In response to my post on the merits of a TWTC buyout of XO, reader BBS astutely commented:
“They have the integration expertise” this is a very subjective assumption. Xspedius may have gone well, but that, as they say is no indicator of future results. XO has integration experience too… remember Allegiance? How about LVLT’s integration experience, which by any measure historically has been abominably bad. Circuit Engineering, switch (hard or soft) and OSS platforms in the telecom industry are much harder to integrate than traditional operating systems such as CRM, HR, and others. As a MFSWorldCom vet, you can understand why I remain very skeptical of any claims of easy integration among telecoms/ fiber network providers.
Indeed it is a subjective assumption, and it is quite true that in this sector there are numerous examples of just how hard such integrations are to get right. One only has to mention Level 3 or, *shudder*, Sprint to show just how badly things can go wrong. But there are success stories too, and not just that of TW Telecom with Xspedius:
- Cogent managed to turn itself and some 7 completely dysfunctional assets into a real threat.
- Zayo has brought a dozen together, transforming otherwise forgotten assets into a rising power.
- Global Crossing did very well with Fibernet and Impsat, and this has a lot to do with the company’s resurgence.
There are others of course – positive, negative, and neutral.
What do you think? Before I start to ramble, here’s a quick poll:
[poll id=”19″]
As with anything in life, there are both pessimistic and optimistic ways to see the landscape ahead in life and make the choices we have to make. So, it is true that my view of TWTC’s integration expertise is subjective if only because as an engineer I tend toward the optimistic end of the spectrum. I believe that things *can* be done. Yes, integration of circuits and OSS in telecom is a difficult task, much more difficult than anyone thought 5-10 years ago. Yet I believe that taking on and defeating challenges is how we set ourselves apart from the pack. Engineering is about what we can do, not what we can’t – so I can’t help but think about M&A in telecom from the same viewpoint.
Think about when all this fiber got put in the ground in the late 90s – it was a time of boundless optimism. It turned out that the sector didn’t really understand the economics, they didn’t know how to make money with fiber – and they were rightly punished for it. But that didn’t mean that a viable business model was out of reach for humanity forever, as a sector we have learned how to do it right – where the value lies and what the risks are. That is why telecom is in generally decent shape right now while the financial sector is not. What was once so difficult that hundreds of companies failed outright is now doable. The same can be true for the integration of telecoms, and those who demonstrate that expertise should use it and continue to develop it.
Optimism, timing, and the potential reward are why I think such a TW Telecom (NASDAQ:TWTC, news, filings) play for XO Holdings (news, filings) would be a good idea. They have an opportunity right now to lead, to step out of the shadows and show what they can do. Of course, they may (and probably do) have a much different, more informed viewpoint regarding the risk/reward. After all, I’m just a blogger and telecom pundit, and I have far less access to the relevant details themselves than someone who has to actually make the decisions.
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Integration is primarily about trust and culture — if a Bully takes over, they will lose value … lots of deals are driven by ego – once the “deal” is done, making it work and growing organically is not for those of wishful thinking … it’s hard work.
The people who make “deals” should be required to sit through integration and lead it before running out and making another deal. To often “deals” are thrown over the wall for some poor SOB to deal with who more than likely had zero if any input into the “deal” but are on the hook for someone elses “work of art”…
It’s the quality of the company after the deal which is important, not the numbing numbers and assumptions anyone can forecast in pursuit of the deal.
Unfortunately, in a down economy, a lot of bad deals and poor integration will get covered up by the “economy” excuse.
Shareholders beware!
If positive integration and growth occur during a down economy, imagine what it will be like in an up economy!
Shareholders, look behind the excuses and the deal forcasted numbers – I call it, after the deal due diligence! Check every 60-days.
Well, there aren’t all that many big integrations going on right now, so perhaps not too much to cover up!
Sometimes it really is cheaper to buy than build, but you are right that cheaper does not mean easier. But that doesn’t mean we shouldn’t try, right!?