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Open Season for Cable CLEC Deals

WASHINGTON — In another win for the National Cable & Telecommunications Association last week, the Federal Communications Commission backed a regulatory enforcement change that would allow cable operators to buy competitive local-exchange carriers.

The FCC said allowing such mergers would “likely speed the entry of cable operators into the market for telecommunications services provided to business customers [that could include the special access services competition the FCC is trying to promote elsewhere] and will foster increased facilities-based competition for these services.”

Dan Brenner, a cable attorney with the Washington, D.C., firm Hogan Lovells, said the decision was about cable getting a bigger footprint in the enterprise business space, which he called the “next frontier of cable telecom.”

Might a CLEC gold rush come next? “I don’t think you will see something tomorrow, but I think it opens the door to looking at transactions where before you had an extra hurdle,” Brenner said.

The NCTA’s support for allowing cable companies to acquire CLECs stemmed from Comcast’s attempt in 2010 deal to buy CIMCO, a Chicago-based carrier.

Comcast was able to complete the purchase, but faced opposition from a single local franchising authority, Detroit, that threatened to derail it.

The FCC actually denied NCTA’s petition for a declaratory ruling stating that FCC rules do not bar cable companies from buying CLECs.

The agency instead agreed it would “forbear” from enforcing that prohibition in the future. One reason it cited was that CLECs are not banned from buying cable operators, so allowing deals from the other direction “harmonizes” the rules. Another reason is that cable- CLEC mergers are usually with non-dominant carriers — not AT&T or Verizon Communications, for example — potentially serving many pro-competitive goals.

Transactions are still subject to the FCC’s standard review process, a hedge against potential harmful effects.


Notable mergers and acquisitions involving competitive local-exchange carriers in recent years.

Zayo Group of Louisville, Colo., acquired AboveNet Inc. for $2.2 billion in March 2012.

Windstream of Little Rock, Ark., acquired Fairport, N.Y.-based PAETEC for $2.3 billion in December 2011.

TelePacific Communications acquired Texas-based CLEC Tel West Network Services Corp. in October 2011 for an undisclosed price.

Jab Wireless, a wireless broadband service provider, acquired Essex Telcom, an Illinois-based CLEC, in September 2011 for an undisclosed price.

Comcast purchased CIMCO, a Chicago-based CLEC, and New Global Telcom, a VoIP provider to businesses, in 2010 for undisclosed prices.

Source: Multichannel News research