Telecom Takeover Tuesday

Peter : On Rad's Radar?
| Peter Radizeski of RAD-INFO, Inc. talking telecom, Cloud, VoIP, CLEC, and The Channel.

Telecom Takeover Tuesday

Yesterday was a big day for The Channel. Two separate acquisitions occurred with both takeover companies expressing interest in the Channel of the company being bought.

First, we have GTT buying WBS Connect. WBSC is just a reseller of Transit and Transport with about $28M in revenue. It was bought for about $1.8M in cash and notes plus $600K in stock. A spreadout payment over 18 months. WBS Connect had 900 customers  (ARPU calculated at $2600 per month). Lots of hype about POP's and lit buildings touched but at the end of the day WBS Connect was just a reseller pushing IP pricing lower (i.e., in my experience, they sold on price. Get your best deal and I will beat it by $1/MB). If that's the sales approach, what value is that? I won't rant here. I'll let it speak for itself.

Second, ILEC Windstream (formerly Alltel combined with Valor) bought Nuvox. Nuvox was a combo of FDN, NewSouth and Nuvox. Apparently, Nuvox had $180M in debt with 90,000 customers bringing in $500M in revenue (ARPU of about $500 per month). Windstream will issue stock valued at $183M and pay $280 million in cash for $500M in revenue and access to business cutomers outside its footprint. With cellular assets an ILEC like Windstream would be swimming in the EarthLink pool: declining revenue from a declining customer base. The only way to attract new customers is to go outside its own region - or buy a cellular company or a cable outfit (both of which cost way more than $500M).

Nuvox pays out between 12 and 18 points to its Channel agents. Many people call me wondering how they do that when they sell PRI's in many markets for $400. I have no idea. One thing that stands out is that the $95M loan in 2006 grew to $180M in 2009, some it from its FDN acquisition in 2007, but how much because they sell underwater? Nuvox burned through nearly $500M in VC funding as well. 

It sounds funny but on the same day the two companies famous for driving the price of telecom down are acquired - and the Channel is given as a reason. Is this just a bunch of order-takers or is the state of the economy the reason that price is the main object (instead of value and reliability)?

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