Choice One, CTC merge

Consolidation within the CLEC industry continues unabated. Today, Choice One Communications and CTC Communications announced their intention to merge as equals into a CLEC with more than 100,000 customers and $550 million in annual revenues.

The combined company will primarily serve the Northeast, although Choice One also has Midwestern companies, and CTC has customers in the mid-Atlantic region. The merger is the second CLEC consolidation this week, following Integra’s announcement that it is acquiring Electric Lightwave to create a larger entity to serve the Western U.S. Other recent mergers include Level 3 Communications’ acquisition of Progress Telecom and EarthLink’s plan to buy New Edge Networks.

Prior to merging with Choice One, CTC had been on a buying binge of its own, acquiring Lightship Telecom and Connecticut Broadband in 2005.

“There has been an awful lot of conversation in the CLEC space about the need for consolidation," said Ray Allieri, president and CEO of CTC and president of the new company, as yet unnamed. "In Choice One, we found a like-minded partner. We felt the best way to move forward was a merger of equals – a 50-50 split. That puts us in the best financial structure on a going forward basis. It also puts us in a very strong position to consider future transactions because it leaves more options open. There are also two sets of shareholders who bring their own strengths to the table."

The two companies have some physical network overlap in the Northeastern region -- Pennsylvania and north -- and may rationalize some of those assets, but don't plan on major reductions elsewhere, such as in the combined sales force, Allieri said. Instead, the focus will be on organic growth to take advantage of increased scale and density within its region, and on possible further acquisitions, he said.

Both companies focus on delivering integrated voice and data services to business customers, but CTC has been more directed at larger companies and Choice One at smaller firms, Allieri said.

"We were both thinking of getting into the other one's market -- this will accelerate that process," he said. "There are high costs associated with building out Central Offices and colocation and it is easier to overcome those costs by having a braoder set of customers to whom you can sell services."

Current shareholders will each get a 50% stake of the new company. Kenneth D. Peterson, Jr., Chairman of CTC and CEO of Columbia Ventures, sole owner of CTC, will serve as chairman, and the board of directors will consist of an equal number of directors appointed by each firm. Thomas J. Casey, chairman and CEO of Choice One, will be CEO of the new company.