Tag Archives: Lumos

Merger Mania

The industry is suddenly awash with talks of acquisitions and mergers.

In September, Verizon announced the acquisition of Frontier Communications in an all-cash deal valued at $20 billion. The deal was touted for adding Frontier’s fiber customers to Verizon’s base of FiOS customers – which would grow Verizon to approximately 10 million customers.

T-Mobile has announced two acquisitions of fiber overbuilders. The first was the acquisition of Lumos, which has been building fiber in North Carolina, South Carolina, and Virginia. Lumos currently has over 300,000 customers, but T-Mobile said it would continue to invest for the company to grow pass 3.5 million homes by the end of 2028. T-Mobile also announced the purchase of Metronet, a fiber overbuilder from the Midwest that has expanded into 17 states. Metronet currently passes 2 million homes, and T-Mobile says it will invest to grow to 6.5 million fiber passings by the end of 2030.

T-Mobile is also buying Uscellular from TDS for $4.4 billion. This purchase has drawn attention from six Senators who disapprove of the sale.

As I was writing this blog, Bell Canada, a subsidiary of giant BCE, announced it wants to buy Ziply for $3.6 billion. Ziply was formed in 2020 by buying properties in the Pacific Northwest from Frontier.

DirecTV announced recently that it will acquire all of the video assets of EchoStar, which had just merged with Dish at the beginning of this year. This means that DirecTV will take on all of the Dish video customers along with Sling TV. As part of the merger, DirectTV is also taking on all of EchoStar’s debt.

Will not directly broadband, but highly related, Qualcomm has made overtures to buy Intel. This is a particularly interesting offer since a decade ago Intel had looked at buying Qualcomm.

Fierce Network published an article in September that said that 400 fiber ISPs are ripe for acquisition. Assuming that even just fraction of those ISPs are interested, this foretells a lot more coming announcements of industry consolidation. There is an interesting quote in the article. Andrej Danis of AlixPartners said that many fiber overbuilders “will never reach critical mass.”

This is an interesting observation that highlights the difference between how the financial world and investors look at the fiber business compared to many of the ISPs who have built fiber.

Many fiber businesses clearly have the goal of growing large enough to flip to somebody larger. The investors in these businesses are largely venture capitalists who hope to sell companies at a premium multiple of what they paid to build the business. For example, the Lumos deal is reported to be valued at over $9,000 per existing broadband customer – a lot more than what the company spent to build the existing networks.

Almost anybody who owns a fiber ISP is going to be tempted to sell at those kinds of valuations. But there are still a lot of ISPs with a different motivation. Once a broadband network is mature, it turns into cash cow and spins off a lot of cash annually. I know ISPs that have expanded fiber networks strictly for the permanent cash flow that builds long-term family wealth. Such ISPs envision operating networks for many decades to come.

T-Mobile Pursues Fiber

In one of the more interesting fiber transactions of recent years,  T-Mobile announced the acquisition of Metronet, a fiber overbuilder. Metronet is currently owned by Oak Hill Capital, the Cinelli family who founded the company, and KKR, a minority investor. Metronet has been one of the fastest growing fiber overbuilders and has grown to a reported 2 million fiber passings. Metronet has been an aggressive overbuilder and also picked up customers in the 2022 merger with Vexus, an overbuilder from Texas.

T-Mobile will use a mix of debt and equity to invest $4.9 billion to acquire a 50% stake in the business. Subject to regulatory approval of the deal, T-Mobile will take over the customers and the operations of the business. Metronet will focus on expansion plans, network engineering, network deployment, and customer installations.

This acquisition follows T-Mobile’s acquisition of Lumos announced in April. That acquisition brought 320,000 customers and 7,500 route miles of fiber to T-Mobile in the mid-Atlantic area.

T-Mobile expects the acquired companies to be self-supporting, including funding the expansion of fiber. Metronet has announced plans to grow to 6.5 million fiber passings by 2030.

This is an interesting transaction because it represents a major foray into the wireline business by a traditional wireless company. T-Mobile has already been the fastest growing ISP over the last few years as it added almost 5.2 million customers to its FWA cellular wireless product over a few year span. The two fiber overbuilders plus the FWA business will make T-Mobile the fifth largest ISP in the country behind Comcast, Charter, AT&T, and Verizon.

Metronet advertises itself as an affordable alternative to cable company broadband. It’s prices, disregarding introductory specials, offer 100 Mbps for $40 or a gigabit for $60. But Metronet has one of the more unusual hidden fees in the industry, and every broadband product requires a mandatory $13 month additional fee it calls Tech Assurance, which is essentially insurance and “covers any service calls or repairs to all Metronet-owned equipment”.

I’ve written several blogs lately that have speculated that the broadband business is reaching full market penetration, in that households that can afford broadband mostly seem to now have it. That doesn’t mean the industry can’t grow, and companies like Metronet and now T-Mobile believe there is a lot of room to capture customers from the big cable companies. As much as you might hear about how fiber has captured the market, Comcast and Charter still have over half of all broadband customers in the country.

Another interesting dynamic is T-Mobile will offer both fiber and FWA wireless broadband in its acquired markets, meaning it has two alternatives for customers. It might seem like the company is competing against itself, but it’s instead offering two alternatives to win customers from cable companies and other ISPs.

This acquisition also raises the interesting question of whether T-Mobile is done with expansion. A recent op-ed in FierceNetworks speculated that there are some other interesting acquisition targets in the market, including Quantum Fiber (CenturyLink fiber), Ziply, Zayo, and Astound. I haven’t the slightest idea if any of these companies are in play, but any time there is a major acquisition, the speculation game of musical chairs always begins.