Qwest acquires metro Ethernet provider OnFiber

Qwest last week said it will acquire privately held OnFiber Communications, a provider of managed metropolitan Ethernet and wide-area network services, for $107 million.

OnFiber specializes in high-bandwidth fiber services serving primarily large businesses and government institutions. The company operates an optical network in 23 metropolitan areas, offering access and transport services, including Ethernet, SONET and wavelength.

Qwest said OnFiber will increase its out-of-region coverage and reduce its third-party access costs. Qwest currently provides similar optical services to metropolitan areas within its 14-state operating region and claims that its nationwide MPLS backbone carries nearly 4 billion VoIP minutes per month.

"We expect the Ethernet market will grow upwards of 50% annually; Ethernet has been a high-growth product for us in-region, and this increases our participation nationally," said Tom Richards, executive vice president of Qwest's business markets group, in a statement. "For Qwest, this expands our penetration in key markets throughout the country while reducing last-mile costs."

Qwest said it would look to make small, targeted acquisitions to build up its business service portfolio since failing to acquire MCI in a bidding war with Verizon last year.

"This is a relatively small but nonetheless important announcement for Qwest as it enables them to expand their offerings nationwide," says telecom analyst Jeff Kagan. "When Qwest tried to acquire MCI last year we knew other deals were going to be coming."

OnFiber expects to post revenue of nearly $60 million in 2006, representing year-over-year growth of more than 20%. The company's average monthly customer revenue was more than $17,000 last year, which was among the highest of competitive telecom providers, according to Qwest.

Qwest has the option up until closing to substitute up to $35 million of Qwest shares for cash. The transaction is expected to close in the third quarter.