With Comcast’s acquisition of Chicago-based CIMCO all buttoned up and the buzz still settling over Windstream’s recent acquisition of NuVox Communications, to say nothing of its $1.1 billion acquisition of Iowa Telecom, an interesting story is beginning to play out in the competitive carrier space, begging the question: What is a CLEC?
A panel of experts at Comptel this week pondered that question as well as the competitive threat from cable providers. James Henry, senior managing director and c-founder of Bankstreet Group, moderated a discussion that included Keith Wilson, chief financial officer at PAETEC; Jeff Gardner, president and CEO of Windstream; and Howard Janzen, CEO of One Communications.
Their consensus was that cable providers are formidable competitors, but their impact still is primarily at the lower end of the market and it will take a lot of effort for them to work their way up to compete in the high-end business market.
Cable providers Cablevision and Cox Communications are already in PAETEC’s market, so competition, Wilson said, is not new. “The reality is, Cablevision is a phenomenal company and has been a good competitor. He added that Cox has built a great business as well.
“But the gap between us and cable companies today is very significant. Can they close the gap? Yes, but not overnight and not by adding a thousand people,” Wilson said.
Neither Windstream’s Gardener nor Janzen at One Communications discounted the cable players, but both said their impact was at the small end of the market. “That’s the reality of their traction and our [customer] acquisition targets are higher than that,” Janzen said. “The RBOCS and Cable guys are locked in a battle to the death for the residential space. But cable’s skil sets aren’t there for serving more complex customers.”
Gardner said Windstream is relying on its “tremendous advantage in technical resources” to ward off the cable threat. “This technology is not easy. You have to be able to provide top customer service as you go up market. That’s why NuVox was the right deal for us. As we change the makeup of Windstream to a non-legacy, more aggressive company, and with the NuVox people as aggressive as they are we wil see improvements in our CLEC business as well. I am paranoid all the time, but I like our odds.”
To the age-old, buy-or-build question, Janzen said cable companies may be better off trying the former, indicating they could benefit from fresh blood in their organizations, or at least fresh grey matter. “Each company has to answer that question themselves, but [buying] would be the faster way to develop the expertise they need. The challenge is, as an industry, a lot of people came out of the Bell System where you have monopolistic wiring and that lasts for decades and decades. Cable players have the same problem,” he said. “They need to start injecting new blood but it has to be the right kind. If not, the antibodies will come in and they’re doomed.”
Just getting bigger is not the answer, according to Gardner. “Everyone gets enamored with these transformational deals, but what is always more important is if there is a path to creating value for shareholders,” he said. “[Of] the variety of opportunities we see, we will focus on well run businesses where we see value. We’re not concerned about size, but that lenders feel comfortable lending us money for a solid company.”
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