Survivors turn hunters in telecom jungle
By Carol Wilson
Aug 14, 2006 12:00 AM
telephonyonline.com
On television, being a survivor means 15 minutes of fame, possible future reunion shows and maybe, if you forget to pay your taxes, a short stint in federal prison. In competitive telecom, being a survivor has meant inevitable bankruptcy, constant financial pressure and quarterly losses — until now.
The competitive carriers who have hung on through the dark night of the telecom meltdown are now beginning to reap some rewards — and generate some rumors. As companies such as Broadwing, Covad Communications, Global Crossing and Time Warner Telecom turn in best-ever quarters, speculation is beginning to mount as to what their future plans might be, once there is cash in the bank.
“Across the board, it seems like a lot of the CLEC and competitive carriers out there are doing better than they have been,” said Brian Washburn, senior analyst for Current Analysis. “The numbers I see look like they are improving in general overall.”
One reason, according to statements from CLEC executives, is careful attention to cost control, along with a push to move up the value chain and compete with AT&T and Verizon for managed data services revenue.
“From what I've heard, the consolidation of AT&T and Verizon has caused numerous headaches, and that has created opportunities for companies like Global Crossing and Time Warner Telecom,” said Romeo Reyes, managing director of global investment bank Jefferies & Co. [See “Global Crossing Charts a New Course,” page 36].
Already, rampant consolidation has transformed the competitive carrier industry over the past 18 months as big players such as Level 3 Communications have gotten bigger through multiple acquisitions (Wiltel, Progress Telecom, TelCove) while Covad expanded into wireless by purchasing NextWeb, and found a financial partner in EarthLink to fund its footprint buildout. EarthLink is making its own push into voice and wireless through a host of partnerships, even as XO moves squarely into the wholesale space by lighting up 18 strands that it owns on Level 3's network, in hopes of capturing some of Level 3's carrier business. Time Warner Telecom recently announced its purchase of Xspedius.
Analysts expect the competitive rollup to continue.
“In a few years, there will be a handful of mega-competitive carriers left standing,” said Steve Hilton, director of the Small & Medium Business Strategies Decision Service at Yankee Group. “There will also be some very niche players. What there isn't going to be is five or six middle-tier companies.”
The only question, analysts say, is who will be buying and who will be selling. There have been persistent rumors that Broadwing and Global Crossing would merge.
“Each of them has a large amount of cash, and I don't know what they are planning to do with it,” Washburn said. “Each has raised a large war chest that could be used for acquisitions or internal development.”
There is also the possibility that the competitive carriers are enjoying a honeymoon period that won't last, Reyes cautions.
“That's what worries me about this whole sector — these sleeping giants will wake up,” he said. The mundane process of merging may have been a distraction to the salespeople involved in the two companies, which allowed competitive carriers to get a foot in the door, Reyes said. The question becomes, what do they do with it.
“Diversity is a very big selling point for these companies,” he said. “If you had SBC, BellSouth and AT&T, now with consolidation across the industry you have no diversity. Plus, if you are a guy at a Fortune 2000 company buying product from the new AT&T, you want another operator to keep them honest.”
That bodes well for the continued success of competitive carriers, even as they sort out who survives the next great shakeout. |
