MegaPath Closes its Three-way Merger with Covad and Speakeasy

Event Summary

September 1, 2010 -- MegaPath, Covad, and Speakeasy have completed their three-way merger under the MegaPath brand. The combined company serves more than 85,000 businesses via its Business Markets division and more than 4,500 wholesale customers via its Wholesale Markets division. The company has a local network presence in metros nationwide, a national IP network, and a portfolio of end-to-end managed voice, Internet/IP VPN data, and security services targeting businesses of all sizes. Financial terms of the privately held company's merger were not disclosed.

Quick Take

Analytical Summary

• Current Perspective: Positive on the closing of the MegaPath merger with Covad and Speakeasy, because the three companies have long worked closely with each other to provide their respective services. Conceptually, Covad's national infrastructure and wholesale base, MegaPath's managed services for SMEs, and Speakeasy's SMB-oriented portfolio and rigorous customer service all combine relatively easily. However, the combined company will also need to get employees working together, consolidate some customers, pool and groom overlapping channel partners, and possibly phase out some overlapping services.

• Vendor Importance: Very high to MegaPath, because the company managed to complete the three-way transaction (which started as a two-way merger with Covad) as planned (see “MegaPath and Covad Get Ready to Merge,” April 01, 2010). The merger seems to reprise a similar acquisition string in 2006, when MegaPath merged with Netifice and acquired DSL.net. With this latest transaction, MegaPath jumps to more than $500 million in annual revenue (divided about 70% commercial vs. 30% wholesale), making it a leading independent, facilities-based national network aggregator that outpaces industry peer, partner, and competitor New Edge Networks.

• Market Impact: Moderate on the voice and data business services markets, because MegaPath will be a retail competitor with many partner channels, a national reach across many major metro areas, and a strong suit in a range of business broadband and integrated voice/data services. MegaPath is potentially a stronger wholesale partner as well, offering a broader range of services. However, without bidding against Covad for contracts, the combined company could be in a better position to push back on wholesale rates for its range of facilities-based access services.

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