CLECs combine to increase scale

CTC Communications and Choice One Communications, which in February announced their agreement to merge, this week said they are jointly acquiring CLEC Conversent Communications.

On a combined basis, the three companies currently generate about $800 million in annual revenue and provide telecommunications services to more than 150,000 business customers representing more than 1.3 million access lines equivalents. The combined company will be privately held and have a heavy regional focus in the Northeast, Mid-Atlantic, and upper Midwest regions.

Its network will include 10,000 route miles of fiber and approximately 700 unique collocations. The companies say their combination will create the second largest CLEC in the U.S. behind XO Communications..

The acquisition will be partially funded with an equity investment from Columbia Ventures Corporation (the sole shareholder of CTC Communications) and a corresponding equity investment from existing Choice One shareholders or their affiliates. Camulos Capital and Värde Investment Partners have agreed to backstop the equity investment from the existing Choice One shareholders. Additionally, Goldman Sachs Credit Partners has committed to a fully underwritten senior secured credit facility to fund the balance of the acquisition and to refinance existing debt.

Terms of the transaction were not disclosed. But consolidation in the RBOC ranks, which most recently saw AT&T announce intentions to acquire BellSouth for $67 billion, is forcing competitive carriers together as well.

“I do think the ILEC mergers are driving some of the CLEC consolidation,” says Conversent CEO Rob Shanahan. “Now that the CLEC industry has flushed out a lot of the failed companies, the survivors realize that size and scale are important and that the synergies that can be achieved by combining network, sales and back (office operations) can be significant, particularly where there is overlapping territory and you can cut out duplicative network.”

Conversent has headquarters in Charleston, W. Va., and Marlborough, Mass., CTC is headquartered in Waltham, Mass., and Choice One is headquartered in Rochester, N.Y. After the merger, the combined company will continue to maintain a major presence in Boston, Rochester and Charleston.

The acquisition is subject to customary closing conditions, including regulatory approvals. Closing is expected to take place in 90 to 120 days. The name of the combined company has not yet been determined.