Telecoms Will Be the Next Big Consolidation Market-And Building Owners Can Only Gain

NEW YORK CITY-Remember when real estate M&As were making industry news on a weekly basis? Expect the same activity to ramp up on the broadband side as competitors scramble for ways to raise cash, stay in the game and fuel expansions, industry observers tell GlobeSt.com. In fact, the shakeout–it could involve companies folding outright–might begin to hit within weeks, predicts one source we talked with. Whenever it happens, the real estate industry clearly stands to gain.

It’s happening for two basic reasons, reports one real estate exec who wishes to remain anonymous. “People are building businesses in different regions,” he says. “And they’ve discovered that it’s easier to buy an operation that already has that infrastructure in place. Second, the broadbands are running out of money, just like the dot-coms did, and they have to keep running back to the trough for more. If they merge, it’s easier to get that capital because they can argue economies of scale and greater firepower. Ultimately, it’ll be better for owners simply because so many broadbands are duplicating efforts, and I don’t think they’re all that efficient.” He sites Everest Broadband’s recent acquisition of Metrocom as the opening bell for the trend.

Daren Hornig, EVP of locally based OnSite Access, disagrees with his analysis. “The magnitude of the consolidations and bankruptcies will have a huge impact on real estate,” he says, pointing out that many owners are attracted to broadbands for the warrants they offer. “Those warrants may not have any value. The shakeout can also have a damaging effect on buildings, since owners are giving away access and precious riser space to companies that may not exist shortly.”

And yet, in another way, it might be good in that it will free up the market, Hornig adds. “There must be some 50 competitors out there,” he says. “The market can’t withstand that many companies. A lot of buildings have multiple on-site service providers, and that dilutes the financial revenue capabilities. The market can’t support that.”

Yet one source indicated OnSite itself may be having some money woes, charges company executives say they can not respond to in detail due to the firm’s current pre-IPO quiet period. Hornig, however, did offer this: “OnSite Access is very well funded. We have raised $136.8 million to date and continue to look at other financing opportunities. We are backed by FrontLine Capital Group, Microsoft and PSINet.”

Richard Karson, executive director of Insignia/ESG and head of new media for the firm, thinks it’s fine if the broadbands shrink in number, “as long as they leave us a little competition to leverage each other and keep prices in check,” he concludes. Stay tuned.