As 2007 was winding down, major players from different regions and previously distinct industries were taking aim at each other. Increasingly, competition is not two telcos squaring off; it’s a telco wrestling with a cable MSO, or an application developer seeking concessions from a wireless carrier. New technologies, expanded capacity, and extended coverage seem to come online every day, making the industry seem new with virtually every passing day.

The Changing Face of Competitive Players

Although 2007 was a bit quieter on the M&A front compared with recent years, there were still several moves that reflect the changing nature of the competitive landscape. As an industry, telecom benefited from rosier valuations and easier access to capital in the first half of 2007 than it had in recent years; how long these conditions last will dictate near-term activity.

The year began with AT&T closing its acquisition of BellSouth. To the chagrin of some competitive carriers, the deal gave AT&T control of the local incumbent facilities in four of the seven post-divesture Baby Bell territories. Even more important to its long-term strategies and profitability, the move consolidated control of Cingular—formerly a joint venture between SBC and BellSouth—under the AT&T logo. Wireless continues to drive profitability across telecom, and with new services like 3G data, mobile video, and location-aware social networking and gaming on the horizon, AT&T will have control of its own destiny.

In a sign of the growing importance of scale and network reach, competitive carriers did their part to keep pace. PAETEC closed its merger with US LEC in February, then in September announced that it would acquire McLeodUSA, extending the company’s footprint from coast-to-coast and adding dozens of new markets. In March, Integra Telecom announced its purchase of Eschelon, which upon its August close created a western-states super CLEC with combined revenues north of $700 million. RCN acquired NEON, the northeastern fiber network operator, strengthening the combined company’s fiber reach.

Telecom also saw its share of interest from private equity investors in 2007, further evidence that the financial world viewed telco assets as undervalued. In June, a private consortium that included two U.S. equity firms agreed to buy Bell Canada for $53 billion; the buyout is due to close in early 2008. Communications Infrastructure Investments (CII) made a series of network purchases throughout the year, including PPL Telcom, Memphis Networx, and Indiana Fiber Works, then organized the assets as Zayo Bandwidth,