Cable Consolidation: Wave Broadband to Join RCN and Grande

Months after private equity firm TPG Capital closed on its $2.25bln acquisition of RCN and Grande, it’s adding West Coast overbuilder Wave Broadband in a deal valued at $2.36bln. News of the transaction was first reported by Reuters last week. The trifecta will create the 6th largest cable operator in the US, with the deal expected to close in the second half of 2017. With an investment portfolio that includes content companies like Spotify, Univision and CAA, it seems to signal a growing interest in the distribution space by the private equity firm. “I think TPG has seen for some time now that the owners of the network that delivers the best bandwidth to the end user is a lucrative business and a good business. I think they’ve had a strong desire to get into the infrastructure business for a while,” RCN and Grande CEO Jim Holanda told CFX. “RCN/Grande was the first foray, and now with Wave, I think it just reinforces their whole investment thesis of all things broadband and consumer is the right space to be in.”

A combined RCN, Grande and Wave will cover almost 2.7mln homes passed, with more than 925K customers and 1.7mln RGUs. And don’t forget the fiber… It will have 25K miles of plant with 17K of those fiber. Fiber has been a priority for Wave, having invested about $250mln on its commercial fiber network over the past couple years both through build out and acquisitions. It’s been Wave’s highest growth market, with the commercial fiber network growing at a whopping 20-30% a year. “We’ve been more aggressive building out our network here on the West Coast than RCN has in the past. But I think there’s a mutual interest to not only offer the best residential broadband products in both our markets, but to expand commercial products more in RCN/Grande markets,” said Wave founder/CEO Steve Weed, who will join the combined company’s board.

Wave has about 8K miles built so far, with plenty of room for growth, according to Weed. “It’s like broadband 20 years ago. We only have a fraction of the customers on it right now. It’s next-generation, carrier grade gig-Ethernet for businesses,” he said. “We’re single-digit penetration for the businesses near our plant, so that’s going to grow for a long time.”

Holanda definitely sees that potential for commercial services–particularly with the combined company having essentially a national footprint that encompasses both coasts as well as Chicago and Texas. And it’s something he has experience with, having taken Puerto Rico’s Choice Cable to a $10mln commercial services business today from none at all in about 7 years. The deal will give the combined company heavy fiber network in 8 of the top 12 markets (Seattle being No 12). Don’t look for this deal to result in programming cost savings like a Charter-Time Warner Cable deal that has seen Charter applying the TWC rate card (and in some instances being sued for doing so). RCN/Grande and Wave are both NCTC members and are expected to remain part of the co-op. “We source the majority of our larger deals through the NCTC, and I would imagine we’ll continue to do that,” Holanda said.

It’s important to note that all the companies have tie-ins with TiVo, and Wave also has a deal to provide Roku equipment to customers. “Both companies are embracing the combined new, video world. I think that gives us a leg up in terms of really giving customers choice and different value propositions,” Holanda said. “I think we’re just going to be able to give people a lot more options in the future by partnering with a lot of these players.” Meanwhile, Holanda expects Wave to keep its name, just like RCN and Grande have. The deal is expected to close in 4Q.

Private equity firm Oak Hill and investor GI Partners will sell their stakes to TPG in the deal, while Weed and other management will remain invested in the new entity.

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