Stateside, mergers dominate the industry. Several fibre players and CLEC acquisitions are being integrated, an ILEC/RBOC merger is closed, two primarily long-haul players are merging and an RBOC/mobile acquisition is filing a merger application with the Federal Communications Commission. These deals are reshaping the overall landscape but, as mergers between networked players tend to do, they promise disproportionate impacts on the wholesale space.
From Zayo purchases (most recently AFS, AGL and PPL), Earthlink’s addition of Deltacom and One Communications to their New Edge offerings, PAETEC’s purchase of Cavalier and multiple other consolidations among ‘mostly metro’ providers, companies are moving traffic onto their own networks, city by city. These sporadic waves of mergers have caused wholesale revenues to shrink across the industry, with wholesale wireline revenues expected to dwindle by 2.6% from 2009 to 2015 and overall wholesale voice revenues down almost 10% during the same period, according to ATLANTIC-ACM’s most recent sizing and share analysis and forecasts.
Those forecasts do not yet include 2011’s megamergers, which promise even more wholesale shrinkage. CenturyLink closed its Qwest acquisition on 1 April 2011, and AT&T is battling for permission to acquire T-Mobile USA, allowing AT&T to leapfrog Verizon and become the largest US wireless player.
CenturyLink’s purchase will allow it to move long-haul wholesale revenues from the addressable market onto Qwest’s nationwide network. Likewise, a healthy volume of Qwest’s metro traffic will now be placed on net in the new, larger entity.
More investment and M&A activity is expected throughout 2011. Fibre players and their potential to impact margins are achieving generous valuations; CLECs are scaling up for their own margins; and the wireless data race is in full force among AT&T, Verizon and Sprint. Stock valuations for our industry are outpacing the US stock market for the year to date, and the impacts of slow purchasing by enterprise have steadily fallen away with retail sales moving in the right direction.
Historically, this industry has favoured the fleet of foot. Entrepreneurs will continue to be rewarded, but we also are witnessing rewards for strategic plays with longer time horizons. This pursuit of scope and scale promises to reshape the wholesale markets – this year and in many to come.
Judy Reed Smith is CEO of Atlantic-ACM. She can be contacted at: judyrsmith@atalntic-acm.com
