With all the RLEC M&A going on lately, I thought it would be helpful to run down the new top RLEC lineup by size (assuming the current pending M&A deals close). Using year-end 2008 numbers compiled by Stifel Nicolaus, here are the industry’s top RLECs ranked by total access line counts (total, not just ILEC lines) as if the currently pending M&A deals had all closed at the end of last year. (This doesn’t take into account ongoing access line loss, either.)
Carrier…………………………..Access lines (millions), 12/08
CenturyTel (with Embarq)…….7.7
Frontier (with Verizon lines)…..7.0
Windstream (with D&E)………..3.2
Fairpoint…………………………1.4
TDS………………………………0.9
Hawaiian Telcom……………….0.5
Consolidated Communications..0.3
Iowa Telecom…………………….0.2
Alaska Communications………..0.2
Here’s the visual: rlec-bar-chart.doc
Obviously there’s a big dropoff between the top two — which were third and fourth on the list before leapfrogging Windstream through M&A — and all the rest (click on that ‘bar chart’ link). And interestingly, if Windstream were to acquire ALL of the six carriers immediately below it on the list, it still would not be as big as the carrier just one slot above it: Frontier.
Reacting to this week’s news of the Frontier/Verizon deal, Bernie Arnason, principal at Pivot Media, told Telephony, “I would think all eyes are on Windstream now. They did this relatively small deal with [D&E], but now they have Frontier eclipsing them and CenturyTel/Embarq eclipsing them. We’ll have to wait and see what they do.”
Of course, CenturyTel or Frontier could scoop up Windstream. And this discussion leaves out Qwest, which is also a potential RLEC consolidator, especially if it divests its long-haul network, as some rumors have suggested. What do YOU think?
What difference is it which carrier has more lines than others? None.
Well, the number of access lines determines the economies of scale that are the primary driver of these multibillion-dollar deals.
Ed: While I agree Windstream will remain smaller than the two larger using the six “players” below it on your chart, the fact that there are many even smaller companies and larger companies available is clear. You are right to bring up the point of economies of scale as one of the largest expenses of a Telco aside from customer acquisition, is building outside plant and new product infrastructure. Any or all of the companies on the list could swallow a rural carrier of 50 to 100 thousand lines pretty easily if they are financially sound. Portions of Qwest might even be a consideration since a vast amount of their geography has population densities commensurate with a rural carrier. Strategy for M&A must follow the need and ability to finance more M&A activity. Some of the companies doing M&A’s today will be stretched to deliver the integration needed to reach better economies of scale. It is not just changing a name and merging resources – it is having a plan to mesh the two or more Orgs into a single entity – that works with the same methods and procedures. Then you get the synergy that provides the economies of scale.