Crossing. Meanwhile, tw telecom has just been growing steadily with EBITDA margins at 37%, producing plenty of free cash flow and actual earnings per share. They have plenty of room on their balance sheet to make a big move, though this would be BIG. Honestly though, tw telecom has been so quiet this year that it has been easy to forget that they are out there, lying in wait for the deal that really makes sense.
Strategically there are many reasons why such a deal might be attractive.
- There would be obvious synergies in combining tw telecom's metro footprint with Sprint's mostly longhaul business, and Sprint's revenue matched up with tw telecom's EBITDA margins would be formidable.
- While tw telecom has usually de-emphasized its wholesale carrier business relative to the enterprise market, it does have one and adding that of Sprint would give them enough scale to do something more substantial than either can do alone.
- Whereas Sprint's infrastructure is old and hasn't been invested in, tw telecom has proven that it knows how to spend capex and generate value when it comes to fiber. Their partial intercity footprint would be a starting point for the eventual upgrade of Sprint's transport and transit backbone. Throw in a later buy of XO, and it'd be a whole new ballgame.
- tw telecom has already been making inroads into the large enterprise space, but purchasing Sprint's customer base would give them instant scale and relationships to sell newer services into.
- Their national metro presence is just as capable as any other suitor's for helping Sprint build out backhaul for its LTE plans.
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