New Opportunities in Services and Territory for Louisiana RLEC

The sale of BV Investment Partners’ Vision Communications to Gonzales, Louisiana-based RLEC EATEL, announced in September 2011, wrapped up last week. EATEL, under president and vice chairman John D. Scanlan, looks to gain new customers, expanded service area, and a plethora of communications services from the deal. According to the BV Investment Partners press release on the deal closure, “Vision provides a comprehensive suite of residential and commercial services, including digital video, high-speed Internet, local and long distance telephone, alarm monitoring, and commercial data services.” Add this to EATEL’s extensive 100% FTTH network, FiberEdge, and EATEL appears well-poised for a competitive advantage in its new and existing Southern Louisiana service areas.

Vision and EATEL have long-standing histories in rural Louisiana, as both were founded to bring service to areas not seen as profitable by the Bell system. Vision (formerly SJI, LLC) was founded in 1945 and family-owned until 2007 when it was sold to BV Investment Partners; and EATEL, also family-owned, dates back to 1935 and “has earned a reputation as a communications pioneer.” Despite humble beginnings, both companies grew throughout the generations, continually innovated and added infrastructure—EATEL claims to have started one of the first 100% FTTH networks in the country, and both companies were early entrants in other advanced services.

When JSI Capital Advisors first reported this deal in September, we estimated a value of $11-12m. Since financial information about the deal has not been made public, our rough estimate was based on access lines. Our Phone Lines 2011 lists 10,156 access lines and 1,710 broadband lines for Vision and 28,854 access lines and 11,542 broadband lines for EATEL in 2010. The deal appears to add a nice-sized chunk of access lines to EATEL’s holdings, but JSI Capital Advisors also noted that Vision experienced an unusually high annual line loss of 9% (The Deal Advisor: EATEL to Acquire Vision Communications).

Given rampant line loss throughout the market, it is unlikely that any RLEC deal is going to be based solely on adding new telephone subscribers, so the purchase of Vision presumably is providing a strategic advantage for EATEL. It appears as though the deal will add new services and territory as well as potential opportunities for future growth for EATEL. The service areas, although not directly adjacent, are relatively comparable in size and both located in Southern Louisiana. Although rural, the respective service areas are also close to Baton Rouge (EATEL’s) and New Orleans (Vision’s). One can make the argument that an RLEC located in close proximity to an urban/suburban hub is fairly attractive in terms of opportunities for population growth and new business.

EATEL also appears to be experiencing a “just go for it” moment as Vision is not their only expansion project right now. EATEL’s website shares one of the company’s key objectives: “Grow the customer base and market area through planned expansion by market segment and by geography.” The Vision deal may help EATEL achieve the geography component, but EATEL is hoping to edge into the 4G wireless market through a partnership with LightSquared.

Following in its footsteps of being one of the first 100% FTTH providers, EATEL was also the first RLEC to partner with LightSquared. According to LightSquared’s press release announcing the partnership on November 28, “This agreement will allow EATEL, an Incumbent Local Exchange Carrier, to provide its customers with a world-class broadband service that competes on price and quality with any wireless carrier in the nation.” EATEL ceo Arthur “Smokey” Scanlan commented that “LightSquared’s unique ability to offer both broadband and satellite connectivity over the same device will be a breakthrough product for our customers.” Of course, approval for LightSquared’s extensive 4G service is pending approval, but this has not stopped multiple carriers of all shapes and sizes from entering partnerships with the wholesale 4G/satellite provider whose mission is “to revolutionize the U.S. wireless industry.”

LightSquared uncertainty aside, EATEL appears to be determined to forge ahead in achieving its growth objectives in both service territory and market segments. Coming at the end of a year with only 6 ILEC deals, the EATEL-Vision deal may prove to be a sign of a turn-around in this market as companies begin to have some closure regarding regulatory issues and realize that it will take more than simply keeping the lights on to be attractive to potential buyers.