TDS Expands Cable/IT Holdings

Telephone & Data Systems (TDS) last week announced plans to acquire BendBroadband — which provides fiber connectivity, cable television and telephone services for commercial and residential customers in Central Oregon — for a purchase price of $261 million. BendBroadband generated annual revenues of $70 million in 2013 and has approximately 280 employees. The deal, which is expected to close in the fourth quarter of 2014, also includes Vault by BendBroadband, a Tier III data center providing colocation and managed services, and Zolo Media, a cable advertising and broadcast operation. BendBroadband passes approximately 79,000 homes and businesses, with approximately 36,000 video subscribers, 41,000 high-speed broadband subscribers and 22,000 digital voice subscribers

The transaction marks the carrier’s second major cable/IT acquisition in less than a year. Last summer, TDS’s subsidiary, TDS Telecom, closed on its purchase of Baja Broadband for $267.5 million. Baja, based in New Mexico, provides video, high-speed broadband and voice services to residential customers and businesses in Arizona, Colorado, Nevada, New Mexico, Texas and Utah. It posted 2012 revenue of $85.6 million and had 278 employees.

These recent purchases demonstrate that TDS is committed to a strategy of providing cloud and IT services. In January, TDS consolidated a number of IT, managed services, cloud and similar data operations under one roof, and changed the name of TDS Hosted and Managed Services to OneNeck IT Solutions. TDS’s experience is reflective of many smaller carriers’ evolution into high-tech IT-based companies. As the local provider with both the local infrastructure and direct relationship with the customer, many carriers are finding it to be a natural progression to build, buy or white-label their way into the IT space as marketplace dynamics evolve.

Cincinnati Bell Sells Wireless Arm to Verizon

There is a “thing” going around the Internet these days that is intended to illuminate aspects of reading ability. The “thing” (I am not sure what to call it) is a paragraph of horribly misspelled text, but with each word containing the approximate number of correct letters, and the correct first and last letters of each word. The “thing” attempts to demonstrate that the mind reads words as images, and that so long as the borders are correct, the brain fills in the blanks and providers the proper words.

I was not really surprised that I could read the paragraph, since my brain has a funny way of transposing letters and numbers and tricking me into reading things that actually don’t exist. Like the sign that encouraged people to “club and gutter” their pets (it really said, “curb and gutter” in an attempt to maintain clean sidewalks). Or phone numbers that are perpetually out of order – mostly because I have flipped some of the numbers and am calling people or places that don’t exist. Read more

WhatsApp Announces Plan to Offer Voice Calls

WhatsApp, the mobile messaging service that last week inked an agreement to be acquired by Facebook for $19 billion, announced yesterday that it will offer voice service later this year. The app will initially be available for Apple and Android devices, with subsequent offerings tailored for Microsoft and Blackberry. WhatsApp currently has 465 million users who each pay 99 cents after the first year; unlike its soon-to-be-parent Facebook, WhatsApp does not rely on advertising or pepper its users with ads.

The promised voice offering reveals some of the attraction WhatsApp offered to suitors and, ultimately, Facebook. In a Wall Street Journal report, Facebook CEO Mark Zuckerberg observed that many messaging apps generate between two and three dollars per user. Combined with Facebook’s one billion users, that fact tends to reveal the revenue potential for the Facebook/WhatsApp deal.

Sweetening the deal for Facebook is the fact that the bulk of price will be paid in Facebook stock, not cash; the deal keeps WhatsApp away from Microsoft (which owns Skype) and Google (which, according to some skeptics or paranoids, will one day have a hand in everything).

WhatsApp CEO Jan Koum will join the Facebook board when the deal closes. WhatsApp is expected to operate as an independent unit following the acquisition.

AT&T, Crown Castle Reach $4.85B Tower Deal

Last week, AT&T and Crown Castle International Corp. announced a deal whereby Crown Castle will purchase or lease 9,700 of AT&T’s towers in exchange for $4.85 billion in cash.

Crown Castle plans to finance the deal through the sale of common stock. AT&T intends to use the cash for network upgrades and new spectrum.

Under the terms of the deal, Crown Castle—one of the world’s largest tower operators– will lease 9,100 towers from AT&T and will purchase an additional 600 outright. AT&T will lease a fixed amount of capacity from the towers and has an option to lease additional capacity, if needed.

“This deal is good for AT&T and our shareholders,” said AT&T senior vice president for network planning and engineering Bill Hogg. “This deal will let us monetize our towers while giving us the ability to add capacity as we need it.”

The deal will, in one fell swoop, double AT&T’s cash holdings. The company had previously announced plans to invest $14 billion over three years to improve its network.

Houston-based Crown Castle also will have an option to purchase the leased towers for $4.2 billion beginning in 2032. “We are very pleased with our agreement with AT&T, which strengthens our position as the largest provider of shared wireless infrastructure in the U.S.,” said Ben Moreland, Crown Castle president and CEO.

Frontier Chooses to Invest in Network Rather Than Pay Down Debt

After paying off $402 million in debt that matures through 2015, Frontier Communications Corp.  announced that it will use additional cash to improve its fiber-to-the-home network and pay its annual 40 cent dividend rather than paying down longer term debt.

Frontier will put cash on hand to use repaying $200 million in 8.25% bonds which come due in May 2014, $105.1 million of 6.625% notes maturing March 2015, and $96.9 million of 7.875% bonds due April 2015.

The company’s free cash flow of $760.6 million will be used to pay its $400 million cash dividend. That will leave more than $360 million for Frontier to use for network reinvestment.

Frontier’s ratio of debt to earnings before interest, taxes, depreciation and amortization, also known as leverage, currently stands at 3.65 times. The company’s long-term goal is to reduce its leverage to 2.5 times. That would position Frontier with the lowest leverage ratio among peers with revenues between $2 billion and $10 billion.

AT&T Buys Wireless Carrier Leap

AT&T announced recently that it has agreed to buy Leap Wireless. Leap is best known for its Cricket brand, a low-priced, prepaid mobile wireless service that has approximately 5 million customers. AT&T has said that it will keep the Cricket name and service and expand it in certain markets.

The deal requires approval by the FCC and the Department of Justice. AT&T said that it expects the deal to close in six to nine months.

If approved, the AT&T purchase of Leap would continue the consolidation in the mobile wireless industry in the United States. T-Mobile recently acquired MetroPCS, and that newly combined company has about 43 million customers nationwide. Read more

Hulu Sale Postponed—For Now?

The joint owners of Internet TV service Hulu—21st Century Fox, NBCUniversal and The Walt Disney Co.—announced that they would retain their ownership positions in the company and invest an additional $750 million to grow the business.

However, shortly after the release of that announcement, a Bloomberg report indicates that the owners are “continuing talks to sell a stake in the video-streaming service to Time Warner Cable Inc. (TWC).”

Hulu had been on the market for approximately six months. DirecTV, AT&T and Chernin Group (jointly), and TWC have been the past three suitors for Hulu. But while Hulu’s owners had hoped to receive $2 billion for the company, no bids above $1 billion have been extended.

The Walt Disney Co., 21st Century Fox and NBCUniversal indicated that they intend to move Hulu more toward a subscription video-on-demand service, in order to better compete with Netflix.

According to the source for the Bloomburg article, there is no definite time horizon on when a deal might be reached.

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