FiberNet acquires ConEd Communications

Network wholesaler FiberNet Telecom Group has agreed to acquire ConEd Communications for $37 million in cash, giving FiberNet a jump start into the enterprise business, the company announced today.

The acquisition could roughly double FiberNet’s revenue. FiberNet reported nearly $27 million in revenue in 2003, while ConEd, a subsidiary of electric utility Consolidated Edison, reported $19 million in revenue that year. Both companies have reported nearly $24 million for the first nine months of 2004.

The deal also significantly alters the makeup of FiberNet’s customer base, which has been virtually all service providers so far but will become, with ConEd, a mix of 63% carriers and 37% enterprises. FiberNet plans to extend ConEd’s enterprise business through a subsidiary called FiberNet Enterprise Services, to be helmed by Peter Rust, ConEd’s current president and chief executive officer. "We’ll try to extend their enterprise relationships beyond the New York marketplace where they currently do business," said Jon DeLuca, FiberNet's chief financial officer and senior vice president of finance, who will become president and CEO of the combined company.

With ConEd, FiberNet will have almost 80,000 miles of fiber in New York and Los Angeles and more than 300 network nodes. ConEd’s more than 150 on-net buildings will give the combined company 190 on-net buildings, including access to 150 commercial buildings and 22 carrier hotels.

DeLuca called the possible synergies to be realized from the combination "significant," though he declined to quantify them. He called the overlap between the two networks "minimal." Part of the cost synergies will no doubt come from reductions in personnel after the companies are combined; FiberNet has 75 people, and ConEd has 85. DeLuca said he wanted to retain customer contact personnel from both companies and that some cuts might come in back office personnel.

"The great advantage for us of acquiring ConEd Communications is we now gain access to their network infrastructure in the electric utility conduit system," DeLuca said. "That’s probably the single most important feature for us." FiberNet currently uses telecom industry conduits in New York (the Empire City Subway Conduit), while ConEd uses utility rights of way.

"Access to that [utility] conduit system is governed by the public service commission, so any carrier can apply," DeLuca added. "There are stringent financial requirements on carriers utilizing that system. ConEd has invested in excess of $200 million to build out their network, so it might be prohibitive for other carriers, from a financial point of view, to conduct such an extensive network in the conduit system."

ConEd is the latest of several utilities to pull out of the telecom business a few years after launching telecom subsidiaries leading up to the industry bubble of the late 1990s.

FiberNet is funding 100% of the cash deal with equity financing through an existing FiberNet investor.

Both companies’ boards of directors have approved the deal, which still requires regulatory approval. Pending that approval, DeLuca expects the acquisition to close within three to six months.