Merger mania marches on: Nextlink adds IP services through Concentric buy

Nextlink Communications and Concentric Network last week became two of the latest companies to join the telecom merger frenzy, uniting in an attempt to appeal to customers with a bundle of voice, data and Internet services.

Through the purchase of data competitive local exchange carrier (CLEC) Concentric, CLEC Nextlink will add Web and application hosting, virtual private networking (VPN) and e-commerce services to its local and long-distance capabilities. Concentric, which is in the midst of acquiring London-based data company Internet Technology Group, also will provide Nextlink with a European entry point.

"I think this merger is a perfect fit in terms of providing good fundamental fiber and switching infrastructure for a physical presence, combined with a virtual presence on the Internet and then a step in the right direction toward expanding our international opportunities," said Nextlink Chairman and CEO Dan Akerson.

Nextlink, which owns fixed wireless spectrum in the top 30 U.S. markets and is acquiring a 16,000-mile fiber network, will provide a network onto which Concentric can move its traffic.

"From our point of view, at the highest level, the ability to merge represents a significantly expanded market opportunity," said Concentric CEO Henry R. Nothhaft.

The company also gains a new last-mile connection to customers via Nextlink's broadband wireless technology. Until now, Concentric had been accessing DSL customers via agreements with a variety of local players.

DSL requires an extra telephone line and takes four to six weeks for installation, while wireless frequently can be provisioned within two to three days, he said.

"We view wireless as an increasingly important element in our arsenal in order to serve the needs of our customers," he added.

The likely determining factor for the merger, however, is the potential to introduce a package of products. "Bundled services are becoming an increasing requirement to serve the small and medium-sized business markets," Nothhaft said.

Nextlink, like most CLECs targeting small and medium-sized businesses, "really wants to be the one-stop telecom shop for those customers, bringing IP service in-house," said Peter Jarich, an analyst with The Strategis Group. A small business looking for e-commerce capabilities wants to turn to the same company that provides its local and long-distance, he said.

Value-added services, such as Web hosting and e-commerce, don't require a huge national network but demand expertise for which companies can charge, he added.

By adding Concentric's data-related services, Nextlink can produce "stickier relationships and higher margins with business customers," said Jonathan Atkin, a senior analyst with Ferris, Baker Watts.

The two companies count 150,000 customers in the small and medium-sized business markets. Nextlink's indication that it has its sites set on bigger fish, however, raised a red flag for analyst Lisa Pierce with Giga Information Group.

"Concentric isn't necessarily up there on the same level of proving IP services as UUNet, so they have a way to go still to prove they're a viable contender for business enterprise customers," she said.

Neither Nextlink nor Concentric currently offers frame relay or ATM - a void that likely will take a year or more to fill, Pierce added. For business customers who look at those technologies as a must-have, Nextlink and Concentric must quickly hire people with a great deal of expertise and create an organizational thrust to feel comfortable in those areas, she said.

"I've got the distinct feeling they want to swim upstream," she added. "When you consider everybody else who's swimming out there, the question is, `Is it too little too late?'"

Nextlink and Concentric will remain separate entities for now, giving Atkin the impression the companies will not integrate their back offices for at least 12 to 15 months. Concentric is expected to immediately take advantage of Nextlink's direct sales force.

Nothhaft will remain CEO of Concentric and take a seat as vice chairman on Nextlink's board.