May 1, 2006
Connect the dots | Maine's rural telephone companies seek new markets for growth
By Whit Richardson
Not content to remain solely a provider of basic telephone service to 26 rural communities in Penobscot County, Bangor-based Mid-Maine Communications has been eyeing bigger markets for several years. In the late 1990s, the company began offering statewide phone, data and Internet services, and now is looking for opportunities elsewhere in New England. So to help it move in that direction, Mid-Maine in April agreed to be purchased by Alabama-based Otelco Inc., a telecommunications company looking for a foothold in the New England rural telecom market.
The $37.8 million deal will give Mid-Maine a partner with similar roots in the rural telecom business, but with more resources to draw from as it pursues its own growth plans, says Mid-Maine CEO Nick Winchester. "Our strategy has been for a while to look at ways to become a regional provider of services," Winchester says. "The partnership with Otelco positions us well to do that."
The acquisition may not make national news like AT&T's $67 billion bid for Bell South earlier this year, but the deal continues a consolidation trend among the hundreds of small, independent telecommunications companies operating in the country, which still provide 40% of the basic phone service in the United States. These independents occupy a niche serving the rural areas of the country that large telecom companies such as Verizon do not serve.
But while in the past they essentially had monopolies within their local exchange areas, emerging technologies have spawned a host of nontraditional competitors in the form of cable, wireless and Internet companies, forcing independents to make tough decisions if they want to survive. "The competition is the local phone company versus the cable television company," says Jeff Kagan, an independent telecom industry analyst based in Marietta, Ga. "They're both going to be offering the same big bundle of services: telephone, television, Internet and wireless."
In this environment, several of the 22 independent telephone companies operating in Maine are growing to stay in the game, either offering more services or expanding their service footprint. Yet how they've chosen to pursue that growth varies. Some, like Mid-Maine, have sold to national companies focused on small, rural markets. Others, such as Lewiston-based Oxford Networks, Unity-based UniTel Inc. and Lincolnville Telephone Co., have chosen to stay independent and grow their businesses on their own.
Small gets bigger
While the Mid-Maine purchase is Otelco's first move into New England, other national telecom companies such as Charlotte, N.C.-based FairPoint Communications and TDS Telecom in Madison, Wis., have bought more than a dozen rural Maine companies in recent years, including the Cobbosseecontee Telephone & Telegraph Co. in West Gardiner, which was acquired by TDS in 2001. Adding the built-in customer base of a traditional local phone provider allows these national companies to be more cost-competitive when rolling out newer technologies, says Kagan, while giving the local company more resources to fund their own expansions.
Other Maine telephone companies, however, have found a different way to achieve the benefits of being part of a bigger company. Lincolnville Telephone Co., which was founded by a group of farmers in 1904, has both diversified its services ˆ it created a company that offers cable television in Lincolnville and Hope ˆ and acquired other companies to expand its footprint. In 1994, Shirley Manning, president and general manager of Lincolnville Telephone Co., took over Maine operations from GTE Corp., which was pulling out of the state at the time. She sold some of that business (including assets to the company that would become Mid-Maine Communications), but carved out territory adjacent to Lincolnville's calling area to create Tidewater Telecom in Nobleboro.
Tidewater Telecom now is under the umbrella of Lincolnville Telephone Co. along with Lincolnville Communications, the company's cable television provider, and Coastal Telco Services, its broadband Internet provider. The company became, "big enough so that we had more resources to draw from," Manning says, "but we were still small enough to make decisions quickly and to move quickly, because this business is getting more competitive everyday."
Even independent companies that aren't interested in mergers or acquisitions can't afford to stand still. In 1999, 106-year-old Oxford Telephone and Telegraph Co., which does business as Oxford Networks, recognized that competition would require it to expand beyond the Buckfield area. "It was just a matter of time before our 100% market share would be unsustainable," says CEO Rick Anstey.
So Oxford Networks adopted a strategy of expanding into new communities and building fiber-optic networks to offer data services. The company currently is in the middle of a $15 million, five-year project to blanket Lewiston and Auburn with a fiber-optic network that will carry digital cable television, local and long-distance phone service, and high-speed Internet access. Owning that infrastructure, rather than leasing lines from large carriers like Verizon, as other small companies do, is something Oxford hopes will give it a competitive advantage. "We want to eliminate any question about who the provider is," says Anstey.
Some small companies, such as 104-year-old UniTel Inc. in Unity, have yet to expand outside their local exchange areas. Instead, UniTel's strategy has been to become a full-service telecom provider for the 5,000 customers in its 13-community service area, striving to offer services such as DSL, paging and cellular service (by working with partners). Those additions were necessary, says UniTel president Laurie Osgood, because customers already have so much choice among telecom companies. "We are the provider of local service here, but [customers] do have options: They can choose any long-distance carrier, they also have the option of an Internet provider, and they could get [voice over Internet Protocol] through someone else."
Even though the strategy has been successful so far ˆ UniTel posts annual revenue of slightly over $5 million ˆ CEO Larry Sterrs says the company will have to emerge from its rural service area if it wants to stay viable in the future. And that need to keep growing is common among all of Maine's rural telecom companies, given the ever-changing nature of the business. A company that invested in dial-up Internet service years ago, for example, is seeing that revenue stream eroded by broadband connections. "It's pretty hard to stay even these days," Anstey says. "That's a challenge for those telephone companies that have not chosen to adopt a growth strategy."
The $37.8 million deal will give Mid-Maine a partner with similar roots in the rural telecom business, but with more resources to draw from as it pursues its own growth plans, says Mid-Maine CEO Nick Winchester. "Our strategy has been for a while to look at ways to become a regional provider of services," Winchester says. "The partnership with Otelco positions us well to do that."
The acquisition may not make national news like AT&T's $67 billion bid for Bell South earlier this year, but the deal continues a consolidation trend among the hundreds of small, independent telecommunications companies operating in the country, which still provide 40% of the basic phone service in the United States. These independents occupy a niche serving the rural areas of the country that large telecom companies such as Verizon do not serve.
But while in the past they essentially had monopolies within their local exchange areas, emerging technologies have spawned a host of nontraditional competitors in the form of cable, wireless and Internet companies, forcing independents to make tough decisions if they want to survive. "The competition is the local phone company versus the cable television company," says Jeff Kagan, an independent telecom industry analyst based in Marietta, Ga. "They're both going to be offering the same big bundle of services: telephone, television, Internet and wireless."
In this environment, several of the 22 independent telephone companies operating in Maine are growing to stay in the game, either offering more services or expanding their service footprint. Yet how they've chosen to pursue that growth varies. Some, like Mid-Maine, have sold to national companies focused on small, rural markets. Others, such as Lewiston-based Oxford Networks, Unity-based UniTel Inc. and Lincolnville Telephone Co., have chosen to stay independent and grow their businesses on their own.
Small gets bigger
While the Mid-Maine purchase is Otelco's first move into New England, other national telecom companies such as Charlotte, N.C.-based FairPoint Communications and TDS Telecom in Madison, Wis., have bought more than a dozen rural Maine companies in recent years, including the Cobbosseecontee Telephone & Telegraph Co. in West Gardiner, which was acquired by TDS in 2001. Adding the built-in customer base of a traditional local phone provider allows these national companies to be more cost-competitive when rolling out newer technologies, says Kagan, while giving the local company more resources to fund their own expansions.
Other Maine telephone companies, however, have found a different way to achieve the benefits of being part of a bigger company. Lincolnville Telephone Co., which was founded by a group of farmers in 1904, has both diversified its services ˆ it created a company that offers cable television in Lincolnville and Hope ˆ and acquired other companies to expand its footprint. In 1994, Shirley Manning, president and general manager of Lincolnville Telephone Co., took over Maine operations from GTE Corp., which was pulling out of the state at the time. She sold some of that business (including assets to the company that would become Mid-Maine Communications), but carved out territory adjacent to Lincolnville's calling area to create Tidewater Telecom in Nobleboro.
Tidewater Telecom now is under the umbrella of Lincolnville Telephone Co. along with Lincolnville Communications, the company's cable television provider, and Coastal Telco Services, its broadband Internet provider. The company became, "big enough so that we had more resources to draw from," Manning says, "but we were still small enough to make decisions quickly and to move quickly, because this business is getting more competitive everyday."
Even independent companies that aren't interested in mergers or acquisitions can't afford to stand still. In 1999, 106-year-old Oxford Telephone and Telegraph Co., which does business as Oxford Networks, recognized that competition would require it to expand beyond the Buckfield area. "It was just a matter of time before our 100% market share would be unsustainable," says CEO Rick Anstey.
So Oxford Networks adopted a strategy of expanding into new communities and building fiber-optic networks to offer data services. The company currently is in the middle of a $15 million, five-year project to blanket Lewiston and Auburn with a fiber-optic network that will carry digital cable television, local and long-distance phone service, and high-speed Internet access. Owning that infrastructure, rather than leasing lines from large carriers like Verizon, as other small companies do, is something Oxford hopes will give it a competitive advantage. "We want to eliminate any question about who the provider is," says Anstey.
Some small companies, such as 104-year-old UniTel Inc. in Unity, have yet to expand outside their local exchange areas. Instead, UniTel's strategy has been to become a full-service telecom provider for the 5,000 customers in its 13-community service area, striving to offer services such as DSL, paging and cellular service (by working with partners). Those additions were necessary, says UniTel president Laurie Osgood, because customers already have so much choice among telecom companies. "We are the provider of local service here, but [customers] do have options: They can choose any long-distance carrier, they also have the option of an Internet provider, and they could get [voice over Internet Protocol] through someone else."
Even though the strategy has been successful so far ˆ UniTel posts annual revenue of slightly over $5 million ˆ CEO Larry Sterrs says the company will have to emerge from its rural service area if it wants to stay viable in the future. And that need to keep growing is common among all of Maine's rural telecom companies, given the ever-changing nature of the business. A company that invested in dial-up Internet service years ago, for example, is seeing that revenue stream eroded by broadband connections. "It's pretty hard to stay even these days," Anstey says. "That's a challenge for those telephone companies that have not chosen to adopt a growth strategy."
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