Communications Crossroads - Fall 2008 - (Page 13)

we bring to the table to help the company prosper, but fundamentally our interests lie in those that already have all the block-and-tackle in place.” This, he says, is because American Broadband’s acquisitions are generally autonomous and are managed locally. That’s part of Eudy’s strategy, too. “Most people who do acquisitions, buy-outs, and so forth come in and—even if it’s a good company that’s doing well—they pull out their little merger playbook and say, ‘Well, we need to get rid of at least 20 percent of the work force and this, that, and the other thing…’ They’ll move the call-center from rural Oklahoma to Dallas, Texas. Then customer service begins to deteriorate. “To be quite candid—and this is going to sound crazy to say—I think that acquisitions are, in many cases, not good for the companies that get acquired. The worst thing that happens is when you have a big company buy out a small rural telephone company and the ﬁrst thing that goes, after the employees, is usually the commitment to serving the network in that community.” Eudy admits that most of the companies he wants to buy aren’t interested in selling. “That’s what makes my job so hard,” he laughs, and says that the down economy has little effect on their appetite for acquisitions. “It’s pretty stable in both directions. There may be some downward trends in part when the economy is slow, but [the companies we ﬁnd attractive] are not really strongly affected.” Slow-and-steady-as-she-goes, he says, is the way to describe their process. “Our focus is not that we can grow these businesses 10 or 20 percent in the next couple of years, it’s that we can grow it ﬁve percent for the next 20 years.” Mattoon, Ill.-based Consolidated Communications. “Provide great service, make investments that you need to make in your business, serve your customers, take care of your people.” Consolidated, says Shirar, “was really founded in 2002 as an acquisition vehicle, and our criteria is really clear. We look at the markets—what are the fundamentals in terms of demographics, growth rate, the competitive situation? We look at the quality of the network and what has to be invested—and that’s important because our strategy is built around very aggressive broadband, supporting IPTV and the triple-play. We look at the ability to integrate it.” Shirar says integration is a key factor. “When you do one of these deals you have to put your head down, usually for about 18-to-24 months—while you digest it and get all those operating synergies ﬁne.” It goes in cycles. Consolidated bought its Illinois operation in 2002, Texas in 2004, “and the Pennsylvania asset towards the end of 2007. That’s still a work in progress, and we’re very focused right now on integrating that property, working on triple-play offerings in the Pittsburgh market— while being opportunistic.” Shirar believes that the market, for the foreseeable future, will be fairly slow. “It’s not a really good time for people who really want to command an effective price,” he says. “I think we’ll see a few large ones, like the Verizon-Alltel merger, but I think the small or rural market is going to be slow for a while in the fact of the slow credit and capital markets. The economy in general is punitive.” Future Watch Hutchinson Telephone’s Walt Clay advises the rural telcos to be proactive. “We were very aggressive in offering video services, Internet services, and land line services early on, so we were ahead of the game. That was one thing that made our company more valuable.” He, too, believes that the market is slowing down. “Getting ﬁnancing is more difﬁcult.” Attractive Prospects “I think the advice I’d give anybody—whether you’re a buyer or a seller—is to operate your business effectively,” says Steve Shirar, senior vice president and president, enterprise businesses for the Francis Gallagher, however, sees something different than a slowdown in his crystal ball. “I sense that what we’ll witness over the next ﬁve years is kind of a fundamental redrawing of the ILEC map. You’ll see deals at all size levels. I don’t think the industry is going extinct, just that it has to morph into something different. The truly rural companies probably have the least reason to change or worry, but those who are going to see appreciable competition need to prepare by getting the products together that they’ll need to compete.” Such as? “The name of my company is American Broadband,” says Patrick Eudy. “That’s not by accident.” It’s the biggest indicator of where he feels the road is leading. “Ultimately, I think the cable guys are going to be in the same business, as well. It may take 20 years, but ultimately the guys who sell the content are going directly over the Internet.” He laughs, adding that before our early morning interview he’d already been online to watch an episode of Lost. “What [small telcos] do now is step it up. Expand the skill set that exists in your organization, expand your services and be aggressive about doing it. [My company exists] because we know some people aren’t going to want to do that. Most will probably make the transition and make it successfully, but for one reason or another some of them aren’t. We exist to help them make the transition without taking all of that risk.” A dispassionate, analytical view of the future, says Gallagher, is key. “Historically, in the monopoly era, you didn’t have to do a lot of business planning. But now, with all the variables of competition and changes to USF, you really have to have a scenario planned. Companies need to think that stuff through very carefully,” he says, “because they may get left out in the rain.” Sometimes the best defense is a good offense. Fall 2008 COMMUNICATIONS CROSSROADS 13

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Communications Crossroads - Fall 2008 Up Front Contents TeleBites The Urge to Merge The 700 MHZ Auction: Results and Speculation Industry Calendar Advertisers DotCom Index to Advertisers People Straight Talk

Communications Crossroads - Fall 2008

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