Qwest buys OnFiber

Qwest Communications is extending its out-of-region reach and revenue with the acquisition of metro Ethernet provider OnFiber Communications for $107 million.

The deal, announced this morning, would combine OnFiber’s all-optical network in 23 metropolitan areas with Qwest’s national IP network, bringing along about $60 million in revenue in the process.

The merger combines two companies currently ranked seventh and ninth in U.S. business Ethernet services, according to Vertical Systems Group.

“With this acquisition, Qwest starts creeping into that top five with the kind of names you want to be associated with--AT&T, Verizon and BellSouth,” said Erin Dunne, director of research services at Vertical Systems. “Qwest was the only historic RBOC that isn’t stacked at the top.”

Cogent, Time Warner Telecom and Yipes had ranked ahead of Qwest in the most recent Vertical Systems research, she said. OnFiber has an extensive footprint in the metro markets it serves and has targeted high-end customers, Dunne added.

“This will enable Qwest to offer end-to-end business services over their long-haul network because they will be dropping traffic off to their local network,” she said. “You can enable high-end services, which is where Qwest wants to be, and keep the traffic all on-net.”

Qwest expects to save about $25 million through the elimination of overlapping facilities and the reduction of network access costs. The company also expects the transaction will be accretive to EBITDA and free cash flow starting next year. Qwest has the option, up until the deal is closed, to substitute $35 million in Qwest stock for cash.

“This is a sound, complementary deal for Qwest, OnFiber and both companies' customers," said Tom Richards, Qwest executive vice president of business markets group, in a prepared statement. “This union gives businesses choice in national providers. OnFiber brings a unique approach to delivering and managing custom fiber networks that has proven to be efficient and cost-effective.”