Paetec and McLeod reached an agreement over the weekend to merge. The combined company will create one of the largest CLECs in the country – one that can more competently compete with the likes of AT&T, Verizon, and XO. Paetec is buying McLeod for $557 million, including $65 million of McLeod debt. The combined company will have approximately 3.4 million access lines. Consolidation in the telecom sector continues. Carriers (and vendors) of all sizes are beefing up their scale in order to compete in the changing telecom landscape. We suspect these mergers to continue. The movement to an all Internet protocol (IP) world makes it much more difficult for carriers to operate as an “island.”
The TDM world allowed carriers to carve out their own footprint and operate as independently as they cared to. But the continuing migration to an all IP broadband network now makes such a strategy much more tenuous. IP opens all networks to competitors from far and near. Carriers will continue to look for ways to strengthen their position through strategic mergers, alliances, and coalitions.