EarthLink’s Dark Fiber Sale, A Look At Potential Buyers

February 19th, 2015 by · 27 Comments

On EarthLink's Q4 earnings call this morning, the company talked pretty frankly about its intentions to sell off network assets to focus more tightly on the managed services side. They are looking at selling off the dark fiber, but not the more general CLEC/network business itself for now.

TRImage_271 Feb. 19The rationale behind that is that a) carve-outs aren't easy, b) selling dark fiber has litle operational impact, and c) they think they can improve the CLEC/network business and get a better multiple later on.  Meanwhile, they can monetize the dark fiber quickly and use it to improve the balance sheet.

So where is this dark fiber? The two CLEC pieces of the business were ONE Communications in the northeast and Deltacom in the southeast. As I recall, ONE's network wasn't flush with dark fiber, but some pieces of Deltacom's were, particularly of the regional intercity variety. A bunch of the former Deltacom's metro fiber derived from Progress Telecom (nowadays Level 3) as opposed to original build etc.

So we're mainly looking at regional and longhaul routes in the southeast. EarthLink suggested that they had seen some preliminary interest from the market.  Who might want assets of this sort?  We've looked at this before, but the situation has evolved somewhat.

While EarthLink doesn't seem directly interested in the Windstream REIT route, that doesn't preclude Windstream as a potential buyer. The hybrid ILEC/CLEC could just buy the fiber and then sell it to its REIT as it is doing with the rest of its network. While Windstream has a fair amount of southeastern fiber, it looks to me as if Earthlink's inventory could be pretty complementary.

A very obvious candidate would be Zayo of course. Aside from their general voracious and omnivorous appetite for fiber assets, Zayo's current southeastern regional fiber depth mostly derives from the US Carrier deal and is strongest in Georgia but less dense elsewhere. The former Deltacom footprint could be an asset they would put to good use, especially in Florida.

Level 3, on the other hand, would seem to have less use for EarthLink's footprint simply because they've got a lot there already from previous deals. Adding it to their portfolio certainly wouldn't hurt, but I doubt they'd bid very high for it relative to others.

Of the other private equity-backed competitive fiber operators with a known appetite, I'd say Lightower would be the most likely. They'd never want the CLEC business, but buying an unencumbered dark fiber asset that would take them from their Virginian southern border all the way through Florida and Texas might really work. Such an opportunity might not come again.  And anything of interest in the Northeast and Midwest would fit in well enough.

The same argument could be made for Lumos Networks I suppose, but I think Lightower is the more likely.  PEG Bandwidth could be an interesting alternative as well though.

Two regional energy-utility-owned fiber operators could conceivably be interested also. FPL Fibernet bought its way into Texas not so long ago, and EarthLink's dark fiber would be an interesting followup. Southern Telecom is probably less aggressive in terms of M&A, but it could make sense and if their parent is willing it would be pocket change.

Should Comcast succeed in finishing the TW deal, they just might want to follow up the DukeNet purchase with a wider regional fiber footprint. Especially if they can get it with no extra CLEC baggage.  But I think the probability isn't very high on this one.

But the title of darkest horse would go perhaps to Crown Castle, whose purchase of 24/7 MidAtlantic last year could be the start of a wider appetite for regional fiber to hook up its towers.

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Categories: Fiber Networks · Mergers and Acquisitions · Metro fiber

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27 Comments So Far


  • Fibermancer says:

    I get the “puzzle piece” fit that this would be for Lightower, but I haven’t seen them make an “acquisition” since the Sidera merger. Obviously Lightower is where they got to be through acquisitions, but do you think their appetite has waned? Zayo and L3 have kept buying, but I haven’t seen the same lately from Lightower…

    • Rob Powell says:

      Agreed that Lightower has been quiet recently, but no I don’t get the sense that they are done. It’s just a feeling, but I think this year they’ll be hungry again – though this may or may not be the target…

  • Anonymous says:

    I see Windstream striking twice. Earthlink assets and the Integra/ELI. Making a formidable national CLEC out of the assets ( still with a sme gaps) and seperating from the rural ILEC assets.

  • john snow says:

    Hmm… very interesting development

  • john snow says:

    Hmmm, interesting development.

  • Grant Lewis says:

    This is odd to me. The fiber is tightly coupled to their carrier business which is producing a pretty decent amount of contribution margin. So when they sell that piece yes they can use proceeds to improve the balance sheet but how do they stay on guidance and produce positive cash flow and improving EBITDA with this business gone?

    • Anonymous says:

      The discussion is about selling dark fiber, not the lit network.

      • Grant Lewis says:

        sorry – are you inferring that they have a large number of strands unlit available for sale? most of their network was part of IRU’s in NE that have largely been lit and really not worth much since the paths are not optimal. In the southeast they have a unique network from the standpoint its the old delta point network but its largely lit.

        my point above was if you sell the fiber you are selling both lit and unlit services. Yes you can carve out strands to retain but the purchaser would have to agree to the diminished value in losing the contracted revenue when compared to the terminal value of the unlit. I wouldn’t want to manage the customer but i would want the rights to the fiber those customers are on. So in theory if they sell the fiber and retain the customer relationships they could in theory move the customer to another competitors fiber but then they would be losing the underlying value of the fiber network assets that permit ELNK to drive positive economics on the deal (ie assets are decriating and or fully depreciated therefore driving reduced underlying costs) therefore place pressure negatively on EBITDA and CM.

        • Rob Powell says:

          Of all the layers one could separate at this stage though, the dark fiber piece is by far the easiest. Clearly they think that they can sell it more in pieces than as a whole — much the way MegaPath has been chopping itself up, although they didn’t have a dark fiber component obviously.

          • Grant Lewis says:

            Understood. I guess I don’t see EarthLink having a “ton” of extra dark fiber … thats why this one is so odd to me. Some time ago they (elnk) had some strands in NE unused but the value was so low due to the lack of differentiation on the paths themselves they didn’t proceed with a transaction. That aside I hope they are able to generate some value …. i don’t really see how they do it unless they include the actual lit fiber ….

  • bebbers says:

    I pick Zayo.

  • kb1afu says:

    you might be forgetting about Birch.

  • anon 35 says:

    Comcast could be in play too now that they are offering nationwide domestic connectivity. They are probably looking to fill some type 2 holes.

    • Anonymous says:

      Comcast? why on earth would comcast want to buy earthlinks fiber? they would do better and frankly serve their customers more effectively with fibertech as opposed to earthlink. the network earthlink operates is 2nd rate 2nd tier … its antiquated, legacy, challenged and has very little differentiation except on some unique routes in the southeat from the old IFN. otherwise its worthless.

      • anon 35 says:

        Its a dark fiber asset as part of a nationwide rollout to plug holes in the non Comcast /TW footprint. Any number of players could fill that hole and could be more than 1 that is acquired by Comcast.Most acquisitions have footprint overlap. Look for Comcast to make an aquisition this year not named Time Warner.

  • Hank says:

    Earthlink is toast. The company will be broken up and sold in pieces. Dark fiber is just the beginning. Read the 4th quarter results. They lost 72 million last year.

    • Anonymous says:

      I’m not qualified to say they are “toast” but ANY provider that lists “dial-up internet” as product offering may have seen better days in their past….

    • kb1afu says:

      A Perfect target for Birch. there is talking.

      • Anonymous says:

        Birch just announced the acquisition of Globalinx … given this i seriously doubt they would be looking at ELNK so quickly.

        • Anonymous says:

          LOL you forgettin’ what Birch does? consolidation of hemorrhaging CLECs/MSPs, a history of 20+ acquisitions now… multiple acquisitions per year is normal for them. word is they are currently courting ELNK, and the other biggest POTS reseller still around.

          • Anonymous says:

            haven’t forgotten what they do … the question is what value is there ? earthlink is a pile of heaping steaming dung and birch may realize value in consolidating but why would they want the dial up isp business? its the single largest contributor of margin in totality for the overall business. its a business in a state of secular decline. earthlink also faces stiff competition from Cable operators in their small to medium business unit due to limited capabilities and horrible backoffice integration resulting in poor customer experience. Are you suggesting Birch is going to bring some magic secret sauce to earthlink that eliminates 7 different provisioning plans? its not like earthlink has a million miles of metro fiber like some privately held national telecom providers that if consolidated could drive increased accretive revenue. so help all of us understand what the value intrinsically here is ? how do the shareholders benefit? the stock is trading at a low number compared to years prior likely b/c the traders are not long in the stock.

            • Anonymous says:

              Birch takes public to private, Birch acquires piles of dung and consolidates, Birch buys worthless pay-phone and resellers, Birch buys Cbeyond, Birch buys MSPs, Birch looks for opportunity where others see miserable failure, then Birch consolidates, lays everyone off and looks for the next victim. its what consolidators do. Post-Cbeyond Birch benefits from acquiring Earthlink.

  • Lewey says:

    This is lewey a here … not toast. we will work hard to keep the gravy train around bonuses flowing and flowing and flowing like we have for the past 10 years. once we extract all we can … we will shut it down. until then move on people …

  • Anonymous says:

    IFN built fiber in electric rights of way in the southeast. The red routes in this 2001 map may be where Earthlink has dark fiber available to divest.

    https://web.archive.org/web/20010206191841/http://www.deltacom.com/network_map.html

  • Layoffs today says:

    Reductions of 20% to 30% today across the board from sales, engineering, operations, etc. This pig must bet getting lots of lipstick before the slaughter … err i mean sale … err i mean blind highway robbery of suitors. I can’t imagine what could possible be worth anything except those businesses that current leadership team have all but abandoned. Good luck to those departing today involuntarily.

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