Rural Carrier Makes IPO Hay

Well, it looks as if The Dukes of Hazzard isn't the only thing about rural America catching folk's attention these days.

Consolidated Communications Inc., one of the top 20 incumbent rural carriers in the U.S., raised $203.7 million in its initial public offering today as the carrier prepares to expand in rural markets and looks ahead to getting in the IPTV game (see Consolidated Prices IPO).

The company's 15.67 million shares were priced at $13 a share, below an earlier estimated range of $14 to $16 a share. In late afternoon trading on Friday, Consolidated's debut day, its shares were up $0.23 (1.77%) to $13.23.

Citigroup and Credit Suisse First Boston Corp. were the lead book-running managers of the offering. Banc of America Securities LLC, Deutsche Bank Securities, Lehman Brothers, and Wachovia Securities Inc. also acted as managers.

But what is Consolidated? Another one of Boss Hogg's moonshine companies?

Not really. It's an old-school carrier, operating primarily in Illinois and Texas, that's preparing for fewer government handouts and more advanced IP services.

The company was founded in 1894 as the Mattoon Telephone Company and was bought 103 years later by McLeodUSA Inc. (Nasdaq: MCLD). But in December 2002, Central Illinois Telephone, together with two investors, bought the core business and several related businesses from McLeodUSA for $284.8 million. On April 14, 2004, the combined carrier bought TXU Communications Ventures Company, a wholly owned subsidiary of TXU Corp., for $524.1 million.

Today the company is the 15th largest local phone company in the U.S., with about 253,071 local access lines and approximately 30,804 DSL lines, as of March 31.

Consolidated also has an IPTV product and video-on-demand service using middleware from Myrio Corp., headend equipment from Tut Systems Inc. (Nasdaq: TUTS), server hardware from Hewlett-Packard Co. (NYSE: HPQ), video software from Entone Technologies Inc., and Zhone Technologies Inc.'s (Nasdaq: ZHNE) MALC platform, which combines a DSLAM, digital loop carrier, and fiber access device in a single chassis (see Consolidated Picks Entone for VOD and Turin Lands Consolidated Deal).

For 2004, the company and its affiliates had a net loss of $3.6 million on revenues of about $323.5 million. Nearly 16 percent of its revenues for the year came from federal and state subsidies, and the company had $624.9 million of total long-term debt as of March 31, according to its SEC filings.

AT&T Corp.'s (NYSE: T) future could have a significant impact on Consolidated's business. The long-distance carrier bought local access lines from Consolidated, and now that SBC Communications Inc. (NYSE: SBC) is buying AT&T, Consolidated fears that purchase could "increase competitive pressures for our services and impact our long distance and access revenues," it says in its SEC filings.

But the company doesn't intend to stand still. It plans to acquire rural customers from the RBOCs and to buy other businesses -- including rural carriers -- that complement its phone and DSL business.

"We intend to pursue a disciplined process of selective acquisitions of access lines from Regional Bell Operating Companies and other rural local exchange carriers, as well as acquiring providers of businesses complementary to ours, such as dial-up and DSL Internet access services," the company states in its SEC filings.

The company notes that in Illinois and Texas, "there are approximately 90 rural local exchange carriers serving a fragmented market representing approximately 1.5 million total access lines."

— Phil Harvey, News Editor, Light Reading