What began as a search for more investors became a shift in strategy for competitive services provider MegaPath, which today announced it was selling its network services business to Global Capacity. (See Global Capacity Buys MegaPath's Network Assets.)
MegaPath Inc. Chairman and CEO Craig Young told Light Reading today that he originally sought investment dollars from Francis Najafi, founder and CEO of Pivotal Group, which owns Global Capacity . In the course of those discussions, Najafi suggested the sale of MegaPath's network assets, which it had built up through its own investments and its acquisition of local CLECs Speakeasy and Covad Communications. (See MegaPath Still on Growth Path.)
"So our discussions shifted from me trying to raise some extra money to Global Capacity becoming a good partner to take over the access businesses, and allow us to focus on our high-growth areas of cloud and managed services," Young says.
MegaPath has recently embarked on a more aggressive expansion of its value-added services via the cloud and managed service offerings (See UC Another Piece of New MegaPath Puzzle.)
The deal is the latest network consolidation in the competitive carrier space in the US, which continues to contract in terms of the number of operators. MegaPath becomes a services player instead, and Global Capacity gains greater scale for its network operations.
Global Capacity, which has its own network assets but also operates its One Marketplace automated clearinghouse for local access services, is gaining a substantial national footprint down to the central office level, with assets in 50 markets serving more than 14 million customers.
"This is a significant expansion for us," says Ben Edmonds, Global Capacity's chief revenue officer. To this point, Global Capacity's network has been more focused on aggregation at the point-of-presence level, building its facilities to places such as Equinix Inc. (Nasdaq: EQIX) carrier hotels, but this acquisition gives the company a level of aggregation at the central office, he notes.
"Global Capacity was winning and taking share in small markets and rural America markets, and now we are combining that with the advantage of what MegaPath has in the major markets," Edmonds says. "That level of competitiveness adds value to what we can offer our wholesale customers."
When the deal closes -- which the two companies expect to happen by year's end -- MegaPath will become Global Capacity's largest wholesale customer. Young says MegaPath's customers won't see impact from the shift, as their services will continue as delivered today. About 300 MegaPath network operations employees are expected to join Global Capacity as well, with some layoffs also likely through the natural process of eliminating duplicate jobs, Edmonds says.
— Carol Wilson, Editor-at-Large, Light Reading