Best Buy Admits Defeat, Gets Rid of Speakeasy

Best Buy agreed to merge its Speakeasy DSL business with Covad and Megapath today, creating a managed service local exchange carrier, and sounding the death knell for independent DSL providers. In return, Best Buy is getting a minority stake in the combined company, which to me is a euphemism for fire sale.

The consumer electronics retail giant (s BBY), with much fanfare, announced it was buying the independent DSL provider three years ago. It was going to use the Speakeasy brand and expand into the small- and medium-sized business category. Total cost of the deal: $97 million.

Fast-forward three years, to March 2010, and Covad and Megapath — both competitive local exchange carriers — said they would merge their operations and become a managed service local exchange carrier. Now, they’ve picked up Speakeasy, which has about 30,000 customers.

To me, this deal means that there is little or no room for independent DSL providers, especially as we move towards an ultraband future. Sure, there are exceptions like, but in general the capex requirements are getting too high to stay competitive with cable and fiber providers. In a press release announcing the transaction D. Craig Young, MegaPath CEO said:

“The combination of Covad, MegaPath and Speakeasy will create the next-generation CLEC – an MSLEC that can offer customers and partners a full suite of managed IP broadband services and access over a powerful national network…With the additional resources, mature channels and enhancements to the service portfolio, we expect the combined companies to extend their leadership position in the SMB, enterprise and wholesale markets.”

Craig Young, current CEO of MegaPath, will become executive chairman of the combined businesses; reporting to Craig will be Pat Bennett, who will continue as CEO of Covad Communications, and Bruce Chatterley, current CEO of Speakeasy, who will be president of the commercial unit in charge of all non-wholesale customer sales and the marketing division. Covad is owned by private equity firm Platinum Equity Partners.