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Comcast Seals Up Cimco

Jeff Baumgartner
3/17/2010

Comcast Corp. (Nasdaq: CMCSA, CMCSK) has completed its acquisition of Cimco Communications Inc. , a Chicago-based CLEC, after obtaining conditional approval by the Federal Communications Commission (FCC) .

The deal, first confirmed by Comcast last October, allows the MSO to move into the mid-level market for business services, particularly in the Chicago-land area. Comcast later expanded on that strategy by striking a deal to acquire Golden, Colo.-based New Global Telecom Inc. (See Comcast Snares a CLEC and Comcast to Acquire New Global Telecom .)

As that "conditional" element goes, the FCC cleared Comcast to take over all of Cimco's operations, save for the CLEC's few customers in the Detroit area. The reason is tied to some special rules that get applied to deals of this kind.

Federal rules prohibit a cable operator from acquiring more than a 10 percent financial interest, or any management interest, in any local exchange carrier providing telephone exchange service in the cable operator's franchise area. In its approval of the Cimco deal, the FCC waived that rule for all such territories except Detroit. The FCC said it will grant a similar waiver to Comcast for Cimco's Detroit-area Cimco operations if Comcast can get the local franchising authority (LFA) there to bless it separately.

That may not happen. The City of Detroit originally opposed Comcast's application for the waiver, arguing that Comcast's purchase of Cimco would harm telecom competition there. The FCC was not persuaded, noting that the city failed to provide any specific evidence to support its argument, but nevertheless decided to hold off granting the waiver without the LFA's approval.

It's still unknown how soon the Detroit LFA will OK the waiver, if it's to approve it at all. That scenario leaves the fate of Cimco's Detroit customers in a bit of limbo, unless they decide to move to another service provider on their own.

If that happens, it's not likely to put much of a dent in the value Comcast's getting from Cimco at the start. Most of Cimco's 2,300-plus business customers are in the Chicagoland area, with some spread out in more than 40 other states, including Indiana, Michigan, Ohio, and Wisconsin.

Comcast isn't providing an exact number of customers Cimco had in Detroit, but a spokeswoman said a "very small percentage" of Cimco customers is affected.

Comcast got into the commercial services business by targeting small businesses with one to 20 employees, believing that to be a $15 billion market opportunity. The MSO estimates that a move into the next tier -- businesses with 20 to 250 employees -- represents another $15 billion in potential growth prospects.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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