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Windstream wrestles with Paetec share prices during Acquisition efforts October 20, 2011

Shares of Paetec Holding Corp., a CLEC that provides telecommunications services to businesses, climbed Thursday above the value of the shares Windstream Corp. is offering for the company, indicating that investors are expecting a higher offer.

In a research note, FBR Capital Markets analysts indicated a higher bid for Paetec from  Level 3 Communications Inc. could be forthcoming. Analysts believe  a Level 3 acquisition would make greater strategic sense for Paetec.  Analysts estimate that Level 3 could offer as much as $7.30 per share.

The value of Fairport, N.Y.-based Paetec’s shares has closely tracked those of  Windstream since it announced its agreement with Paetec on Aug. 1. It’s offering shares worth about $820 million for the company. Paetec shares were up 11 cents, or 2.1 percent, at $5.25 in morning trading. Little Rock, Ark.-based Windstream is offering 0.46 of its own shares for each Paetec share, an offer that was worth $5.16 per share on Thursday morning.

As a history note, Windstream was formed in 2006 thru the spinoff of Alltel Corporation’s landline business and merger with VALOR Communications Group.

Windstream began its acquisition binge in 2007 with the acquisition of CT Communications, Inc. Since that time they have acquired D&E Communications (NASDAQ: DECC), based in Ephrata, Pa., Lexcom, Inc., based in Lexington, N.C., NuVox, Inc., a privately held competitive local exchange carrier based in Greenville, S.C., Iowa Telecommunications Services, Inc. (NYSE: IWA), based in Newton, Iowa, Q-Comm Corporation (Q-Comm, aka: KDL & Norlight), a privately held regional fiber transport and competitive local exchange carrier based in Overland Park, Kan., Hosted Solutions Acquisition, LLC (Hosted Solutions).

Quite an interesting group of acquisitions for the old independent telephone company from Arkansas.

Joe Buck, NCE

Another Acquisition in the ever shrinking CLEC Market October 19, 2011

Zayo Group recently announced an agreement to acquire 360 networks holdings inc., a provider of fiber network and telecommunications services.

Louisville, Colo.-based Zayo said the acquisition of 360 networks will represent the largest of 17 acquisitions since the inception of the company four years ago.

Seattle-based 360 networks operates more than 18,500 route miles of intercity and metro fiber network across 22 states and British Columbia, and the company offers bandwidth infrastructure services to wireless and wireline carriers, cable providers, large enterprises and public sector customers.

The combination with 360networks marks a new chapter for Zayo, one in which Zayo may emerge as a national provider of Bandwidth Infrastructure service. “The acquisition nearly doubles the size of Zayo’s existing network,allowing them to provide a greater range of solutions, both in terms of markets served and ability to interconnect services across the markets.

Privately held Zayo Group expects the acquisition to close by early 2012 following customary approvals. Financial terms of the agreement were not disclosed.

Zayo Group is a provider of fiber-based bandwidth infrastructure and colocation and interconnection services. For the year ending June 30, 2011, Zayo Group posted revenues of $287.2 million and a net loss of $4.1 million. Investors in Zayo Group include Battery Ventures, Centennial Ventures, Charlesbank Capital Partners, Columbia Capital, M/C Venture Partners, Morgan Stanley Alternative Investment Partners and Oak Investment Partners.

And the market gets smaller. As I predicted several years ago, facilities based CLEC’s (those with fiber in the ground) are prime acquisition opportunities as the marketplace consolidates. Those CLEC’s without facilities may well get left to their own resources.

Joe Buck, NCE

CWA On Strike – Will Verizon fare well? August 8, 2011

Contract negotiations broke down shortly before midnight on Saturday between the telecommunications giant Verizon and two of its unions — the Communications Workers of America and the International Brotherhood of Electrical Workers.

The unions represent 45,000 employees from Massachusetts to Washington, D.C. and picketing began around 6 a.m. today. The two unions have about 7,000 New Jersey members — most of whom work as field technicians and line installers.

The two sides did not negotiate today, according to the CWA, but talks are scheduled to resume Monday.

At issue is a new labor agreement. Verizon is asking for concessions, explaining its landline business is declining as customers move toward wireless communication.They feel they need to reach a contract that addresses economic realities according to a Verizon spokesman. The wireline business is constantly in decline. In order for Verizon to compete, Verizon and the unions need to make some difficult decisions.

Though wireline business may be in decline, picketers pointed out that the company as a whole is doing well, reporting billions of dollars in annual profits. It is amazing that their wireless business has been booming and still they implemented bandwidth limitations on their users in an effort to secure a larger bottom line profit.

Verizon is looking to tie pay increases to performance review and require union workers to contribute to health-plan premiums. The company is also seeking to freeze pensions at the end of the year, eliminate the sickness and death benefit program, cut in half the sickness disability benefits from 52 weeks to 26 weeks and reduce sick time, according to a spokeperson for IBEW, Local 827. The concessions equate to $1 billion if the loss of sick days and other benefits are factored in, that’s roughly $20,000 per worker.

Verizon had planned for a strike and did not expect significant disruptions in service.Verizon indicates that he company was trying to reach an amenable solution that would protect its employees while allowing Verizon to grow in a tough economy.

So how will this strike impact Verizon. From a user perspective I have felt service could not get any worse than it already was, I now may have to eat those words. Verizon already loads their employees up beyond their ability to meet objectives, then contracts work over seas in an effort to reduce costs. What they have reduces is quality of service.

Verizon will survive, and most likely will break the union, but at what cost to their user base.

Joe Buck, NCE

Calix turns up a Broadband Stimulus Winner…and away we go Tennessee! July 14, 2011

Calix once again scores in broadband stimulus funds, in the past week picking up several new accounts with stimulus awards in hand, including two service providers in New Mexico, one in Kentucky, and three in Kansas.

In New Mexico, Penasco Valley Telecommunications and La Jicarita Rural Telephone Cooperative are both preparing to run fiber toward unserved communities.

In aggregate, it is estimated these awards amount to more than $21.4 million in overall funds and consist of $13.1 million in grants and $8.4 million in loans which include plant engineering, materials, labor, and other costs, including access equipment.

Separately, West Kentucky and Tennessee Telecommunications Cooperative (WK&T) has selected the Calix B6 Ethernet Service Access Nodes (ESANs) and the 700GE family of optical network terminals (ONTs) for its Fiber Forward initiative across western Kentucky and Tennessee Click here!. WK&T has $62 million in Broadband Stimulus award money and a matching amount in loans.

WK&T is aiming to deliver up to one 1 Gbps to its subscribers. Upon completion, this deployment will be one of the nation’s largest Active Ethernet deployments, bringing advanced IPTV services, extremely fast data services, and high-quality voice services to 21,000 homes and 99 community institutions such as schools, libraries and public buildings across a nine-county service area in Tennessee and western Kentucky. way to go Rocky Top.

In Kansas, H&B Communications, Inc., JBN Telephone Company, Inc., and Home Communications, Inc. will all be using Ethernet eXtensible Architecture (EXA) Powered Calix access platforms and the 700GE/GX family of optical network terminal (ONTs) to bring advanced broadband services to their rural subscribers.

In aggregate, the awards from these three amount to more than $13.5 million in overall funds and consist of $8.3 million in grants, $3.6 million in loans, and $1.6 million in matching funds.

Based upon recent investor queries it looks like someone knew something about Calix. With recent acquisitions, and now Stimulus money, Calix is looking pretty good for the near term.

Joe Buck, NCE

east tennessee gets Broadband from EarthLink June 20, 2011

EarthLink’s (Nasdaq: ELNK) Business unit has completed Phase II of the Eastern Tennessee Middle Mile fiber broadband project.

The project was made possible when DeltaCom, which was previously purchased by EarthLink, was awarded a $9.4 million broadband stimulus grant by the American Recovery and Reinvestment Act (ARRA) through the Broadband Technology Opportunity Program (BTOP).

With Phase I of the project completed in March, Phase Two of EarthLink’s network expansion includes the build out of a new 131-mile diverse fiber optic route from Knoxville, Tenn. to Bristol, Tenn. Already offering SONET Transport Service via its newly launched EarthLink Carrier division, the network includes Points of Presence (POP) in Knoxville, Morristown, Johnson City and Bristol.

When EarthLink completes the final phase of the project in Q3 this year, they will add five new ILEC interconnection points, including Cookeville, Oak Ridge, Cleveland, Sweetwater and Morristown, Tenn. These interconnection points are located in counties designated as underserved by Connected Tennessee, an independent nonprofit organization that develops and implements effective strategies for technology deployment, use and literacy in Tennessee.
But this network is not just about wholesale services. Having installed the middle mile network, EarthLink Business will offer its growing set of business services to businesses located in these markets.

Overall, the new network in Tennessee when combined with its purchases of Deltacom and One Communications is part of EarthLink’s broader strategy to penetrate the competitive business services market.

Thank you EarthLink…on behalf of all East Tennessee

Joe Buck, NCE

FCC considers VoIP Network Connection Charges June 6, 2011

More and more Americans are abandoning home telephone lines in favor of mobile phones, Skype, Google Voice and Vonage,and that leaves the Federal Communications Commission with a problem: figuring out what digital-age companies should pay to connect calls to the old Ma Bell network. One possible upshot: higher rates for low-cost or “free” Internet calls.

The FCC has proposed phasing out the decades-old public switched telephone network altogether and instead moving toward a broadband-based network to accommodate the new, popular applications. Because of legacy depreciation methodologies used by the legacy telco’s this could take quite some time however. Until then the question is what to do when consumers dial someone on the old network using computers and the Internet.

Some Voice over Internet Protocol services, such as Skype and Vonage, have so far been exempt from paying the same rates that traditional companies like Verizon pay to swap calls on the physical network of telephone lines, circuits and “switches” that connect calls. Since VoIP providers don’t have to pay those fees — which are worth billions of dollars to the legacy telco’s — their services have been able to undercut the prices of traditional carriers.

Many of those carriers, such as AT&T, Verizon and CenturyLink, want the FCC to intervene and force Internet services to pay like everyone else. “The top priority remains the urgent need to decide the proper compensation rate for VoIP traffic,” Verizon wrote in its filings with the FCC. “The commission should immediately set a single, low national default rate of $0.0007 per minute for this traffic.”

VoIP providers say they are an information service rather than a telecommunications service and should therefore be exempt from paying the same interconnection fees. They instead favor a framework called “bill and keep” that allows each service to absorb its own costs with no money changing hands. The fact is, users already pay for the bandwidth and many legacy telco’s, such as AT&T, want to charge usage based fee’s along with ensuring that if such usage is for voice communications the consumer pays an additional fee.

Just as the Internet has disrupted other industries, VoIP calls are expected to someday overtake traditional telephone carriers altogether. Already, the Internet is disrupting telephone carriers’ old business models. To turn a profit, carriers relied on earning money from other carriers for letting calls connect as much as they did on consumers paying their telephone bills. The old rate model was based on whether calls, measured on a per-minute basis, were classified as local, long-distance, interstate or intrastate. But none of those distinctions matter with new services offered by the likes of Google, Skype and Vonage. Internet services are measured in packets rather than minutes, except when they hit the public network, when they must be converted back and connected to traditional phone customers.

Those calling services, which are now free or relatively cheap, would have to start charging customers more if the FCC imposes access charges. VoIP providers would, for the first time, be subject to the highest regulated rates for switched traffic if the FCC imposes a new rate, the coalition said in a filing with the FCC. Doing so would also limit the availability of VoIP and IP-enabled voice services that “spur broadband deployment as a result of consumer demand.”

While this fight is in itself a source of friction between old phone companies and new ones, it’s also become one of the biggest sticking points in the larger debate over how to reform the amount carriers pay to one another — in FCC parlance, it’s called “intercarrier compensation.” The current intercarrier compensation system, which Democratic FCC Commissioner Michael Copps calls “byzantine and broken,” relies on access charges that change hands between long-distance and local phone companies when they transfer calls across the country. But as more people opt for mobile phones, even for their homes or businesses, those access charges are disappearing for traditional providers — and those companies are losing money. This presents a dilemma for the FCC as the politic’s of big legacy telco’s heat up.

The trend toward IP-based phone services is helping drive the deployment and adoption of new broadband networks which is a major goal of the Obama administration. Allowing those old access charges to disappear in favor of a broadband-based system will help encourage companies to scrap the old copper networks and expand Internet services. Meanwhile, the traditional carriers,particularly those in rural areas, are losing billions of dollars because they refused to move quickly in response to technology, choosing to rely on the politic’s of Washington to keep their bottom line intact. By phasing out intercarrier compensation, some phone companies say they’ll lose about one-third of their total revenue. That makes it difficult for them to build new networks.

The debate over these charges is on a collision course with another FCC program that needs to be overhauled. The Universal Service Fund is a nearly $9 billion government subsidy program intended to help pay for phone services in rural and hard-to-reach areas where it would otherwise be too expensive to build phone networks. FCC Chairman Julius Genachowski has proposed shifting that program so that it supports broadband rather than traditional phone services. In the FCC’s vision, voice calls will simply be an application that travels over broadband.

VoIP providers have become a significant bargaining chip in the reform process. Small, rural companies tend to rely on support from both intercarrier compensation and USF programs, so they have the most to lose in the process. Addressing the VoIP problem within the context of comprehensive reform is the best way to keep those rural carriers, who are very politically powerful, at the negotiating table. But rifts still exist. Verizon would like all VoIP traffic to pay a rate of $.0007 per minute, known as the “triple-zero-seven” rate. AT&T says VoIP providers and the carriers that connect them to the public switched network can work out their own rates, but carriers like Level 3 and Bandwidth.com that carry VoIP traffic should have to pay interstate or intrastate rates like every other carrier. Sprint wants the FCC to impose “default rules” to govern arrangements between VoIP services and carriers. Rural carriers want VoIP providers to pay a higher per-minute rate.

COMPTEL, an industry association that represents companies including RCN, FiberTower and Windstream, say VoIP services should be regulated, even if it means replacing per-minute charges with a capacity-based rate scheme as the industry transitions to Internet-based technologies.

With political headwind growing it seems inevitable that VoIP will be regulated in some fashion. Let us hope that the FCC does not give in to the political under currents and regulate VoIP back into the TDM era.

Joe Buck, NCE

Earthlink completes their acquisition of One Communications April 6, 2011

EarthLink has put another piece of its super-CLEC business puzzle together as it completes its acquisition of One Communications. Under the terms of the previously announced agreement, EarthLink will pay about $370 million for One Communications, a figure that includes the repayment of $282 million in company debt and issuing about three million shares of EarthLink common stock. Another $21 million will be deposited into escrow to fund potential One Communications post-closing obligations as outlined in the merger agreement.

Focusing on serving multi-location business customers with a mix of MPLS-based IP services, EarthLink will integrate One Communications into its EarthLink Business division. By adding One Communications to its portfolio, the EarthLink Business IP network will span over 28,000 route fiber miles across 27 states with over 1,300 collocation sites, 55 switches and 71 metro fiber rings. The addition of One Communications instantly gives EarthLink an IP network footprint in the Northeast, Midwest, and Mid-Atlantic regions in addition to overlapping connection cities with EarthLink Business (formerly Deltacom) long-haul routes in major markets including Washington, D.C., Baltimore, Philadelphia and New York City.

By purchasing the assets of One Communications, Earthlink’s new challange will be around network integration. Having done over 131 deals over the years, it’s not like EarthLink does not have experience in integrating acquisitions into its residential business fold. To ensure a smooth integration process of Deltacom and One, EarthLink has bolstered its program management group that manages the overall integration program and then each of the functional areas have dedicated people that focus on nothing but the integration process.

It appears another CLEC joints the ranks of the acquisition victims. It would appear that the facilities based CLEC will find a merger partner while the non-facilities based CLEC will continue to struggle with market share. Hang on as the players continue to vie for position.

Joe Buck, NCE

CLEC’s begin the move to Wireless Offerings – helping their agent partners February 25, 2011

It’s no secret that a number of wireline agents have, for several years, shied away from selling wireless products and services to their business customers. The blame rests on the traditional mobility profit model, which has featured no residuals and low margins on devices — a recipe for disinterest among many channel partners. Nonetheless, some CLECs have grown savvy to that reluctance and started to respond with new tweaks on old thinking because, let’s face it, wireless isn’t going away.

As mobility dominates the communications world, competitive providers are being forced to adjust their financial hopes. Wireless products and services don’t look or act like wireline so mobility commissions cannot imitate their fixed-line counterparts. Companies buy analog or IP desk phones once every few years, at the most. Such sales come with little need for maintenance and certainly doesn’t carry a “new every two” expectation. That keeps margins high. With wireless,  device upgrades, replacements and service plan changes all have the power to eat into profits and scare away CLEC’s.

But customers aren’t leaving CLEC’s much choice about selling wireless — they want all of their communications services from the same trusted adviser. Thus, meeting as many of a customer’s telecom service needs as possible is the wave to ride. That’s why CLEC’s and partners must find middle ground when it comes to compensation. And in some cases, that’s already happening.

Some CLECs have sold wireless for several years and others are new to the game. For those in the sector a few years, like Cbeyond Inc., enticing agents from the beginning was key. Having partners on board has grown even more important since that time in 2006, as wireless substitution has spread from consumers to SMBs and enterprises. Now, businesses want an entire communications package from one supplier. For Cbeyond agents, then, mobility grew into an add-on to wireline. That’s why Cbeyond gives a one-time, per-device or per-line payment on the wireless side, while still serving up residuals on wireline products.

The method seems to work well for the Georgia-headquartered CLEC. Enough agents appear to be such proponents that they have had success in the channel. Part of the reason is that Cbeyond takes a unique view toward voice billing. It views landline long-distance minutes, toll-free minutes, conferencing minutes and mobile minutes as all the same. Users don’t have to worry about exceeding minutes on any one device. If overages occur, Cbeyond charges 5 cents per minute, whether it’s a wireline or wireless service. So, even though Cbeyond doesn’t offer residuals on mobility, its partners receive ample incentive overall.

Lightyear Network Solutions went with wireless in July 2008 as it realized that sticking to wireline-only meant it and its agents were missing out on new revenue. The Kentucky-based provider contracted with several wholesale operators; at the same time, it constructed a different kind of reimbursement than peers such as Cbeyond. Instead of a one-time check, Lightyear dishes out an up-front “bounty” and residual commissions on wireless deals. That, combined with education and support, has helped calm wireline agents’ fears about mobility being out of their comfort zone. Additionally Lightyear has unlimited plans to take complicated billing and coverage deficiencies out of the equation. Apparently selling (or reselling) wireless is really not that difficult.

The companies newer to wireless seem to be taking their cues from peers’ lessons learned and agents’ input. And all of them are considering wireless a complement to their other voice and data services for SMBs and enterprises. Still, that doesn’t mean wireless compensation isn’t high on an agent’s list of wants.

Michigan-based BullsEye, which just launched wireless last December, has taken a tactic similar to Cbeyond’s: up-front commissions. Like many of it’s counterparts, BullsEye positions itself as a single vendor for both wireline and wireless products — that way agents and BullsEye itself aren’t relying on just one type of sale. At the same time, BullsEye includes wireless invoice analysis and pricing flexibility that serves as a built-in telecom expense management, so users don’t have to account for overages or unused lines after the fact. BullsEye further inventories CDMA modems and air cards, not just mobile phones.

Finally, TelePacific is another relative newcomer to wireless. The CLEC, which targets California and Nevada, late last year incorporated mobility. And like Lightyear, TelePacific ponies up a per-line spiff as well as residuals. To  helps reduce worry for agents, TelePacific handless mobile billing, support, invoice reviews, provisioning and repairs.

The CLECs’ drive to jump into wireless, with their channel partners in tow, is important, because everyone stands to make money. After all, multiple studies indicate companies are using more smartphones, not just the venerable Research In Motion; and predictions are that the number of mobile broadband users worldwide will hit 1.8 billion by 2014. It would appear that mobility is here to stay.

Joe Buck, NCE

Northwest Georgia jumps on the fiber Broadband initiative. January 28, 2011

Northwest Georgia is in line to get one of the most advanced, broadband Internet systems in the Southeast. In a presentation to the NGRC board, they were informed that  lines for the high-speed Internet service could start going in by this spring.

The U.S. Department of Commerce awarded the $21 million grant for the Appalachian Valley Fiber Network that will cover Floyd, Gordon, Bartow, Chattooga, Polk, Walker, Dade, Paulding and Haralson counties in Georgia and Calhoun, Clay and Cleburne counties in Alabama.

Broadband is currently available to only about 50.5 percent of the households in the region, but extension of an existing fiber network would bring the service within reach of another 144,082 households and 8,327 businesses, according to grant documents.

A regional data center in Rome would be linked to facilities in Atlanta and Chicago, and the northern end of the fiber would terminate in Chattanooga.

David Howerin, NGRC planning director, has said that the commission spearheaded a public-private partnership that allowed the Appalachian Valley Fiber Network LLC to apply for the grant through the American Recovery and Reinvestment Act.

This could be a major plus for a region loaded with manufacturing. Let’s hope they can extend fiber down to the customer level and bring broadband to the population of the region.

Joe Buck, N.C.E.