AboveNet was one of the few fiber shops that had its act together. They know where their fiber is. They can quote it fast. They can deliver on what's quoted. And they knew their sweet spot. Except for US Carrier and FiberLight, no other fiber CLEC's that I have dealt with can say that. (I'm waiting over 6 weeks for quotes and maps from IFN and L3.)

This will be Zayo's 21st acquisition. I hope the integration goes well, because in the past Zayo has had issues with their knowledge of fiber assets. It has improved. Google earth!!

Zayo doesn't sell via the Channel - direct sales only. Via email from Dan Caruso, when asked about the Channel this morning, "I am sure we will be supportive of efforts Abovenet has underway."

Rob Powell likes this deal, even at 9.2x projected 2012 EBITDA. I think scale for scales sake is the problem with telecom. Mounting debt combined with shrinking prices does not make for a healthy business. Zayo and Level3 are buying up a lot of the competition, but that hasn't really increased pricing because Cogent and resellers are still there dropping their pants to win any revenue. And the ILECs are in a price war with the cablecos.

I mainly sell transit and transport. Fiber companies are my bread and butter. It is certainly easier to just check a single fiber map, as opposed to a number of them. Here's hoping for a smooth integration.

DEBT

The debt in this industry is crazy. AT&T and VZ combined have $105 Billion in debt. The top 5 MSO's have about $100B with Comcast at $40B. Level3 is at $8.5B. WIND has $9B. CenturyLink has $22B. When you are paying 7.75% on those notes, that's big bucks! Zayo already had $682.7 million in long-term debt; now it will have about $2.9 Billion in debt on approximately $900 million in annual revenue.

I still think that taking Cogent out would be a good move for L3 or someone. You get fiber, revenue, lit buildings and take the low priced carrier out of the market. It did take almost a year for AboveNet's investors to sell, so maybe in 3Q or 4Q. Most buyers - L3, CTL, WIND - have already bought something and are still refinancing debt as well as integrating what they bought.

For the Channel, this mounting debt is scary. Why? Because the CFO looks at the line item for commissions that grows every quarter. He wonders why he has to keep paying it, The CFO thinks, "If I wipe that line item out, our books look great." That's the scary part.

I have to laugh at this because Clearwire has clearly (heh) spent more than $4B to only partially build out a nationwide 4G network. How will T-Mobile do it for $4B?

Google is cutting its losses and selling its stake in Clearwire for $47 million, a tenth of the price it originally paid. What does that say?

AT&T's CEO had his pay cut over the debacle of the merger. Across the board - and it pains me immensely to say this - only VZW seems to have a clear cut strategy that they are executing on. Sprint and AT&T need new management. I have said it before and I will state it again: Hesse is not helping Sprint at all. He has had ample time to fix Sprint -- yet he has not. Like IBM bring in Lou, Sprint needs an outsider to come in and shake it up to make it competitive.

Rumors this morning are that Sprint was in talks to acquire MetroPCS. Bloomberg, Reuters and others reported that the Board vetoed the deal as a sign that they have lost faith in Hesse. Uh, hello! That's what I have been saying.

I'm shopping for a new cell phone (to replace my Blackberry) and friends pointed out that Sprint hasn't had a new phone since the iPhone. And subsidizing the iPhone is hurting all 3 carriers in the wallet. Devices are what drive cellular sales. Smartphones, tablets, netbooks, data cards, Mi-Fi hotspots -- all contribute to sales and ARPU increases. When you have a tired inventory, retention and acquisition of customers is challenged.

What else?

There's still DISH out there with its spectrum and desire to build out a 4G network. One has to wonder if DISH will hire Nokia Siemens Networks or Ericcson to build and manage its 4G network.

Don't forget LightSquared. LSQD is cutting staff - all but the lawyers, those they are doubling down on to sue the FCC and the DOD.

A scandal surrounds the Obama Administration for perhaps helping LightSquared to the detriment of OpenRange - at least that's what HotAir is saying. I don't think another extension would have helped OpenRange get out of its massive debt.

Peak and MetroPCS are still in play. Who will play with them? As I mentioned above about the devices driving sales, Peak, MetroPCS and US Cellular have been to the FCC to complain about the big 3 locking them out of the hottest devices. While there has been talk about Peak and MetroPCS being bought, US Cellular is 81% owned by TDS, so they aren't in play.

VZW will be fighting to the cable spectrum, since T-Mobile and others think that the deal is too good for VZW+cable, bad for everyone esle. For one thing, the deal creates a joint venture corporation that allows the 4 companies - BHN, TWC, VZW, Comcast - to spend a lot of time together (and that can't be good for competition - what little there is).

Why the FCC will likely say yes anyway: Because they have to.

All this activity doesn't make it easy to sell these carriers. It makes the bankers happy though -- and that's not usually a good thing.

One final cell story: AT&T lost a small claims court case against an iPhone user for throttling. AT&T is appealling. Apparently, it can't afford any losses for this network management strategy. I think it is a case of false advertising across the board. Like everything else about broadband, it's never what is advertised and you are always stuck in a box due to ridiculous contract terms.

I think some of that money - now $162 M based on the stock - was for Dan and his team to stay on and continue to run the machine. There are a couple of million in accelerators in the LOI (letter of intent), also. Plus what does Shoretel know about running a service or the proprietary softswitch that M5 switched to in 2010? The M5 team had to stay (for a while).

ShoreTel's C-level exes probably saw that the hole in their strategy by not having a CaaS strategy. After that, the decision comes down to build-or-buy. The advantage to buying is that - if done properly - you get revenue, a market proven service offering, and a sales channel. Building from scratch has a big learning curve, capital investment and little revenue.

By scooping up M5, ShoreTel gets a proven business model. At $48 million in revenue, M5 was one of the giants in the Hosted PBX space with a proven sales record that had grown 30% in the last year. Their indirect and direct sales teams were effectively selling the service. Not many VoIP providers are organically growing revenue. In 2010, M5 was doing about $32M in revenue when it acquired Gekkotech, a Chicago based VoIP provider that was utilizing M5's softswitch platform and bringing in about $8M.

M5 left the Broadsoft platform in 2010. This move increased the profit margin by eliminating the licensing fees to Broadsoft. This might have been another factor that made M5 attractive - margin. For the second quarter of fiscal year 2012, ShoreTel revenue was $58.0 million with a net loss of $1 million. Hardware alone is a difficult business to be in, ask Amazon or Dell.

Under the terms of the deal, M5 shareholders will receive approximately $84 million in cash and 9.5 million shares of ShoreTel stock, for a total of about $146 million on stock value at close of sale. Moreover, M5 shareholders have incentives that could realize up to $13.7 million, according to the company's press release.

M5 will be run as a separate division with CEO Dan Hoffman still managing things. This is a smart strategy; the same one that TelePacific took when it acquired Telekenex. The culture of CaaS is different than hardware / premise PBX. There is some rivalry there. Why break either corporate culture?

This transaction is just another example of how the legacy telecom world will have to jump into the new cloud world - mostly through buying since it will be cheaper and faster that building it from scratch.

Why can't the rest of the cloud comm space get this deal? One reason is that investors don't look at companies with less than $10M in revenue. You don't have a proven model at $4-5M. It's a different deal at that size. At over $20M, investors know that you can sell and you can scale. It's proven. Another reason was the average revenue per customer at almost $2000. As Q-Advisors told the crowd at Cloud Comm Expo in Austin in 2011, that number has to be north of a thousand to be attractive. Those are pretty good reasons for the 3x revenue number.