CenturyTel’s Embarq Buy May Set Off Consolidation

[qi:062] Times are tough in the landline business, and when times get tough, the tough go shopping. After a few weeks of seeking a suitor, Embarq (s EQ), the landline unit spun off from Sprint in 2006, has enticed CenturyTel into paying $5.8 billion in stock and assuming $5.8 billion in debt for the nation’s fourth largest local exchange carrier.
CenturyTel (s CTL) is the seventh largest local exchange carrier (LEC) in the U.S., based on access lines in service (2.1 million ) and high-speed Internet connections deployed (more than 600,000). The combined Embarq-CenturyTel would operate in 33 states and have about 8 million telephone access lines, 2 million high-speed Internet customers and about 400,000 video subscribers.
As competition with cable companies and new wireless broadband products increases, smaller, rural telcos are seeking to buy scale in order to compete. In February, the nation’s fifth largest LEC, Windstream, purchased a tiny North Carolina carrier and had been a suspected suitor for Embarq. Given the erosion of their core business and the grim credit markets, it’s likely that buyers with strong stock or a little cash could pay less of a premium on assets that give them the ability to expand without building out their own infrastrucutre. TDS Telecom (s TDS) and Frontier Communications (s FTR) are probably eyeing their own balance sheets and opportunities.