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 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.
