Telco consolidation inches into its second decade

Maybe it seems like the wrong time to ask, as CenturyLink gets closer to acquiring Qwest Communications, , the company’s latest act of consolidation. Also, just this week we were reminded of another indie telco acquisition, FairPoint Communications’ buy of Verizon’s New England properties, a deal that went wrong but finally appears headed toward solid ground.

Along with those deals, there have been plenty of others, led by companies like Frontier Communications and Windstream Communications. There was even at least one last month, as TDS Telecom moved to buy TEAM for business market expansion. Still, consolidation has failed—or is really taking its own sweet time--to develop into an industry-wide transformative experience.

That’s a little surprising because the drivers for telco consolidation, such as the need to achieve greater scale to get more revenue channels and better vendor deals, as well as the need for bigger telcos like Verizon to get rid of landlines they don’t care much about, have not gone away.

With good reason, AT&T and Verizon Communications see the future in broadband, video and wireless services, and not in landline telephony. Maybe they have some kind of detailed plan for how to ease out of the landline markets with the least potential for successfully marketing these other services, but if that’s the case, it’s a well-kept secret. For a while, it looked like Verizon was aggressively selling off its rural properties, but it hasn’t done any deal since the Frontier sale was announced in 2009. Still, you would have to think big telcos would like to get out of this business as much as possible, and that smaller telcos would like to seek more leverage and opportunities by selling or merging.

Meanwhile, from the buyer perspective, it is certainly possible that CenturyLink, Windstream and Frontier in particular are taking a little break to integrate and operate what they have already consumed before pursuing other assets. However, an improving economy would seem to present healthier targets and an opportunity for some independent telcos to spend cash they have kept in reserve the last couple years.

When Verizon’s properties in Hawaii were acquired by the Carlyle Group in 2005, it appeared to be among the first of what would become a litany of deals that would transform the indie telco sector, bringing in new investors, allowing regional players to bulk up and elevating the largest of the small telcos to grow into super-regional giants close to the weight class of AT&T, Verizon and Qwest. But, the struggles faced by Hawaiian Telcom and more recently and more publicly by FairPoint may have changed everything—how indie telco deals should be priced, the amount of regulatory scrutiny the deals would get, how committed and involved any new owners needed to be, as well as changing perceptions about how much integration work would need to be done after deals closed.

For now, the things that could most be keeping telco consolidation from running rampant are fear and an extra dose of caution. That’s not necessarily bad. Maybe we (or was it just me?) were wrong to believe the wave would have swept in, changed everything and receded by now. Instead, telco consolidation is moving like the tortoise into its second decade. Perhaps it’s all for the best, as wiser companies will only make better deals in the future. But, when?