TelePacific buys Mpower

The consolidation waves continue to ripple through the competitive telecom industry. TelePacific Communications announced today that it will acquire Mpower Communications for $204 million in a cash transition.

The move combines two companies with major West Coast operations – TelePacific serves business customers in California and Las Vegas, Nev., while Mpower provides business, residential and wholesale services in California, as well as in Las Vegas and in Chicago. According to the two companies, the combined operation will continue to provide retail, wholesale and residential services, including local and long-distance voice, private line and high-speed data, in the three current service areas.

It is only the latest in a series of mergers within competitive telecommunications providers, as companies seek the scale and market power to compete with mega-carriers and with larger competitive entities such as Level 3 Communications, which this week entered the metro market , and EarthLink, which last week launched its new business unit, built on New Edge Networks.

TelePacific will capitalize on Mpower’s metro fiber rings throughout California and in Las Vegas, and on its long-haul fiber backbone network, as well as the addition of its collocation facilities, to create a denser network, company officials said.

“We will be rolling over the very-expensive DS-3s that we have to lease from AT&T, Sprint and Verizon onto their fiber network,” said Dick Jalkut, president and CEO of TelePacific. “We will go from 35 colos [Central Office collocation sites] to more than 380 colos, and we will have access to UNE loop tariffs through those colos. That will enable us to expand our product line significantly.”

Prior to the acquisition, TelePacific has been a special access company, providing T-1-based service but it will now be able to market to smaller businesses as well.

“We go from $200 million in revenue to $400 million plus and from 400,000 access lines to 800,000 access lines,” said Jalkut, who will remain president and CEO of the combined company.

At the same time, the extensive network overlap in California and Nevada will enable TelePacific to save capex and eliminate duplicate facilities to reduce costs while growing the business.

Jalkut said TelePacific has no plans to terminate any current services, including Mpower’s residential service, which the company offers but does not market. The Chicago operations will also be retained, he said.

“It’s our understanding the Chicago operation is EBITDA positive, so we will hang on to it, as long as it’s profitable,” Jalkut said.

The transaction is being financed through a senior credit facility arranged by Credit Suisse and Bank of America. Mpower owners will receive $1.92 per share.