Consolidation in the CLEC Universe

• Florida Digital Buys Mpower
• DSL.net Buys Assets of Network Access Solutions
• CLEC Industry Report

by ISP-Planet Staff [January 15, 2003]

Although the surviving CLECs are strong enough to begin to buy out their weaker competitors, and business growth is good across the board, regulatory uncertainty casts a pall over otherwise optimistic business plans.

Florida Digital Buys Mpower
Orlando, Fla.-based Florida Digital Network (FDN) said last week it has signed a definitive agreement to acquire Mpower Communications Corp., the communications subsidiary of Pittsford, NY-based Mpower Holding Corporation (NASDAQ: MPWR).

FDN said it will hire as many as 100 employees, increasing FDN's work force to about 500. The company said that Mpower employees will be eligible for many of the positions, but that anyone with telecom industry experience can apply for the jobs through the company's website.

Prior to the announcement, FDN had grown to serve over 100,000 access lines. The acquisition of Mpower will add about 77,000 voice and Internet access lines. The purchase is subject to regulatory approval in the states of Florida and Georgia.

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DSL.net Buys Assets of Network Access Solutions
New Haven, Conn.-based DSL.net (NASDAQ:DSLN) said Monday that it has acquired the network access and subscribers of Herndon, Va.-based Network Access Solutions Corporation (OTCBB: NASC) (NAS).

DSL.net bid $14 million, including $9 million in cash and a $5 million note. The bid was recently approved by the bankruptcy court in Delaware following an auction of NAS' assets. In its last 10-Q quarterly SEC filing, DSL.net recorded $16.126 million in cash and cash equivalents.

The acquisitions include coverage of about 300 COs. David F. Struwas, chairman and CEO of DSL.net, said, "as a result of this transaction, we expect that both our monthly revenue and current subscriber lines will increase by approximately 50 percent. In addition, we have more than doubled our network points of presence and increased our ability to drive new sales onto our network."

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CLEC Industry Report
Chicago, Ill.-based New Paradigm Resources Group (NPRG) has released its CLEC Report 2003 TM. The report focuses on 66 voice providers that are facilities-based CLECs plus 18 other companies that are not CLECs but compete in the provision of local phone service.

The report says that in 2002, revenues in the companies tracked grew to $51.86 billion, up from $48.02 billion in 2001 (a 7.9 percent gain). Access lines in service rose in number to 27,360,018, up 16 percent, according to the report.

It also notes that many CLECs emerged from Chapter 11 bankruptcy protection during 2002, including ICG Communications, ITC^DeltaCom, McLeodUSA, and the above-mentioned Mpower Communications.

Lest they paint too rosey a picture, the report's authors warn that encouraging signs of growth and recovery are counterbalanced by regulatory uncertainty. "The CLECs are by no means out of the woods yet," said Craig Clausen, Senior Vice President for NPRG. "The UNE-P debate loomed large in 2002, and will define the CLEC environment during 2003. As the FCC moves toward restricting access to unbundled network elements, as is expected, UNE-P will become more tenuous, and those companies relying on it will have to modify their business models—or face the consequences."

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