Telcos’ Only Hope for Growth is Acquisitions

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Mergers and acquisitions are all the rage lately, with AT&T’s planned acquisition of Time Warner leading the charge. TheStreet noted that telcos are facing more pressure to increase the top line, grow business and improve network synergies.

First up is CenturyLink, which announced the acquisition of Level 3 Communications for $34 billion in cash and stock. The goal, according to TheStreet, is to combine each company’s fiber networks and also to expand CenturyLink’s “broadband and business network offerings.”

Next is Windstream, which announced Monday its acquisition of Earthlink for $1.1 billion of stock. This deal aims to increase the network in scale and scope with an expanded set of services. Additionally, TheStreet noted, the companies hope to save in cost and taxes.   

Both deals come on the heels of reported lousy third-quarter results, according to TheStreet. CenturyLink’s business and residential segments revenue fell 1.1 percent and 2.5 percent, respectively. Windstream’s adjusted service revenue fell 4 percent, total revenue 10 percent, TheStreet noted. Households served and business accounts also saw a drop in revenue.

TheStreet predicts more telco acquisitions in the future, naming Frontier Communications and Verizon as top hopefuls. Frontier Communications’ shares are down 31 percent this year, with a decline in both residential and business customers. Frontier’s dividend yield is at a reported 13.4 percent. However, Frontier recently acquired some Verizon assets for $10.5 billion and spent $2 billion on AT&T’s Connecticut wireline assets, so TheStreet said that the company may be hesitant to make another deal this quickly.

With a 4.9 percent dividend yielding a third quarter decline in service revenue , Verizon may be in the market to acquire, TheStreet said. The site predicted Cogent Communications’ fiber network and $1.8 billion market cap; Zayo Group’s fiber network and $7.9 billion market cap; or Lumos Networks, with low sales growth, but a $326 million market cap, as top contenders.

November 9, 2016

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