Overbuilder Grande Communications seeks strategic alternatives

Texas cable overbuilder Grande Communications announced today it was pursuing “strategic alternatives,” potentially selling its fiber network and triple-play business.

The news comes at a time when an increase in mergers and acquisitions, especially among smaller carriers, is expected throughout this year. It comes barely a month after SureWest Communications acquired Missouri overbuilder Everest Broadband and less than two months after Eagle Broadband put its own Texas fiber network up for sale.

Grande reported a net loss of more than $35 million on more than $147 million in revenue for the first three quarters of 2007. Its net loss was essentially flat from the previous year, and the revenue was up 3%.

In addition to bundled telecom services for residential and business customers, the company also offers network transport service on a wholesale basis. But its biggest source of revenue is bundled telecom services, which accounted for 78% of its operating revenue last year.

Its primary asset is its hybrid fiber/coax network, which covers parts of Austin, San Marcos, Corpus Christi, San Antonio, suburban Dallas, Midland, Odessa and Waco. At the end of last year’s third quarter, Grande’s fiber network passed 339,678 homes and businesses and served 43% of them, or 144,889 customers.

The eight-year-old company was initially funded at the height of the telecom bubble with $232 million in equity investment. By 2003 that figure was boosted to $338 million with the help of private stock placements, and a stock-based 2002 merger with ClearSource left the company with more than $509 million in invested equity.

It saw three CEOs in the past three years, most recently installing Sprint-Nextel veteran Roy Chestnutt in early 2006.

After its acquisitions of Thrifty Call and ClearSource, Grande acquired Advantex Communications as well as assets from TXU Communications and C3 Communications, two telecom subsidiaries of Texas utility firms.

As a result of those acquisitions, some integration work may be needed for any company interested in acquiring the carrier, said Sam Harlan, director of technology consulting for CHR Solutions. “I think they have a lot of segregated headends that really need to be consolidated.”

To keep up with the rapid evolution of today’s video services—including high-definition content, personal video recorders, video on demand and more, cable providers are pressured to invest in network upgrades, and small operators such as Grande have limited resources to make those investments, Harlan said.

One covenant on Grande’s debt, for example, limited its investment in network expansion by prohibiting it from keeping less than $20 million in cash. At the end of last year’s third quarter, Grande had nearly $59 million in cash and equivalents and $189 million in outstanding long-term debt.