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MegaPath Buys Out Competitor

Digital subscriber line reseller MegaPath Networks bought competitor Phoenix Networks in an asset buyout Thursday.

Officials would not release a specific dollar amount to the deal, but a spokesperson did confirm that MegaPath financed the acquisition with a stock purchase.

The two plan to merge operations and administrative functions over the next 60 days. Phoenix DSL business customers will be immediately and seamlessly transitioned to MegaPath, officials said, but its residential customers can expect to move service to another company as MegaPath searches for "strategic alternatives."

A visit to the Phoenix Network homepage shows it has already been pre-empted by its new boss.

Harry Taxin, MegaPath president and chief executive officer, said the acquisition creates a company greater than the sum of its parts.

"For the past six to eight weeks, we've been looking at the acquisition of Phoenix," Taxin said. "There's a lot of synergy between the two companies and we have a lot in common. By joining our two companies, we didn't create a larger footprint in the nation per se, but we did strengthen our position. Both of us have been working in the same geographic areas, but in some we'd have a stronger presence, while in others Phoenix had more. With Phoenix' help, we'll eventually be able to offer DSL in 97 percent of cities in America with a population over 50,000."

Former Phoenix president Dan Foster, who will join MegaPath as chief marketing and sales officer, said his former company's service offerings is a perfect match for his new company's customer support.

"The acquisition creates a company with broad strengths," Foster said. "Solid network operations, engineering, enterprise sales, ASP relationships and Web design from Phoenix Networks complement MegaPath's passion for customer care and laser-sharp focus on the small/medium business and telecommuter segments."

Growth through acquisition has been MegaPath's strategy since the beginning. It's much less expensive to buy into an established network, than to build one from scratch and compete on equal footing with other DSL providers. In August, the reseller bought out 1Terabit to expand its coverage to New York.

The savings are better spent on its infrastructure, where the company prides itself on its customer support and service offerings. In fact, with incumbent local exchange carriers like Verizon Communications and SBC Communications shaving the price for DSL service at nearly every turn, MegaPath feels it has a better chance to grab the customers it really wants: businesses.

"We like to believe there's two types of DSL customers," Taxin said. "One type is the home user, who will take advantage of the incumbent's price breaks.

"MegaPath is focusing its services on the second type of DSL customer, the businesses and small office/home office customers," Taxin continued. "There's always going to be a market for the inexpensive service, but businesses are more concerned with quality, guaranteed bandwidth, uptime, and will pay the extra money to ensure they get those services. We're in a great position to talk to them."