Some people believe that programs such as the high-cost Universal Service fund, the broadband stimulus program and Rural Utilities Service grant and loan programs have insulated small telcos from market realities that have driven consolidation in the broader telecom market—and proponents of this belief argue that small telcos could find themselves facing some harsh realities in the future, depending what reforms are made to some of these programs.

One small telco that isn’t waiting around to find out if such predictions will come true is Oregon-based Molalla Communications Cooperative (MCC). Recently the company approached Colton Telephone & Cable TV, a neighboring telecom cooperative, about the possibility of combining operations to create a joint venture focused on a broadband-centric future.

“We believe with the changes that are coming with the FCC and the continued decline of landline [voice] that broadband is the future,” said Christine Cline, community and workforce relations manager for Molalla Communications, in an interview with Telecompetitor.

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But Colton Telephone’s board of directors was not interested in the idea. “Their specific words were that they wanted to ‘weather the storm,’” Cline said. She added, however, that, “We do not believe the storm is ever going to end. National trends show that a review of services needs to continue to be done to remain viable.”

Undaunted, in what could be characterized as a cooperative ‘hostile takeover’ strategy, MCC is now taking its ideas directly to Colton Telephone cooperative members. MCC has invited Colton members to attend MCC’s annual meeting on July 30. The goal, Cline said, is to see how many Colton members attend and express interest in MCC’s ideas. If sufficient interest exists, next steps could result in Colton members taking a proposal to their board, encouraging or maybe pushing them towards some form of business transaction with Molalla.

MCC is open to various options moving forward, Cline said—including some form of combining operations that would eliminate duplicate services, instead focusing on the services offered by whichever of the two companies has the best offering. In at least one area, MCC already has what appears to be a superior offering.

In a letter inviting Colton members to the MCC annual meeting, MCC notes that it offers “a minimum of 6 Mb/s and up to 20 Mb/s for only $41.95per month compared with Colton Telephone’s 1.5 Mb/s priced at $44.95.” MCC also has plans to bring fiber-to-the –premises to 75% of its exchange and is considering adding services such as mobile communications and video. MCC has about 4700 members and Colton Telephone has between 800 and 1200 members, Cline said.

In addition, Cline said, “We have been successful with economies of scale and managing finances to keep overhead costs low.” The concept of small telcos coming together to share resources is nothing new, although it may be gaining some momentum. Synergy Technology Partners of Tennessee is a joint venture between West Kentucky Telephone Cooperative and Ben Lomand Telephone Cooperative, formed to acquire and/or manage multiple rural phone companies including Ardmore Telephone of Tennessee and Alabama. There are other joint management arrangements between rural telcos as well.

The changing market environment is causing small telcos to evaluate all options, and consolidation, through traditional mergers, or otherwise as in the case of Molalla – Colton, looks to be increasingly on the table.

 

 

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17 thoughts on “Consolidation Pressure Leading to Co-op Hostile Takeover?

  1. This is not in itself a bad development. There would be great benefits to people in small and medium-sized towns if their local operators were part of a larger company or merged in some way.

    Considering the vast majority of what the major cellphone providers call their "coverage area" is actually provided by roaming on local or regional providers' systems, those local systems would have much more clout than they do now, and pose a much greater competitive threat to the majors should they begin to merge in some way.

    Operating as individuals they already have a geat amount of clout, as most do not allow the major providers to roam on their systems at full 3G or 4G capability, only letting them use voice and texting functions while roaming on their systems, even though the small carrier's customers get to roam on the majors will full function.

    The FCC allows this ridiculous inequity in an effort to protect the smaller carriers, I have to assume. Why should someone buy a 4G phone from Acme Cellular when they can buy from Verizon and use it everywhere at its full capabilities, causing Acme to lose business. Acme made the investment in building a system in the small town, Verizon did not. Both company's customers would like to roam on each others systems, but right now this is not possible.

    1. In response to your first paragraph, just because a company is larger does not necessary mean it will bring great benefits to the communities served. Larger does not mean better customer service, greater access to technology or even lower prices.

      1. No, but being a customer of a larger company means your cellphone will work in a FAR larger area, I would imagine. If your provider, ACME Cellular, only covered your one town and you could not use your phone anywhere else in the country, or in Europe or anywhere else in the world, then being a Verizon customer would be a far better situation unless you never travel outside your town limits.

        This is where roaming agreements come into play, and right now, they are a mishmash of incompatibilities and hobbled functionality.

        I am an AT&T customer, but live in an area where AT&T's signal is extremely marginal, 1 bar or 5 bars, depending on atmospheric conditions, mostly 1 or No Service. This area is serviced by two GSM cariers, T-Mobile and CellularOne, but my AT&T phone cannot roam on either of them, so I'm stuck unless AT&T builds its own towers to cover the area, something they have indicated no interest in doing.

        I could switch to Verizon. Verizon has no system of its own in this area of any kind, but there is a CDMA provider, Pioneer Cellular, whose entire system is 3G. Pioneer does not allow Verizon to roam on its 3G system, only providing voice and texting, no data. That's why when you look at Verizon's coverage maps, this area appears totally red, but when you switch to 3G coverage, half the state goes blank.

        My situation is just an example of the inequities that I think could be helped if small carriers like Pioneer and CellularOne could band together with other GSM or CDMA carriers.

  2. Hostile or not, consolidation will be a necessary right of passage if the rural telecom sector is to survive. The economics in a post TDM world will not support all of the individual OH of small telcos. Companies who are in close proximity of each other should start the conversations now.

  3. Just an observation, but it appears what we have here folks is a Board trying to protect it's turf and not worried about how their members could benefit from consolidation. The perks for Board members is what keeps many cooperative companies from progressing. Most cooperative By-Laws don't have term limits, age limits, etc. or educational standards for Board members. The end results can be seen in many Board members who are completely out of touch with the day-to-day pressures for correct critical decisions. The same goes for cooperative Executive Management whose inexperience and incorrect judgements are covered by "my way or highway" mentality.

    1. Mr. Johnson, You obviously don't know what you are talking about. Most cooperative board members serve in a non compensated capacity and do so only as a service to their community.

      1. "Non-compensated" as long as you exclude paid-for business trips to Las Vegas, Key West, Washington DC and Austin. As long as you exclude comped meals, gratis services, priority access and a host of other perks.

        1. Mike T.

          You also don't know what you are talking about. The only trips involved are for training seminars to keep up with the ever changing world we face in the industry.

          There is no gratis service or priority access and the only comped meals are in connection with said training.

          You really should run for election to a Telco cooperative board so you would know what you are talking about before you go on a public forum.

          1. I've been around enough coop boards to know you can't generalize. Some board members are very committed and take their role seriously. Others not as much. While others are clueless and quite happy about it. The perks range from company to company, region to region. Some are overly generous, others are pathetic.

            The point is, like in any community, there is a bell curve, with most in the middle, and extremes on both ends.

  4. As a Sales Manager I call on a lot of companies and I have already witnessed that consolidations are occurring for not only the large telcos but also the small telcos. Carriers are looking for any opportunities to bolster their revenue base including acquisitions. Personally and professionally, I recommend all carriers to be more prospective and consider all options to protect their revenues so they can negotiate the troubled telecom waters to a safe harbor. Darrell Merschak, National Sales Manager, Carrier Management Systems Inc. http://www.nams.net

    1. And so it would appear that there already has been cooperative efforts between the two and now the wolf is trying to eat the lamb?

  5. Another angle to this is that I'm sure the Board is also thinking about is their employees within the community. Many times in mergers like this, the technicians may be left in place to service the customers. However the office staff typically is not retained, which forces them to decide to whether or not to take another job within the community (usually comparable jobs are very hard to find or non existent), or to decide to move out of the area.

    The result is that a family is uprooted from the community, and another taxpayer and their wages leave the community. It's said that a dollar spent by an employee in a small community "turns over" 7x before it leaves the community. Let's also not forget that in smaller communities, the telco employee also volunteers on many boards including fire districts, city councils, and school boards.

    So it's also an economic development decision with many repercussions to consider. I work for a telco about the size of Colton, and I hope I am never "forced" to leave the community because of a merger.

  6. I'm sure that ALL employees would be out looking for new jobs and the physical plant for the telco and its cable tv franchise would be picked apart and sold to the highest bidder. All MCC wants is the customers and the connections to them. If Coltontel has any other assets, they too would be sold and the community would forever be the loser.

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