RealTime IT News

Qwest Cuts Ethernet Deal

Qwest Communications said Monday it will buy privately owned OnFiber in a $107 million deal that could help the Denver-based telecom company compete nationally with the giants.

OnFiber, based in Austin, Texas, offers government and large business customers access and transport services, including Ethernet, SONET and Wavelength in 23 metro areas.

Qwest anticipates run-rate synergies of about $25 million annually, especially in the elimination of overlapping facilities and the reduction of network access costs, Qwest said in a statement.

"The issue is [Qwest's] local access area isn't as large as their competitor," Erin Dunne, analyst with Vertical Systems Group, told internetnews.com.

AT&T leads with 19.9 percent of the Ethernet market. By combining forces with OnFiber, Qwest's 6 percent jumps to 11.2 percent, according to Dunne.

"This union gives businesses choice in national providers," said Tom Richards, Qwest's executive vice president of the business markets group, in a statement. "For Qwest, this expands our penetration in key markets throughout the country while reducing last-mile costs."

Reflecting what is expected to be a 30 percent growth in demand for Ethernet in metro areas, OnFiber will grow more than 20 percent this year, posting $60 million in revenue, according to a statement.

Qwest's network carries nearly 4 million voice-over-IP minutes per month, according to the company. IP traffic is the primary use for Ethernet networks, according to Vertical's Dunne.

Richards called Ethernet a "high growth product" for Qwest.

For Qwest, along with reducing costs by eliminating overlapping facilities, the 40,000-employee phone company also gains OnFiber's high-end Fortune 1000 and media customers. In January, OnFiber agreed to build a high-speed fiber network for NBC Universal.

Until the acquisition's closing, expected in the third quarter, Qwest has the option of substituting up to $35 million in stock for cash.