Cable operators RCN, Grande Communications, Wave Broadband, enTouch and commercial fiber-services provider Digital West said they will officially consolidate their brands under the Astound Broadband name effective today (January 12).

“This is an exciting time for our company with our new name solidifying our commitment to ‘astound’ our customers each and every day through our national fiber-rich network, fast reliable service, mission-critical connectivity, and award -winning customer service,” Astound Broadband CEO Jim Holanda said in a statement. “Keeping ourselves grounded in our deep-rooted focus on customer service is at the core of what we do. We’ve been part of our local communities for years. Our dedicated teams will continue to serve the areas where they live and work.”

Astound Broadband has more than 1 million customers, which is enough to rate as the sixth largest cable operator in the U.S. 

To ease the transition, each region will retain sub-brands under the Astound umbrella — Astound Broadband powered by RCN, in the Northeast; Astound Broadband powered by Grande in Texas and Astound Broadband powered by Wave on the West Coast. The former Harris Broadband systems in Central Texas and WOW properties in Illinois, Indiana and Maryland will follow by mid-year. For business services, the combined companies will be unified as Astound Business Solutions. 

In an interview, Holanda said the sub-brands will probably last between 12 and 24 months, and then all of the systems will be branded under the Astound umbrella, “to ease customers and communities into it, to understand that they’re still dealing with the same local management, the same local employees and the same great service and company that they’re accustomed to.” 

Repainting trucks and issuing new uniforms to employees has already begun. 

In an interview, Holanda said the work to unite the companies under one name probably started about 2½ years ago.

“We knew after we bought Wave that at some point if we kept buying cable companies that we were going to have to unite the brand under a single name,” Holanda said, adding that while several names were considered, “We kept coming back to Astound.” 

The rebranding process was further delayed by the pandemic and later by former parent TPG’s decision to sell the company to Stonepeak Infrastructure Partners. The Stonepeak deal closed in August, near the end of the quarter, which made a rebranding unfeasible, and then 2021, a series of purchases helped push back the date even further. Astound closed its purchase systems in Anne Arundel, Maryland; Chicago and Evansville, Indiana in from Wide Open West for $661 million in November. Later, Grande Communications purchased Harris Broadband. 

Cable watchers should be familiar with the Astound Broadband name — it has been used as the moniker for the parent of the five smaller operators for years and dates back to former parent TPG’s 2017 purchase of Wave Broadband. Holanda said Wave purchased a Northern California provider named Astound Broadband about five years ago, which made selecting the name even easier. 

“We owned the domain names, we already had that in place, so when we started really digging into the research, not only did we love the [Astound] name and the aspirations of it, the fact we owned it made it almost a no-brainer at that point,” Holanda said. ■

Wave Broadband, a unit of Astound Broadband, said it has completed the purchase of commercial fiber services provider Digital West, a move that should expand its offerings throughout California’s Central Coast region. Terms of the deal were not disclosed.   

In a press release, Wave Broadband said all existing Digital West services, products, and customer support will continue without interruption and that Digital West will operate within the Wave region as part of Wave Business Solutions. The companies plan to commit resources toward enhancing products, services and value for Digital West customers in the future.   

Digital West is based in San Luis Obispo, California, and serves commercial clients, including carriers, small businesses, and medium-to-large enterprise clients.

Also Read: Executive of the Year: True Patriot

“The Central Coast is home to a fast-growing and dynamic business community, one which we believe can benefit significantly from the combined services and capabilities our companies provide,” Astound Broadband CEO Jim Holanda said in a press release. “Our resources will enable Digital West’s talented local team to connect area business customers over our combined network to more locations in California and across the country, leveraging our technology and capital to broaden Digital West’s service offerings and accelerate their growth.”  

Astound was purchased by Stonepeak Infrastructure Partners in November in a deal valued at about $8.1 billion. The company includes RCN Corp., Grande Communications, Wave and EnTouch Communications and has about 1 million customers in Northern California; Oregon; Washington; Chicago; Eastern Pennsylvania; Massachusetts; New York City, Washington, D.C.; and Texas.  

“During the past two decades, Digital West’s team has established a strong local heritage of providing exceptional broadband and connectivity services for thousands of businesses of all sizes, at every stage of growth, in a wide variety of industries,” said Tim Williams, Digital West founder and CEO. “With our new partners, we look forward to accelerating our growth, adding new offerings, and continuing to provide the high levels of service that business customers have come to expect from Digital West.” 

In a year dominated by a pandemic and a nationwide inability to agree on practically anything, Patriot Media not only managed to help engineer the biggest system sale of the year for private-equity giant TPG Capital — the $8.1 billion sale of Astound Broadband to Stonepeak Infrastructure Partners — but it came in a way that will likely positively affect cable valuations in the years to come.

Led by CEO Jim Holanda, Multichannel News’s 2020 Executive of the Year, Patriot has been a constant in Astound’s operations in its various forms for about a decade, starting with the 2010 purchase of RCN by Abry Partners. After Abry sold RCN and Grande Communications to TPG in 2016 for $2.25 billion, Patriot continued to manage the assets and help TPG build its cable stronghold, later adding Wave Broadband and enTouch Communications to the mix. 

ALSO READ: Steve Simmons: The Original Patriot

Astound — there is still a question as to whether the new private-equity owners will keep the name — is the sixth-largest cable and broadband provider in the country, with about 1 million customers. But make no mistake, the company’s success over the years is a result of the astute stewardship of Patriot Media, which has steered somewhat disparate assets — a mixture of rural and urban systems, overbuilds and incumbent operations across eight states and the District of Columbia — through a business climate that could at times be hostile. 

“[Holanda] has really become the face of the middle market broadband industry,” said Garrett Baker, managing director at Lazard and group head of middle market telecom, media & technology. “Once you get past the big MSOs — Comcast, Charter, Altice — he’s become the most visible and most respected executive in that next level. He’s really become the biggest voice in the room and the face of that part of the industry.” 

In Cable Since the ’80s 

Holanda got his start in the cable industry on somewhat of a lark. After graduating from The Ohio State University in 1987 with a degree in political science, he and a college friend moved to Southern California and started looking for jobs. In 1988, his college buddy, a former cable installer, found the same work with Comcast.

“I had a college education and he had cable experience, so the deal was they had to hire us both because we only had one car,” Holanda said. 

After six months as a cable installer, Holanda moved up to Comcast’s accounting department and, after taking some additional accounting and business courses, moved to the finance department. In 1995, shortly after Comcast purchased systems from Maclean-Hunter, it moved him to another finance job in New Jersey. He stayed in New Jersey for another three years, moving on to Charter Communications when an opportunity to run systems arose.

“I grew up on the finance side of the business, but I always wanted to be in operations,” Holanda remembered. “When Charter bought AT&T in St. Louis, [then-Charter CEO] Jerry Kent and [then-chief operating officer] Dave Barford asked me to be the general manager and vice president of operations for all of St. Louis and the whole market. It was my first operations role.”

Holanda helped Charter integrate the AT&T system and spent four years at
the company, rising to regional VP of operations for its Central Region. In 2003, he joined former Simmons Communications founder Steve Simmons in his new venture, Patriot Media. 

“Steve’s a very convincing and compelling individual,” Holanda said, adding that Simmons drove home the point that getting the opportunity to build a company from the ground up doesn’t come often, even in the cable business. “I’ve learned over the last 18 years that I am, deep down, an entrepreneur.” 

That last quality, Simmons added, was a key reason why Holanda was hired.

“He recognized the importance of equity,” Simmons said. “I could see he had a real entreprenuerial spirit. After two days of grueling interviews — I even gave him my projects to analyze and a written exercise — I hired him. Every year for 18 years I’ve been thankful that decision was made. He’s been spectacular.”  

The going was anything but easy from the start. Patriot’s first system was a property in the Princeton, New Jersey area that needed a lot of work. 

“The Central New Jersey system, it was a complete and utter mess when we bought it,” Simmons said. Patriot had to create call centers, rebuild the plant, redo the channel lineup, overhaul technical operations and how people were trained and completely revamp the marketing systems and strategy. 

“I don’t want to skip over the challenges the Patriot Media team had when we entered Central New Jersey,” Simmons continued, adding that when he initially met with the mayors of the communities the systems served prior to buying the properties, he learned they had banded together to try to get the old owner ousted. About 12 months after Patriot bought the systems, those same mayors got together to praise the company for the massive changes they made.

“It was a real turnaround,” Simmons said. 

Patriot sold that system to Comcast in 2007, and soon after bought Puerto Rico cable operator Choice Cable TV, with the help of its Princeton system backer, Spectrum Equity Associates. That was just before the 2008 global recession, a period when deals were falling apart as banks and other financial institutions began tightening their belts. By applying the same strategy it used in Princeton, Patriot got Choice Cable back on its feet. 

“We owned that asset for seven and a half years, tripled cash flow over that period of time and made significant investments,” Holanda said. 

While running Choice Cable, Patriot and Spectrum Equity hooked up with Boston private-equity firm Abry Partners to look at its next target, then-publicly traded overbuilder RCN. Abry bought RCN in 2010 for about $1.2 billion, naming Simmons chairman and Holanda CEO of the overbuilder.    

The RCN deal also gave Holanda and the Patriot team first-hand, early exposure to the true power of broadband. Simmons remembered that RCN wasn’t necessarily a distressed company, but it needed work. But the company had already proven it wasn’t afraid of getting down in the dirt.  

“I think they realized that even though some of these businesses had challenging competitive profiles, they still had underlying positive trends, specifically around broadband,” Baker said. “They [Patriot] were able to take challenged businesses and put them together, created synergies, created growth strategies and eventually built a great business out of it.”

Still, overbuilders had a reputation of being tough businesses that require a lot of investment and face stiff competition from incumbents. Despite those drawbacks, RCN had something its competitors didn’t, Holanda said.  

Spotted Key Asset at RCN

“Clearly, after 20 years of being on the traditional side of the incumbent cable business, I never thought I would own or operate an overbuilder,” Holanda said. But as the companies conducted their due diligence, they found that RCN’s networks, built in the late 1990s and early 2000s, had two to three times the fiber of traditional cable networks, and much more excess fiber capacity per node. While the average cable system had 500 to 700 homes per node, RCN had built to under 150 homes per node.

“That network advantage was something that jumped out at us right away,” Holanda said. “It took us a little while to wrap our heads around that overbuilder nomenclature, but at the end of the day, a customer is a customer. 

“And whether you’re competing against a telephone company for those customers or a cable and telephone company, we’ve always seen competition ever since the satellite guys got into the video business, so we were used to it and not afraid of it,” he added. “Obviously, it turned out to be a really good gamble.”

That was evident in the rising valuation of the company. TPG bought RCN and much smaller Grande Communications in 2016 for about $2.5 billion — more than twice the original price Abry paid — keeping Patriot as an equity partner. In 2018, the company bought Northwest broadband company Wave Broadband for $2.36 billion and enTouch Communications was added earlier this year. Collectively, the assets are known as Astound Broadband. 

The mix of Astound’s assets, in rural, urban and midsized markets, has also proven to be an advantage, something larger cable operators are just beginning to see. For the past couple of years, Charter Communications and Comcast have been edging out their networks to smaller areas adjacent to their service footprints to take advantage of the demand for high-speed internet service.

Those moves by bigger companies haven't impacted Patriot’s or Astound’s business, Holanda said. 

“It hasn’t impacted us other than it kind of reaffirms the strategy that we’ve been pursuing for the last eight years,” Holanda said. “We already knew it was a good investment. It’s nice to see the industry recognizing that as well.” 

Boosted By Solid Backers

Holanda said having the support of its backers throughout the years also has been a big benefit to Patriot. Companies like Spectrum Equity, Abry and TPG have all helped finance Patriot’s moves over the past 18 years — and have allowed managers to run the business their way. 

“Private equity does not make quarter-by-quarter and year-by-year decisions about the business,” Holanda said. “They want to understand how we’re going to set it up for success over the next three years, the next five years, the next seven years.”

That includes Patriot’s earlier private-equity owner, TPG, which bought into RCN and Patriot about three years ago. Initially, Holanda said, TPG wasn’t looking to sell Astound. It was investigating several different scenarios, including going public, to push the company forward. 

“There wasn’t a rush to exit, but it was hard to ignore the fact that cable multiples were hitting record highs in the back half of 2019 and the early part of 2020,” Holanda said. “Being prudent equity investors, if there was an opportunity to take advantage of that in the public markets or the private markets, we wanted to be able to set ourselves up to do that.” 

Then, the pandemic hit and everything was put on hold, switching the company’s focus to day-to-day operations and keeping employees and customers safe. While there was initially  some doubt as to how COVID-19 would affect the economy, early signs were encouraging: federal stimulus packages were strong, the Federal Reserve kept loan flows humming and the bond market was performing well.

Patriot first created a new debt structure for Astound, allowing its investors to take a dividend. More importantly, that new structure included a portability feature that would eliminate the financing risk if they ultimately decided to sell the company or go public. 

That helped spur interest from potential suitors, and Holanda said he was surprised at the number of players (more than a dozen) that expressed interest in buying Astound.

But the combination of a robust broadband market, available capital and favorable financing made Astound an attractive target. And even in the pandemic, there is a lot of idle cash looking for a home. 

 “It hasn’t been front-page news, but the residential broadband market, broadly speaking, is stronger now than it’s ever been in my career,” Baker said. Fueling that strength are deep-pocketed infrastructure funds once focused on energy, airports and toll roads, he added. “The infrastructure funds, of which Stonepeak is one, are entering the industry incredibly aggressively,” Baker said. 

ALSO READ: Holanda: Astound Will Continue to Grow

Stonepeak partner and senior managing director Brian McMullen said the private-equity company isn’t a total stranger to residential broadband — it has an interest in Canadian residential provider Xplornet Communications — but Astound was a unique opportunity.

“We've looked at dozens and dozens of opportunities in North America and Asia-Pacific,” McMullen said. “We’ve looked at incumbent telcos, fiber-to-the-home overbuilders and we’ve looked at cable. There’s puts and takes across all the above, but we thought that Astound, and its network footprint, aligned really well with what we were looking for.” 

The sale of Astound to Stonepeak — the deal is expected to close in Q2 of next year — gave a needed lift to cable valuations overall. With a price that some analysts estimated to represent a multiple of 14.1 times 2020 forward-looking cash flow, the purchase further solidified the importance of broadband service and could help raise valuations for public cable companies.

In a research report last month, Bernstein media analyst Peter Supino pointed to the Astound deal as a benchmark for future valuations, adding that it was able to attract a hefty multiple even without the operating synergies usually inherent in such transactions. 

“Astound’s sale price appears to be highly relevant” to public cable operators like Altice USA, Charter Communications and Comcast, Supino wrote in a November note to clients, adding that applying the same multiples to the publicly traded stocks would result in increases to their share prices ranging from 32% to 91%.  

Stonepeak manages more than $29 billion of capital for investors, but its portfolio consists mainly of data centers and fiber companies, not cable or broadband service providers. Add to the fact that Astound was managed well, meaning there is little fat to cut from operations, and the sale price is even more impressive.

Holanda said the business isn’t a one-trick pony. Astound has a three-pronged growth opportunity: residential broadband; commercial services, growing at a double-digit percentage rate annually; and edging out the network to adjacent communities within its footprint. 

“Those three combined growth strategies allow us to grow our cash flow faster than most traditional cable companies,” Holanda said. “And if you add back the ability to continue to do add-on acquisitions, which we’ve had a long history of success with, we have the ability to grow this business from a whole lot of different angles. I think Stonepeak appreciated that early on.” 

Kept Executive Team Together

Another key to Patriot’s success has been its ability to retain key executives. Most of the company’s senior management and six of its eight local market leaders have been with the company for a decade or more. Having that kind of experience and expertise allows everyone to have a voice at the table, Holanda said, whether that means finance executives can talk about marketing or marketing people about network issues.

“To have that kind of group thinking leaves everyone hyper-focused on the business all the time,” Holanda said. “I think that is a tremendous key to our success. … To have that kind of leadership stability at the local level as well just gives the organization a tremendous ability to focus on what
the right long-term decisions are on behalf
of customers.” 

That continuity also was a factor for Stonepeak in its decision to pull the trigger on the Astound deal and to work with Patriot.

 “If you look at the people around Jim, it’s an absolutely fantastic team,” McMullen said. “It’s a team that has been together a long time. There’s a lot of continuity, which I think speaks to Jim’s leadership, it speaks to the culture of the business and the organization.”  

The three major publicly traded cable distribution stocks, up about 34% this year as positive sentiment around broadband growth has driven shares, could be even higher if private valuations are considered, according to a report by Bernstein media analyst Peter Supino.

The three top publicly traded cable distribution stocks -- Comcast, Charter Communications and Altice USA -- have ridden a wave of strong sentiment fueled by even stronger broadband additions. But using data from a recent private equity purchase in the sector -- Stonepeak  Infrastructure Partners $8.1 billion purchase of Astound Broadband -- Supino believes that the stocks’ prices could be between 32% and 91% higher. 

Supino estimated that Stonepeak valued Astounds at about 14.1 times the broadband company’s estimated $576 million 2020 cash flow. Considering that Astound is essentially an overbuilder in most of its markets, faces stiffer competition and has no inherent synergies with its new owner, applying that same valuation to publicly traded cable stocks would result in some serious upside. 

Astound consists of four companies -- RCN, Grande Communications, Wave Broadband and EnTouch Communications -- with about 1 million subscribers  across eight states and Washington , D.C., and has about 23,000 miles of fiber in its network. Stonepeak partnered with Patriot Media, which had been running the systems for former owner TPG for years, to continue to manage the systems. The deal is expected to close in the second quarter or 2021.

“Astound's sale price appears to be highly relevant to Altice, Charter and Comcast,” Supino wrote. “First, Stonepeak does not appear to bring material operating synergies (adjacent sales, billing systems, real estate, etc.) to the deal, so ‘the price is the price’ (notwithstanding tax assets). Second, we believe that Astound's systems are frequently third-to-market ‘overbuilders,’ which means they participate in markets which are inherently more competitive than the average of the US cable industry. Third, we do not see major fat to cut—TPG has been the owner of Astound, so we believe that the organization is efficient.” 

Applying those multiples would lift Altice USA’s stock price, ($34.07 on Dec. 1) up 91% to $65 each; Charter would rise 32% from $662.25 per share to $876.70 each and Comcast would gain 47% from $51.02 per share on Dec. 1 to $74.90 each. 

With the ink barely dry on TPG’s sale of its Astound Broadband assets to Stonepeak Infrastructure Partners for $8.1 billion, Jim Holanda, CEO of Patriot Media, the company that will manage the assets for its new private equity owners, said that future growth will be fueled by a mixture of organic opportunities and possibly new deals. 

TPG agreed to sell Astound on Nov. 1, for about $3.6 billion in cash and $4.5 billion in assumed debt. The deal is expected to close in the second quarter of next year. 

In an interview Monday, Holanda said that Astound will remain focused on several core objectives under its new owners -- growing its  residential and commercial customer base, expanding its commercial and residential networks, and accretive mergers and acquisitions when they make sense. 

“We’re happy at this size,” Holanda said. “We’re the sixth largest MSO behind Comcast and Charter and Cox and Altice and Mediacom. We’re bigger than other public cable companies like Cable One and WOW. I think we have the scale we’re very comfortable with. But if there are opportunities to grow through mergers and acquisitions or organically, we’re going to continue to pursue those, because they historically have been very accretive for us and have accelerated our growth.”

Astound Broadband has more than one million subscribers and operates under the RCN, Grande Communications, Wave Broadband and EnTouch Communications brands across seven states and Washington, D.C. Holanda has been a part of the company practically from the start. Patriot was formed in 2002 by Holanda and cable Hall of Famer Steve Simmons to buy RCN’s Princeton, N.J. assets (later sold to Comcast), managed RCN and Grande Communications for ABRY Partners beginning in 2010,  and continued that role after TPG bought RCN and Grande in 2017.  From that base TPG went on to purchase Wave Broadband in 2018 and EnTouch in September. 

In an interview, Holanda said that TPG began looking at its options for Astound earlier this year, refinancing its debt in late August to take advantage of lower interest rates. At that time, the private equity firm introduced a portability structure to the debt, which made it easier for a potential buyer to assume its leverage. 

“That woke up people to the fact that there was no financing risk in purchasing the business,” Holanda said. “Obviously we have seen lots of infrastructure players now coming into the fiber and residential broadband space.”

Holanda said he didn’t know any of Stonepeak’s partners before the deal, but its reputation in the fiber business has preceded it. Stonepeak’s portfolio includes investments in Cologix, which operates data centers in the U.S. and Canada; fiber distributed network provider ExteNet Systems; and Canadian rural broadband provider Xplornet.

“Clearly there has been a lot of activity on that side and we were hoping we would be able to find an infrastructure provider with a long term view of the business as a logical next partner in our evolution,’ Holanda said. “In the months I've gotten to know Stonepeak, we’ve been very very impressed with them. They have deep conviction in the business, a great deal of knowledge given their prior investments in infrastructure and again have a very strong balance sheet in terms of their ability to allow us to grow across all of these various disciplines.”

While it has been broadband-centric for the past five years, Holanda said Astound still has a strong video presence, dating back to the integration of streaming services like Netflix and Hulu into its offerings back in 2014.

“We also have been seeing the macro trends and shifts in the business, and as content costs continue to skyrocket out of control and impact people’s budgets, we just want to give people as much optionality as possible to put together whichever package of services they are comfortable with. Holanda said, adding that the company has its own IPTV streaming platform and is currently streaming its full lineup and VOD library to RCN customers on any device in the home. Grande customers will receive that capability in the fourth quarter, expanding to Wave customers in the first half of next year. 

About two months after it was put on the block, TPG Capital sold its Astound Broadband cable systems with more than one million customers to a joint venture between private equity firm Stonepeak Infrastructure Partners and Patriot Media in a deal valued at $8.1 billion including assumed debt.

TPG put Astound -- a combination of RCN, Wave Broadband and Grande Communications -- up for sale in September, reportedly asking about $8 billion for the assets. TPG purchased the assets in three separate deals, agreeing to pay $2.25 billion for RCN and Grande in 2016, and completing its $2.36 billion purchase of Wave in 2018. They purchased Entouch in September, adding 22,000 customers. 

According to reports, Stonepeak and Patriot are ponying up about $3.6 billion in cash for the assets and assuming $4.5 billion in debt, putting the total price tag at $8.1 billion.

Patriot Media is led by long-time cable executives Steve Simmons and Jim Holanda, and currently manages Astound. It will continue to run the properties after the deal closes, expected in the second quarter of 2021.

Astound, consisting of RCN, Grande, Wave and enTouch, is the sixth largest cable operator in the country, serving more than one million customers with 23,000 miles of fiber across Chicago, Eastern Pennsylvania, Massachusetts, New York City,  Northern California, Oregon, Texas, Washington, DC., and Washington.

“We are delighted to partner with Steve, Jim and the Astound team for the next chapter of growth. Astound is the premier operator of critical broadband infrastructure in the United States with a long history of delivering market leading customer service and network performance to communities across the country. In our increasingly connected society, we believe there is an extraordinary opportunity to deliver faster speeds and greater coverage, fundamentally enabling many aspects of everyday life,” Stonepeak partner Brian McMullen said in a press release. 

As part of the partnership with Stonepeak, Patriot Media said it will continue to invest significantly in the network and in technology.

“We have created a market leading broadband platform with national reach, broad capabilities and expertise, and exciting growth potential,” Astound CEO Holanda said in a press release. “We are very eager and excited to partner with a premier investor such as Stonepeak to further accelerate our growth and take our companies to new levels of customer satisfaction and performance. We also want to thank TPG for their great support and partnership over the past four years.”

Simmons formed Patriot Media in 2002 after buying RCN’s Princeton, N.J., systems with private equity company Spectrum Equity Associates. He grew the operator to about 350,000 subscribers before selling it to Comcast for $483 million in 2007. Three years later Simmons and Patriot took over management of RCN and Grande, after they were purchased by Abry Partners, staying on in that role when Abry sold the properties to TPG in 2017.

“As we continue to grow our platform, our core objectives remain the same: to deliver exceptional service to our customers and communities, a best-in-class experience for our employees, and outstanding results for our investors,” Simmons said in a press release. “Our mission and management vision are aligned with Stonepeak and we very much look forward to our partnership with them.”

BofA Securities and Lazard  are acting as financial advisors to Stonepeak, and Simpson Thacher & Bartlett LLP is serving as legal counsel. J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are acting as financial advisors to Astound, and Cleary Gottlieb Steen & Hamilton, LLP and Seyfarth Shaw, LLP are serving as legal counsel.

“We’ve had a long-held theme and belief in the growing value of broadband infrastructure, culminating in our successful investment in Astound Broadband, in partnership with Patriot Media,” said David Trujillo, partner at TPG. “We’re proud to have been part of the company’s journey, which has been characterized by significant platform expansion, strong growth and great leadership. We wish Steve, Jim and the outstanding Patriot management team well, as they continue to grow Astound in partnership with Stonepeak.”

TiVo has announced the first major operator deal for its new TiVo Stream 4K OTT device, with TPG Capital-owned cable operators RCN, Grande and Wave set to bundle the Android TV-powered HDMI dongle with their high-speed internet service. 

Any customer who subscribes to RCN, Grande or Wave high speed internet service of 100 Mbps or higher can add a TiVo Stream 4K device free alongside free access for one year to TiVo’s new streaming service, TiVo Plus.

Debuting in late-April, and currently priced at $49.99, the TiVo Stream 4K stacks TiVo’s proprietary search-and-recommendation software over an Android TV-based operating system. It provides native integration of Netflix, Amazon Prime Video and Disney Plus, as well as access to any app in the Google Play Store. 

Notably, in their marketing, the TPG cable triumvirate is emphasizing the Stream 4K’s native integration of virtual pay TV service Sling TV and local broadcast station streaming service Locast, of the latter of which the trio says “mimics the look and feel of traditional cable.”

The three cable companies currently offer traditional cable TV service, leveraging Evolution Digital's eStream 4K set-tops running Android TV with the TiVo user experience. They’ll now feature the Stream 4K device as an option to internet customers who don’t want the eStream thin-client pay TV service. 

RCN serves customers across areas of Massachusetts, Chicago, Pennsylvania, New York City, and Washington, DC.; Grande Communications’ footprint is in Texas; while Wave Broadband serves customers in Washington, Oregon and California.

“As a provider committed to bringing customers unique, affordable options, we continue to partner with brands such as TiVo and Sling TV to offer customers ultimate choice and control,” said Chris Fenger, COO of RCN, Grande and Wave, in a statement. “With the TiVo Stream 4K, internet-only customers can connect our award-winning internet service to a compact and powerful device to create an entirely customizable entertainment experience with access to live TV, streaming services and free TiVo content in one place.”

Private-equity firms, anxious to get back into the cable broadband business just a few years ago, are considering exit strategies, with at least one big deal in the works and others in the wings, according to sources in the cable financial community.

Perhaps the biggest deal in the pipeline is the possible sale of Dallas-based private equity giant TPG’s interest in Astound, its rollup of RCN, Grade Communications and Wave Broadband. TPG, which spent around $5 billion rolling up those three overbuilders between 2016 and 2018, is seeking about $8 billion in a sale and has hired investment bankers Morgan Stanley and J.P. Morgan Chase to handle the auction, according to a Reuters report.

TPG declined comment.

Sources in the financial community confirmed the Reuters report, adding that TPG originally tried to start an auction for the properties in March, but pulled it back when the COVID-19 pandemic hit. The second round of bidding is expected to take place in the next two months, with a winner expected to be chosen early next year. 

Already, interest among larger operators is beginning to rise. On Sept. 2 Altice USA launched a $7.8 billion unsolicited takeover bid for Canadian telco Cogeco, the parent of Quincy, Massachusetts-based Atlantic Broadband. Altice USA has partnered with Toronto-based Rogers Communications, which would buy Cogeco’s telecom businesses for $4.8 billion. Altice USA would pay
$3.6 billion for Atlantic Broadband, about
10.2 times the cable company’s forward-looking cash flow. Cogeco’s controlling shareholder rejected that offer on Sept. 3, although most analysts expect Altice to raise its bid. Either way, the offer itself could mean that  valuations for other assets would start at even higher multiples.    

Riding the Broadband Wave

TPG burst onto the distribution scene in 2016 with its $2.25 billion purchase of Grande Communications and RCN and has ridden the broadband wave over the past several years, as large and small cable companies have shifted their primary focus away from video and toward faster data speeds. All three companies serve diverse geographies. Grande focuses on metro and rural Texas, and has customers in Austin, San Antonio, Dallas, Corpus Christi, Midland, Odessa, Greater Temple and Waco. Wave, which TPG purchased in 2018, focuses on Washington (including the Seattle area) Oregon and California. RCN, the largest of the three,  operates in Boston; Chicago; Washington, D.C.; Lehigh Valley, Pa.; New York and Philadelphia.

When TPG closed the Wave deal in 2018, it claimed the combined companies passed about 2.7 million homes and had 925,000 residential and business customers, delivering nearly 1.7 million data, voice and video services.

Just who would buy the TPG assets is the big question. Because of its status as an overbuilder in some of its larger markets like New York, Chicago and Boston, incumbent operators like Comcast and Charter Communications would be prohibited from buying. Midsized cable and broadband provider Cable One has been aggressively buying smaller cable companies and fiber network owners over the past three years: Emporia, Kansas-based broadband services company ValueNet Fiber; Sullivan, Missouri’s Fidelity Communications; Sikeston, Missouri-based  NewWave Communications and ClearWave Communications. But a TPG deal could be too pricey for Cable One, which paid about $735 million for NewWave and $526 million for Fidelity. The company didn’t reveal the price of the other purchases, but it is believed they were for considerably less.

 In a research note, MoffettNathanson principal and senior analyst Craig Moffett said CableOne needs to add scale to justify its high valuation, either organically or by other means. Its stock has been the best performer in the distribution sector for three years running, currently priced at nearly $1,900 per share. In the second quarter, Cable One beat analysts’ expectations by adding more than 44,000 high-speed internet customers, an 11.3% growth rate and more than double the 5.1% rise in Q1.     

Broadband is driving much of the interest in cable at the moment. According to one member of the cable financial community who asked not to be named, familiar names in the smaller cable business that had sold their systems in the past — like NewWave’s Gleason family and former Wave Broadband CEO Steve Weed — have been dabbling in companies in the fiber-to-the-home business to help address the broadband boom.

Fiber Draws Interest

“It’s been nuts,” said the cable financial executive who asked not to be named. “There’s a lot of interest in fiber-to-the-home. It’s a new chapter for overbuilders.”

Weed, who sold Wave Broadband to TPG in 2018 for $2.36 billion, formed WaveDivison Capital with former Wave Broadband executives Harold Zeitz and Wayne Schattenkerk shortly after closing that deal, and in May 2019 teamed up with Searchlight Capital to purchase former Frontier Communications properties in Washington, Oregon, Idaho and Montana with 350,000 residential and commercial customers for about $1.35 billion, renaming the company Ziply Fiber.   

At the time of the Frontier deal, Weed hinted that more deals could come. 

“We are big believers in the Northwest’s future growth opportunities and that future runs on broadband,” Weed said in 2019. “Our plan is to invest further in our markets, specifically by extending fiber to more homes and businesses, to bring them the high speeds they want.” 

Overall broadband growth has been strong and continues to be dominated by cable distributors. Leichtman Research Group estimated that cable operators added about 1.4 million high-speed internet customers in Q2, compared to 530,000 additions in the prior year. While much of that was due to work-from-home and stay-at-home orders in many states due to the pandemic, Leichtman Research president Bruce Leichtman said in a press release that the increase was the largest since 2008. Some believe the momentum
will continue. λ

Private equity firm TPG has hired investment bankers Morgan Stanley and JP Morgan Chase to shop its overbuilder unit Astound, which includes its interests in RCN, Grande Communications and Wave Broadband, according to reports.

Reuters said Monday night that TPG hired the bankers and was looking at a valuation of the overbuilder that would top $8 billion, including debt.

TPG pieced together Astound through a pair of acquisitions over the past four years. It purchased RCN and Grande Communications in 2016 for $2.25 billion and Wave in 2018 for $2.36 billion.  All together, the properties offer pay TV, broadband and telephone service in eight states to about 1 million customers.

TPG declined comment.

The news comes as AT&T is attempting to sell a majority interest in its DirecTV satellite unit and other traditional operators are making moves to expand their broadband reach into more rural areas. 

Broadband growth has been especially robust in the COVID-19 era, and smaller operators may want to capitalize on that growth. But finding a buyer with the required financial muscle to wrestle a deal of this size could be tricky. Because many of its properties are overbuilds of incumbent providers, that would mean operators that have systems nearby like Charter, Comcast and others, would be prohibited by federal regulations from doing a deal. And while Cable One has purchased smaller operators in the past like NewWave Communications, Fidelity Communications, Clearwave  and ValueNet, this deal could be a little price for its tastes. 

Still, broadband growth has been strong and has shown little signs of slowing down. According to Leichtman Research Group, cable operators added about 1.4 million broadband customers in Q2, up from 530,000 additions in Q2 2019. 

Wave Broadband said it has split its business operations into two regionally-focused operations -- Wave North and Wave South -- effective immediately.

Wave North will serve the company’s business and residential customers in Washington State, while Wave South will focus on business and residential customers in Northern California and Oregon. Both entities will continue to serve customers under the Wave Broadband brand.

The company said it has signed leases for two facilities to support its Wave North regional operations -- a  45,600-square-foot building in Bothell, Washington, which will become operational in the early summer of 2019, and a 31,600-square-foot facility located south of downtown Seattle. Wave expects to be operational at the Seattle location by the Fall of 2019. These new facilities replace Wave’s previous plans to move its headquarters into the Kirkland Urban development and are a direct result of Wave’s desire to decentralize its operations to better serve its customers.

Wave South’s operations center will continue to be based in the company’s existing Rocklin, California facilities.

The moves come more than a year after Wave was purchased by TPG Capital for about $2.36 billion, combining it with two earlier purchases -- RCN and Grande Communications.

In addition, former AXS TV and Charter Communications executive Fred Lutz and former Suddenlink Communications SVP Jared Sonne have joined Wave North and Wave South, respectively, both as general manager and senior vice presidents. Each organization will continue to operate as part of the national consortium with RCN and Grande Communications that comprises the sixth largest US cable and broadband services provider.

“Fred Lutz and Jared Sonne bring exceptional industry and leadership experience and are building localized operations to advance the superior customer service, reliable communication services, and strong overall value that our business and residential customers have come to expect,” RCN, Grande and Wave chief operating officer Chris Fenger said in a press release. “The establishment of Wave North and Wave South enables us to make business decisions closer to our customers and employees while we continue to invest in our network, enhance our products and services, and capitalize on future growth opportunities.”

No immediate changes are planned to Wave’s products, services, or pricing, the company said. 

Less than a year after it joined RCN, Grande Communications and Wave Broadband, TPG Capital said the combined entities have made some key executive appointments, naming Patrick Knorr chief commercial officer and EVP of commercial services and Paul Koss as SVP of carrier and wholesale.

TPG purchased RCH and Grande in 2016 for $2.25 billion, and snapped up Wave in January for $2.36 billion. The combined companies cover nearly 20 metro areas in 11 states including California, Illinois, Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Texas, Virginia, Washington, and Washington, D.C.

Knorr had been EVP of business solutions for Wave Broadband. A long-time cable executive, Knorr had been general manager of small cable operator Sunflower Broadband before joining Wave in 2012. 

“Commercial services is our fastest-growing segment and Patrick’s appointment underscores our combined commitment to ensuring that businesses nationwide have the most robust fiber network and services available, so that they can continue to grow and take advantage of future technologies,” said Jim Holanda, CEO of RCN, Grande and Wave, in a statement.

In his new role, Koss will be in charge of growing the company’s carrier and wholesale business, including cellular backhaul.

“At a time when innovation in technology is thriving, the security and reliability of fiber connectivity has become fundamental to economic growth for enterprises of all sizes,” Knorr said in a statement. “As an organization, we are committed to making fiber infrastructure more accessible and affordable to support today’s technological marketplace.”

TPG Capital has completed its previously announced purchase of Wave Broadband, a $2.36 billion deal that creates the sixth largest cable operator in the country.

TPG, which also owns RCN and Grande Communications, first announced the Wave deal in May.

“By combining RCN/Grande and Wave, we are creating a leading, national-scale internet provider and cable TV operator with significant growth potential,” RCN/Grande CEO Jim Holanda said in a statement. “We are pleased to announce the close of this transaction, and look forward to our continued growth led by a strong focus on customer service and commitment to providing the highest quality high-speed internet, TV, and voice services available.”  

The combined companies have a presence in seven of the top 10 DMAs and have nearly 950,000 voice, video and data subscribers.

Wave will continue to operate as a branded entity headquartered in Kirkland, Wash., serving business and residential customers in Washington, Oregon, and California. RCN provides similar services as Wave along the East Coast and in Chicago; Grande operates throughout Texas.

“Together, RCN/Grande and Wave create a market-leading broadband platform with national reach,” said TPG partner David Trujillo in a statement. “The combined platform is providing businesses and residents across the country with fast, high-quality, and reliable communications services that allow them to rapidly access the content they crave. We look forward to our continued work with the RCN/Grande and Wave teams.”

Wave Broadband has expanded its Gig Speed Internet service for residential and business customers throughout its West Coast coverage areas in Washington, Oregon and California.

The service had previously only been available to select apartment and condominium buildings in Seattle, San Francisco and Portland.

Related: TPG to Buy Wave Broadband for $2.36B

Gig Speed Internet for residential customers is available at a retail promotional rate of $80 per month for the first year and comes with Wave’s Unlimited Data plan. After that time, a monthly rate of $99 applies, the company said.

The 1-Gig and faster service is also available to business customers, providing bandwidth for cloud-based computing, off-site data storage, video-conferencing, file sharing, e-Commerce, content streaming, and providing WiFi for staff and customers. Wave Gig Speed for Business includes no limits on data usage Wave said.

“We are thrilled to launch gigabit speeds throughout our coverage areas in Washington, Oregon and California,” Wave chief operating officer Harold Zeitz said in a statement. “During the past several years, Wave has focused on growing our fiber network specifically to accommodate gigabit and faster connections for our customers. The demand for fast, reliable internet connections at an affordable price is growing, and our Gig Speed Internet is the ideal solution for both residential and business customers.”

TPG Capital’s agreement to buy Wave Broadband for a robust $2.36 billion could have some over-the-top implications going forward, according to the man who will be running the combined companies once the deal is closed later in the year.

RCN CEO Jim Holanda said once the deal is completed Wave will be incorporated into the RCN family, along with Grande Communications in Texas.

Wave, with about 138,000 video customers and access to more than 600,000 homes passed, has carved out a strong business in the Northwest. It offers cable and telecom services in the suburbs of top markets in the region like Seattle and Portland, and in metro areas it offers a commercial phone and broadband package with speeds of up to 1 Gigabit per second. The company has been piggybacking residential service on that commercial network in some metro areas, offering a 1 Gbps broadband-only service to apartment buildings.

That service, called Wave G, has been popular especially with millennials, says Wave founder Steve Weed, who will stay on as a member of the RCN board of directors once the deal closes.

Weed added that with Wave G, the company decided to promote “OTT video to customers rather than launching our own cable service. We’ve been pretty successful at it. We found that customer penetrations are just as good when you don’t have cable and customer satisfaction is very high.”

RCN and Grande CEO Jim Holanda, said after the deal is closed, RCN may look at providing cable to the metro markets down the road, but for the time being it is comfortable with offering a competitive broadband product in larger markets.

“That’s not much different from what we do in downtown Manhattan and downtown Chicago and downtown Austin, Texas in terms of the gigabit services we’re providing to customers,” Holanda said. “I think opportunity abounds and we continue to look at where we have a strong competitive advantage to continue to try to take advantage of that.”

And as the industry starts to move toward smaller video packages – so-called skinny bundles – RCN and Wave could have a solution for that too.

“Taking a broadcast level of service and pairing with a TiVo and then paring that with over the top options like a Sling TV and a Netflix, all of a sudden a customer has a very robust lineup – it has live TV, it has live sports, it’s got streaming, it’s got binge watching with thousands of hours of content,” Holanda said. “It can be a pretty powerful value proposition. We’re trying to keep a foot or a toe in each of those to try and take care of what our various customers want. We make our decisions based on what our customers are telling us and what they want. “

But he said it is unlikely that ARCN would try to launch an out of footprint OTT service.

“Long term strategically speaking, our company with 900,000 total customers and less than that in terms of video customers, having an OTT service that goes to a large group of people outside our footprint, we simply don’t have the size to play in that space,” Holanda said.

Although lumped in with other overbuilders – aside from a small part of the San Francisco market where it competes directly with Comcast – Wave is generally the incumbent cable operator in its regions. Cable is the operative word, however. Weed said in an interview that Wave’s strategy has been to focus its cable service on suburban markets outside of larger cities. But for commercial broadband, anything goes.

“The metro markets where we serve in Seattle and Portland and now Sacramento are pretty extensive, but that’s not where our cable footprint is; it’s our metro fiber,” Weed said. “We have a large competitive network in Seattle, Portland and Sacramento that is commercial enterprise fiber network, not the residential footprint. It’s really two different areas.”

The commercial side of the business has been booming, and Wave has been aggressively acquiring data centers and ISPs over the past few years to bolster that offering. The combination with RCN will only make that product stronger, Weed said, adding that in the past, if a commercial customer needed to connect offices outside of Wave’s Northwest footprint, they were out of luck.

“If any of those customers had facilities on the East Coast or Chicago or Texas, we had to say we can’t do that,” Weed said. “Now that opens up the market for us. Going forward there will be an opportunity to have more of a national product offering that we don’t really have today.”

Holanda added that Wave’s fiber-rich network also will help bolster the back-haul business with wireless carrier, especially as they begin to deploy 5G networks that depend on small cell sites connected with high-capacity lines.

“Whether it’s co-location, whether it’s back-haul, carrier or enterprise, there’s going to opportunities across all of this that play well for people that need national solutions,” Holanda said. “As we think about small cell that needs to get built out over the next five to eight years, that small cell infrastructure needs fiber deep in the neighborhoods.”

Holanda said when Wave and RCN built their respective networks, it was with three times the fiber of a traditional cable operation, which should give it a leg up on competitors.

As part of RCN – all three companies (Wave, RCN and Grande) will remain under the same corporate umbrella but retain their brand names in their markets --

Wave’s has invested heavily in fiber for its network – in September it raised another $125 million for the buildout and had initially raised $130 million for the project a year earlier.

This is TPG’s third cable purchase in about a year – it bought RCN and Grande in August for $2.25 billion – but it probably won’t be the last, according to Holanda. Prior to the recent cable buys, TOG has mainly focused on content and connectivity, investing in internet music service Spotify, broadcaster Univision Communications, travel website Hotwire and TV and movie studio STX Entertainment, among others.

“They are obviously very formidable with a lot of capital at their disposal given how big they are,” Holanda said of TPG. “I think they are very bullish on the infrastructure space clearly as are we as well as the content space. I think you’ll continue to see them potentially play on both sides.”

TPG Capital has agreed to purchase Seattle-based Wave Broadband in a deal valued at about $2.36 billion.

News that a deal was close was first reported by Reuters.

TPG has been on an acquisitions tear of late. In August it paid $2.25 billion for Grande Communications and RCN. 

Wave’s owners Oak Hill Capital Partners and GI Partners had hired investment bankers in April to seek out a buyer for the company. At the time they were reportedly seeking $2 billion.

Wave has about 138,000 video customers in Washington State and Oregon – including Seattle and Portland – and overbuilds Comcast in parts of San Francisco. The company has concentrated on its broadband service and has recently focused on purchasing fiber and data companies to boost its high-speed data presence, including Seattle-based CascadeLink.

In September the company raised about $125 million to continue an ambitious fiber buildout geared toward serving enterprise customers. 

Oak Hill and GI Partners teamed up with Wave management – including founder and CEO Steve Weed – to buyout long time backer Sandler Capital Management in 2012 in a deal some valued at about $950 million.

Wave said the new deal will create the sixth largest internet and cable operator in the country. The transaction is expected to close in the fourth quarter of 2017. Wave will be combined with TPGs’ RCN operations, according to the announcement.

“Over the last several years we have accelerated our growth substantially by expanding from our heritage of residential broadband services into enterprise grade fiber,” said Wave founder and CEO Steve Weed in a statement. “We are excited that our new partners in TPG and RCN recognize the value of what we have created, and share our passion for creating happy customers – we are eager to enter our next era of growth alongside them.”

Wave will continue to operate as a branded entity headquartered in Kirkland, Wash., serving business and residential customers in Washington, Oregon, and California. RCN provides similar services as Wave along the East Coast and in Chicago; Grande operates throughout Texas.

The company said it will continue to grow its residential customer base while also accelerating expansion of its fast-growing commercial and enterprise business segments that have driven much of its recent momentum.

“At RCN and Grande, we pride ourselves on providing the best products, best service, and best value to our customers. Through our partnership with TPG, and by expanding our footprint with Wave, we are creating a market-leading broadband platform with national reach, broad capabilities and expertise, and exciting growth potential,” said RCN and Grande CEO Jim Holanda in a statement. “We’ve known the team at Wave for many years, and their focus on delivering value to their customers aligns perfectly with ours.”

Wave management will remain significant investors, partnering with majority owner TPG. Wave’s CEO, Steve Weed, will join the combined company’s Board of Directors.

Cable Operators have begun to seriously test the valuation waters, with Altice USA finally issuing preliminary documents for a long-awaited initial public offering and small operator Wave Broadband initiating an auction for a possible sale.

Altice USA, the domestic arm of European telecom company Altice N.V., filed its registration statement with the Securities and Exchange Commission on April 11, ending what had been months of speculation. Altice USA first said it was considering an IPO in October.

The documents left a lot of unanswered questions, as Altice has yet to reveal the number of shares, pricing and what percentage of ownership it will offer to the public. But some financial community sources have said that reports that claim Altice USA is prepared to offer a 20% stake in the company to the public are off the mark. They say the actual percentage is much lower.

DEAL CURRENCY PROSPECTS
That would align with what most analysts believe is the main reason for the IPO: to give some of Altice’s financial backers a path toward realizing their investment.

While an IPO could give Altice USA a deal currency to snap up other small cable operators, the company is currently busy digesting the two large deals it completed in the past 18 months: the $9.1 billion purchase of Suddenlink Communications in December 2015 and the $17.7 billion buy of Cablevision Systems in June.

Publicly held Cablevision was an all-cash purchase Altice needed help to finance. Suddenlink’s private-equity backers — BC Partners and the Canada Pension Plan Investment Board (CPPIPB), which kept a 30% stake in Suddenlink after that deal was completed — bought a 30% equity position in Cablevision for $1 billion.

The IPO would allow those private-equity partners to monetize some of their stake, but not likely all of it.

“Canada Pension is very long-term focused and it may be a little early for BC Partners to be lightening up aggressively,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. “I am assuming Altice itself raises very little new capital.”

Just how much Altice USA could raise and what value the IPO could place on the company will likely be in part determined by private valuations.

Those private assessments have been climbing rapidly.

Altice would be the second small cable operator to test the public markets this year: Overbuilder WideOpenWest filed a preliminary prospectus for an IPO in March that could raise as much as $750 million. WOW, with about 486,400 video subscribers, is about one-tenth of Altice USA’s size of about 4 million video customers.

Cable operators are usually valued on multiples of cash flow, and for the most part those numbers have been high. Valuations for small and large cable operators alike range from about 7.5 times cash flow to more than 11 times. NewWave Communications, which sold to publicly traded Cable One earlier this year for $735 million, was valued at about 11.5 times forward-looking cash flow, while Charter Communications trades at 9.5 times cash flow.

Backing out its NBCUniversal programming arm, Comcast trades at about 7.5 times cash flow, Wlodarczak said.

Cable One is valued the highest of the public operators at about 10 times, but that is mainly because it is considered a takeover candidate (with Altice as one of the possible buyers). Another key indicator could be the ongoing auction for Seattle-based Wave Broadband, which also has come on the block. According to sources in the financial community, Wave’s owners — private-equity players Oak Hill Capital and GI Partners — are seeking as much as $2 billion for the 138,000-subscriber cable company. At that price, Wave would be valued at about 10 times the estimated $200 million in annual cash flow.

For that reason Wlodarczak said he believes Altice USA will have a healthy valuation — 9 times cash flow or more — “if people start to think about upside from possible additional Altice acquisitions.”

Most analysts believe Altice USA will take at least a year to integrate its existing operations before it goes back out on the hunt. The new stock, though, would provide a strong new deal-making option.

“I think they still have some integration work to do,” Telsey Advisory Group media analyst Tom Eagan said. “I imagine they will trade in between Comcast and Charter, especially because of their growth and the increase in margins. I would not be surprised if they did use it [the stock] for acquisitions.”

VARIABLE PUBLIC VALUES
Stock multiples for cable distributors have varied widely in the past few years. According to Eagan, Comcast, the largest cable operator in the country, had a trading multiple of 7.1 times in 2015, rising to 8.3 times in 2016 and is expected to be about 8.5 times in 2017. Charter, which has been much traded at 8.5 times in 2015, rising to 10.2 times in 2016.

The outlier has been Cable One, the midsized Phoenixbased cable operator that was the sector’s best performing stock in 2016, rising more than 43% for the year. Cable One is trading in the 10 times range, despite losing subscribers at a 20% pace. Most analysts see one catalyst for the appreciation in the stock over the near term — the potential that it will be purchased by another cable operator, probably Altice.

Altice USA has given no indication of an intention to buy Cable One, and most analysts don’t think it would be a good move to put the two together. Still, that hasn’t stopped the market from speculating.

“I don’t think the logical candidates — Altice, Charter or Comcast — are interested in buying Cable One,” Wlodarczak said.

Wave Broadband said it has raised an additional $125 million to continue an ambitious fiber buildout geared toward serving a growing number of enterprise customers on the West Coast, and is adding two new companies to the fold to help grow its commercial services business.

Wave, based in Kirkland, Wash., initially raised $130 million to start its fiber buildout last year.

The more recent financing, a $125 million add-on to the existing first-lien term loan, will fund the continued project buildout in Washington, Oregon and California, as well as future acquisitions.

Wave currently has more than 1,000 fiber construction projects underway to serve business and residential customers on the West Coast and its commercial services business is its fastest growing segment, growing at a 25% clip last year. According to Wave, new construction is adding more than 100 route miles of fiber each month to its existing network of about 5,500 route miles, serving markets from the San Francisco Bay area north to the Canadian border.

Separately from the financing, Wave said it has purchased two fiber businesses – Newport, Ore.-based CoastCom, and Vancouver, Wash.-based SawNet -- to expand its business offerings. Terms of the deals were not disclosed.  

CoastCom owns more than 250 miles of fiber in Oregon, while SawNet owns more than 100 fiber miles from Portland/Vancouver through the Columbia River Gorge. Wave will add those assets to its fiber network, along with CoastCom’s more than 150 business customers.  

“This financing enables Wave to accelerate the expansion our fiber network to meet the strong demand we are seeing from commercial customers for access to our network’s fast and reliable connections, backed by exceptional customer service,” Wave CEO Steve Weed said in a statement. “We are also very pleased to add CoastCom and SawNet to Wave, as their local fiber networks and business customers complement what we’re already building in Oregon and southern Washington.”

Wave has been placing a greater emphasis on its commercial broadband business for years – Weed said in an interview that it is on a path for business services to represent about half of total revenue. It recently launched Wave G Business service – a 1 Gigabit per second high-speed data offering – to provide symmetrical Gigabit Internet connectivity to companies often found on the ground floors of Wave G-serviced residential apartment buildings.

TPG Capital’s surprise $2.25 billion purchase of over-builder RCN and small Texas-based cable operator Grande Communications could signal a new wave in the cable M&A space: new entrants that are laser-focused on broadband and the potential to offer over-the-top and short-form video services, rather than stodgy old pay TV.

TPG, which is paying $1.6 billion for RCN and about $650 million for Grande, is teaming up with Google Capital, the investment arm of the Internet search conglomerate, on the deal. It’s expected to close in the first quarter of 2017.

Google Capital is taking a minority financial interest in the deal, but at least initially there is no mechanism for the company to increase that stake.

The relatively high price surprised some members of the financial community: At 8.4 times cash flow for RCN and 8.6 times for Grande, the deal is valued nearly on par with the Charter Communications’s $78.7 billion buy of Time Warner Cable and Bright House Networks (9.1 times). It seems to place a premium on pay TV providers for their broadband infrastructure, rather than their video businesses.

As TPG Capital partner David Trujillo noted in announcing the deal: “High-speed data has become, and will remain, the essential connection for both consumers and businesses.”

That mindset is not new, and operators such as Cable One and Wave Broadband have been de-emphasizing video for years. But it could bode well for smaller operators that have been forced to concentrate on high-speed data as programming costs have skyrocketed.

“This is likely the beginning of a mini-boom,” said Garrett Baker, founder of Garrett M. Baker Advisors, LLC, who has advised on dozens of large and small cable deals over the years. “Many private operators are finally deciding, ‘This is my big chance to get out.’ ”

RCN and Grande are in similar straits as the rest of the industry: They’re watching their video customer base decline as younger viewers migrate to over-the-top services and skinny bundles for their entertainment needs. Like many other operators, both have put a greater emphasis on their broadband business, providing the pipe for those smaller content packages.

While Grande has had a higher profile — it has moved to launch 1 Gigabit-per-second service in Austin, Dallas and San Antonio, Texas, three markets where Google Fiber has expressed interest — RCN has maintained its broadband presence, offering services ranging from 10 Megabits per second to 330 Mbps in its markets.

While RCN has basically been managed for cash flow since Abry purchased it in 2010 and was not initially marketed with Grande for sale, it has been growing broadband customers organically and was the property that drew TPG’s interest.

“Grande is a little too small to build a platform asset,” said one source in the cable community familiar with the company.

TPG is expected to continue to test the deal waters after it closes the RCN-Grande deal, sources familiar with the company said this transaction will do for the time being.

“I’m sure they’d love to do more,” said one source in the cable financial community. “But this deal can stand on its own.”

Casa Systems said Wave Broadband will use its C100G converge cable access platform to deliver gigabit speeds to residential and business customers in the Pacific Northwest.

Wave Broadband is rolling out the C100G, Casa’s CCAP that combines the functions of the cable modem termination system and the edge QAM. The C100G uses DOCSIS 3.0 today, but Casa has developed downstream and upstream modules that put the platform in position to support DOCSIS 3.1, an emerging multi-gigabit spec for HFC networks.

Wave has about 450,000 Internet, TV and phone customers in Northern California and parts of Oregon and Washington, and said it’s swapping out its legacy CMTSs for the gigabit plan, which will help the MSO deliver new bandwidth-intensive apps, including IP video.

Notably, Wave recently raised about $130 million in debt to help fund an aggressive buildout of its fiber optic communications network and aimed at bringing higher-speed connectivity to business customers.

"Driven by the incredible growth of streaming video, social media and other rich content, the gigabit era can't wait. To reinforce our investment in expanding gigabit services across our region, it was imperative we have the right infrastructure in place," said Harold Zeitz, president and COO at Wave, in a statement. "The C100G CCAP from Casa Systems is the solution that paves a seamless path to scale and supports next-gen technologies such as DOCSIS 3.1, wireless, PON architecture and virtualization that are poised to become competitive differentiators."

The win with Wave comes as Casa grapples for markets share against access network rivals such as Arris, Cisco Systems, Harmonic, and Huawei. 

Wave Broadband said it has purchased Layer42 Networks, a Silicon Valley provider of business-to-business Internet connectivity, colocation, and data transport services. The transaction, terms of which were not disclosed, is effective immediately.

The deal expands Kirkland, Wash.-based Wave Broadband’s reach in Northern California and the San Francisco Bay area. Founded in 1999, Layer42 delivers three primary services to enterprise-level clients and other business customers: Internet access; Ethernet transport; and wave transport, with speed offerings ranging from 10 megabytes to 100 gigabits.  The company’s colocation facilities are based in two network operation centers, in Santa Clara and Mountain View, Calif., with a total of about 70,000 square feet.

Wave plans to invest in additional hiring and technology to accelerate growth. Layer42 will now be known as "Layer42 by Wave." Layer42 has about 150 customers, including Barracuda Networks, Dropbox and Square.

“Layer42 strengthens Wave’s physical presence in Silicon Valley and fits perfectly with our accelerated network expansion, while offering business customers best-in-class Internet connectivity and data transport services,” said Wave Broadband CEO Steve Weed in a statement. “We look forward to investing further in the network infrastructure, people, and technology to further the growth of our business services in the Bay Area and ultimately throughout Wave’s network.” 

Wave now connects more than 50 data centers on its fiber network in California, Oregon and Washington. The company recently raised $130 million to accelerate the expansion of its network and related services in California, Oregon, and Washington. 

“We are excited to join forces with Wave, as that company has a unique track record of successfully integrating new companies and technologies to deliver great products and services to business customers throughout the West Coast,” said Layer42 Networks CEO Derek Garnier in a statement. “When it comes to network and collocation services, we believe that partnering with Wave gives us the best opportunity to effectively address growing needs in the San Francisco Bay Area marketplace and beyond.”

Garnier will remain with Wave as SVP of Data Center Services.

. 

Wave Broadband customers in Sacramento, Calif., and other areas were suffering Internet, TV and phone outages that Wave blamed on fiber cables cut in an apparent "coordinated attack," news reports say.

News outlets including KCRA.com reported this statement from the broadband provider: "Three major fiber cables connecting the region have been physically severed in what appears to be a coordinated attack on multiple internet carriers beginning at 4:20 a.m. Tuesday morning." 

In an overnight update, Wave Broadband reported: "The disruption to service in the Sacramento and Rocklin markets due to the fiber cut of several partner carrier providers has been resolved. As of about 11:40pm Tuesday night, phone, TV and internet services are operating normally."

Reports, including one in USA Today, indicated the fibers cut were owned by backbone providers Level 3 and Zayo, and that Wave Broadband was among their customers. Sacbee.com reported that Wave crews were trying to repair the damage, which disrupted TV and phone service in addition to Internet access. Wave has 415,000 customers in Washington, Oregon, Sacramento and the San Francisco Bay area.

The newspaper said Wednesday that the FBI was investigating "at least 11 physical attacks on high-capacity Internet cables in California's San Francisco Bay Area dating back a year, including one early Tuesday morning."

Image via USAToday.com and downdetector.com.

Wave Broadband, the Kirkland, Wash.-based broadband and pay TV provider, raised about $130 million in debt to help fund and aggressive buildout of its fiber optic communications network and aimed at bringing higher-speed connectivity to business customers.

The $130 million in bond debt – led by Deutsche Bank and supported by Wells Fargo, SunTrust and RBC Daniels – will allow the company to add  about 1,500 route fiber miles to its gigabit Ethernet fiber network this year. Wave’s current network has about 5,000 route fiber miles.

The planned expansion includes entry to new markets, increased capacity and redundancy in existing markets, as well as infrastructure development to support additional future growth.

In addition to the extra route fiber miles, Wave’s expansion includes:

• Completing multiple redundant fiber rings between California markets including Concord, San Jose, Sacramento, and San Francisco with virtual cross-connect services to multiple Bay Area data centers;
• Expanding residential gigabit internet service to an additional 10,000-plus residents this year in Seattle with expansion to San Francisco and other markets in 2015 and beyond;
• Introducing new business services such as Hosted PBX and co-location facilities to their existing IP Transport, and virtual cross-connect products;
• Growing the company’s construction organization to support additional network expansion in West Coast California, Oregon and, Washington markets, with hundreds of fiber build projects currently being planned, permitted and under construction

As part of the expansion and in recognition of the increased of business services to the company, Wave founder and CEO Steve Weed named longtime Wave executive Steve Friedman to the new post of Executive Vice President of Fiber Design and Construction.  Wave has also named Harold Zeitz company president and COO, to lead the continued growth and successful operation of Wave’s business units. Zeitz has about 20 years of experience in the wireless and consumer web services space, most recently as president of Classmates.com.

“We are thrilled to accelerate our fiber expansion with this additional funding and announce the new roles for Steve Friedman and Harold Zeitz.  This furthers our commitment to provide business clients with carrier-class service, and residential customers with the fastest internet speeds at a great price, all backed by exceptional local customer service,” Weed said in a statement.  “Wave is uniquely positioned to deliver these services as a local, profitable and fast-growing company with more than a decade’s history, 1,000+ employees and annual revenue in excess of $350 million.”

The top five cable overbuilders have been growing video and broadband customers at a healthy clip over the past five years and could play a key role in the expected upcoming wave of consolidation, according to research by SNL Kagan.

Video subscribers at the top five overbuilders — WideOpen- West, RCN, Wave Broadband, Grande Communications and Click! Networks — have risen by about 25% since 2009, while broadband subscribers have grown at more than three times that rate, according to Kagan.

“Given cable M&A’s lofty valuations in 2014, magnified by the consolidation atmosphere surrounding the industry, overbuilders could play a key role in the M&A market going forward, either as buyers or targets,” Kagan said.

While much of the video-subscriber growth was due to acquisitions — WOW had the greatest increase in video customers (73%) during the period and was the most aggressive buyer of systems — other overbuilders have seen broadband growth outpace video customer declines.

For example, the next largest overbuilder, RCN, has seen video customers decline by about 15% since 2009, while broadband customers have risen by 26% since then.

STRONG SURVIVORS

Overbuilders burst onto the video scene in a big way in the 1990s, as new regulation (the Telecommunications Act of 1996) and easy financing encouraged competition. While some fell on financial hardship after they couldn’t compete with incumbents, a handful survived and some have even managed to crack the top 10 among video distribution companies.

Today, according to Kagan, overbuilders represent about 1.26 million video subscribers across the country, or about 1% of the nation’s roughly 100 million TV households and 1.5 million broadband customers.

Waller Capital president Garrett Baker, who helped sell four of the top overbuilders — WOW, RCN, Wave Broadband and Grande — to their current owners, said the success of companies in the deal market is causing others to look toward nontraditional targets: “The overbuilders’ operating success has put them in a position to look outside their current footprints. That is likely to continue.”

A SHOT IN THE ARM

The cable deal market, stagnant for years after a big consolidation wave in the late 1990s and early 2000s, got a shot in the arm last year when Comcast agreed to purchase Time Warner Cable in a deal valued at about $69 billion in stock and assumed debt. As part of that deal — which is currently undergoing regulatory approval — Comcast and Time Warner Cable agreed to sell, swap and spin off about 6 million customers in a series of deals with Charter Communications.

When the smoke clears, expected early next year after the Comcast-TWC deal is closed, Charter will have doubled its owned-andmanaged customer base, and the combined Comcast-TWC will have about 30 million subscribers across the country, including 19 of the top 20 television markets.

Charter, which touched off the consolidation frenzy with its pursuit of TWC last year, isn’t expected to stop there. Both Charter CEO Tom Rutledge and one of the cable operator’s largest shareholders, John Malone’s Liberty Media, have said Charter — and GreatLand Connections, the publicly traded company that will hold the spun-off Comcast-TWC assets (and be 33% owned by Charter) — could serve as vehicles to further consolidate the industry.

Whether overbuilders like WideOpen-West, which was founded in 1999 and is backed by private-equity giant Avista Capital Partners, will be a target or a competitor for cable assets remains to be seen. But WOW, which has about 699,000 video customers and 770,000 broadband subscribers in seven states (Alabama, Georgia, Florida, Michigan, Ohio, South Carolina and Tennessee), has proven it has the stomach for acquisitions.

WOW’s first big purchase was in November 2001, about seven months after it opened for business, when it bought telco Ameritech’s Americast systems in Illinois and Indiana. WOW has done several deals since then, ranging from the $55 million purchase of bankrupt Broadstripe Communications’ 31,000 customers in 2011 to the $1.5 billion purchase of Georgia- based Knology’s 257,000 customers in 2012.

RCN, which was bought out by private-equity group ABRY Partners in 2010 for about $1.2 billion, has kept a low profile since then and has been more of a seller of systems than a buyer in its most recent deals. But RCN — the first overbuilder in the country, formed in 1993 — has a long history of aggressive deal-making.

Overbuilders could target each other for M&As, Pivotal Research Group principal and senior media & communications analyst Jeff Wlodarczak said, but if they want to compete for cable assets with the likes of Charter, they’ll likely lose unless they want to “dramatically overpay.”

Wave Broadband is getting ready to ride the 1-Gig wave through its CondoInternet subsidiary. 

Wave will launch 1-Gig services to the Seattle-area neighborhood of Eastlake next month for a flat rate of $80 per month, The Seattle Times reported.

CondoInternet, a company that has been serving apartments and condos in Seattle since 2008, has more detail on the Eastlake project on its Web site, noting that the fiber-fed network will reach the entire neighborhood, including single-family homes and even houseboats. In addition to the no-contract 1-Gig service, CondoInternet will also introduce a 100 Mbps tier for $60 per month. Both services don’t require a contract and are free of installation and construction fees.

According to the Times, CondoInternet is keeping costs low as it targets about 2,400 homes in the area  by building out aerial plant on power poles that sidesteps the need to dig trenches and install big networking cabinets.

CondoInternet notes that it won’t stop at Eastlake. “Our expansion will follow where there is demand and we have fiber infrastructure to leverage, in cities that are easy and economical to work with,” the site notes. Potential customers in the region are then encouraged to fill out a form to show they are interested. That will pit Wave against area providers such as Comcast and CenturyLink.

According to the paper, CondoInternet, acquired last year by Wave, currently services about 20,000 residents, with 75% already having access to gigabit speeds. CenturyLink also plans to launch 1-Gig service to “tens of thousands” of homes in Seattle next year, the telco told the paper. In August, CenturyLink announced it would bring 1-Gig services to “select locations” in 13 cities, expanding on initial gigabit deployments underway in Omaha, Salt Lake City and Las Vegas.

Comcast has not announced a residential 1-Gig broadband service, but does offer a 505 Mbps (downstream) service in some markets using its fiber-based Metro Ethernet platform. Comcast recently filed a trademark application for “True Gig.”

High-speed data customers will surpass video customers for cable companies by next year, according to debt rating agency Moody’s Investor’s Service, as cable operators concentrate more on selling higher-margin data services.

Already cable HSD and video customers are about even: Moody’s estimates that they both reached about 50 million subscribers in the first quarter of this year. As more and more customers consider broadband service an must-have product – a Pew Research Center study showed that 53% of adults said it would be “very hard or impossible” to give up their broadband service while just 35% said the same for TV – Moody’s predicts that cable operators will make it easier to unbundle broadband offerings.

Broadband has become an anchor product for most households and we believe a primary purchase decision for anyone moving into a new residence,” Moody’s wrote in a report by lead author and Moody’s vice president and senior analyst Karen Berckmann.

Cable operators have been aggressive on the broadband front, with many increasing speeds for free. That product leverage cold help cable operators charge more for standalone broadband service, which in turn could help make up for lost video revenue.

“Video is the lowest-margin product, so, all else being equal, fewer video subscribers mean higher margins,” Moody’s wrote.

That cushion could also help cable operators in their battle against rising programming fees.

Cable operators have long complained that rising video programming costs are hampering their ability to compete. Moody’s estimates that as those costs continue to climb, the case for emphasizing broadband service over video service becomes more appealing.

Some small cable operators are already doing just that. Moody’s pointed to Wave Broadband, a Seattle-based small operator that has about 24% video penetration, compared to about 40% for the rest of the industry.

While Wave is likely losing economies of scale because of its low video penetration rate, its overall cash flow margins are in line with the rest of the industry at about 40%, making the added focus on high-speed data “a reasonable trade-off,” Moody’s said.