CenturyTel Scoops Up Madison River for $830 Million
CenturyTel said Mon. it agreed to acquire Madison River Communications in a deal valued at $830 million. Glen Post, CEO of CenturyTel, said on a conference call that regulatory issues, including uncertainty over USF and intercarrier compensation reform, figured in the company’s evaluation of the merger, but there’s little risk of Madison River’s revenue dropping because of rule changes. “Nothing major has changed in the regulatory arena,” Post said in response to an analyst’s question: “We still believe that we'll see progress in the next 18 months to eliminate some of the regulatory uncertainty.”
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Madison River only gets about $3.5 million yearly in high-cost USF support, so USF reform shouldn’t affect the value of the purchase, the company said. Nor are intercarrier compensation changes, putting downward pressure on access charges, likely to be a big consideration, because Madison receives only about 30% of its revenue from access charges and its intrastate rates are a relatively low 2 cents a minute, Post said. “There’s not a lot of downside here from changes in access [charges], intercarrier comp regulation,” Post said: “It really lowers the risk here from a regulatory standpoint.”
The deal, expected to close in early 2007, will increase CenturyTel’s rural access lines 176,000 or 8%. CenturyTel said the merger offers “attractive markets with good demographics and growth prospects” in Ala., Ga., Ill. and N.C. Madison River also has a 2,400-mile fiber network complementing CenturyTel’s network. Post said CenturyTel probably won’t have to make major investments in that network. Regulatory approvals are required from the FCC, DoJ and the 4 states.
CenturyTel still seeks to add assets, especially rural lines that may be spun off by the Bells, but no other deals are “pending or imminent,” Post said. The Madison River purchase won’t change CenturyTel corporate strategy, he said. “We believe that our policy of buying back stock… working to retain investment grade credit ratings, is the right strategy for now,” Post said.
Madison River probably was best known in recent years as a target of an FCC inquiry into VoIP port blocking. VoIP operators accused the company of blocking VoIP applications. Madison River agreed in March 2005 to pay $15,000 and no longer block ports “or otherwise prevent customers from using VoIP applications.”