March 25, 2019 – Kansas rural communications service provider Epic Touch Co., Inc. has entered into an agreement to purchase CP-TEL Holdings, Inc., the sole direct owner of Louisiana communications service providers Campti-Pleasant Hill Telephone Co., Inc. and CP-TEL Network Services, Inc. The purchase price has not been publicly disclosed.

The FCC’s Wireline Competition Bureau has released a Public Notice seeking comment on the parties’ joint transfer of control application.[1] Interested parties may file comments and petitions on or before April 5, 2019, and reply comments or oppositions to petitions on or before April 12, 2019.[2]

The following is a summary of the transaction, as well as some interesting take-aways.

Who Is Epic Touch?

Epic Touch is a family-owned business headquartered in Elkhart, Kansas, that has been providing communications service since October 1956. It provides broadband Internet access services in the town of Elkhart, Kansas, the small portion of rural Texas County, Oklahoma, and as of 2019, certain areas in the town of Liberal, Kansas.[3] It has built out fiber to 100% of the town of Elkhart.[4] The population of Elkhart, as of the 2010 census, is 2,205.

Epic Touch owns 93.28% of Elkhart Telephone Co., Inc., a rural incumbent local exchange carrier (ILEC) providing telephone service in Elkhart, Kansas and in rural Texas County, Oklahoma. Epic Touch also owns 100% of Epic Touch LLC. Currently, Epic Touch LLC does not provide any regulated telecommunications services, but does own wireless towers and leases space to others on those towers.

Who Are Campti-Pleasant Hill Telephone Co., Inc. & CP-TEL Network Services, Inc.?

Campti-Pleasant Hill is a Louisiana rural ILEC that began operations in 1933 as a land line telephone provider. It currently provides telephone services, Internet access services, and digital cable services to subscribers in portions of Natchitoches, Sabine, and Desoto Parishes in Louisiana. Campti-Pleasant Hill holds blanket domestic Section 214 authority.

CP-TEL Network Services, headquartered in Natchitoches, Louisiana, was created to provide competitive local, long distance, and international resold telephone service, broadband services, and digital cable services in Northwest Louisiana. CP-TEL Network Services is authorized pursuant to Section 214 of the Communications Act and Section 63.18 of the FCC’s rules to provide global or limited global resale services between the U.S. and all authorized international points.[5] It also holds blanket domestic Section 214 authority.

Campti-Pleasant Hill Is An A-CAM Support Recipient

Campti-Pleasant Hill is an Alternative Connect America Cost Model (A-CAM) support recipient. It is currently authorized to receive $ 1,477,927 in annual support to serve 2,200 total locations.[6]

Of those locations, 2,002 are fully funded, while 198 are “capped” locations. It has an obligation to offer 25/3 Mbps broadband service to 1,001 locations under its current A-CAM support amount. It has an obligation to offer 4/1 Mbps service to 49 locations, while 149 locations remain subject to the reasonable request standard.

In February 2019, the Wireline Competition Bureau released a Public Notice announcing revised offers of A-CAM support and revised deployment obligations for carriers already authorized to receive A-CAM funding.[7] New model support offers are based on support of up to $200 per location, per month. [8] A-CAM carriers have until March 27, 2019, to notify the FCC whether they accept their new offers.

Campti-Pleasant Hill’s revised A-CAM offer is $ 1,575,057 in annual support.[9] Of its 2,200 funded locations, 2,088 will be fully funded under the revised A-CAM offer, and 112 will be capped locations. If it accepts its revised A-CAM offer, it will have an obligation to offer 25/3 Mbps broadband service to 1,357 locations.

The Purchase Agreement & Joint Transfer Of Control Application

On February 25, 2019, Epic Touch entered into an agreement with CP-TEL Holdings, in which Epic Touch will purchase all of the issued and outstanding stock of CP-TEL Holdings. Upon consummation of the transaction, CP-TEL Holdings will be a wholly-owned direct subsidiary of Epic Touch. Therefore, completion of the transaction will make Campti-Pleasant Hill and CP-TEL Network Services wholly-owned indirect subsidiaries of Epic Touch through CP-TEL Holdings. The purchase price has not been publicly disclosed (and, of course, almost certainly never will be).

According to the parties’ joint application for consent to transfer control of domestic and international Section 214 authorizations, key personnel from CP-TEL Holdings will remain in a management position at the company post-transaction, and Campti-Pleasant Hill and CP-TEL Network Services will continue to serve their Louisiana customers in the same geographic service areas and under the same company names, rates, terms, and conditions as currently provided.[10]

Epic Touch and CP-TEL Holdings state the following to assert that a grant of the application will serve the public interest, convenience, and necessity:

The proposed transfer will serve the public interest by making the CP-TEL entities and Epic Touch financially stronger and better able to compete to provide service to current and prospective customers. The modern telecommunications industry is highly competitive, and customer demand for cutting edge services continues to grow. As a unified organization, Epic Touch and CP-TEL will be able to share their management, financial, and technical expertise and resources, giving both Epic Touch and the CP-TEL entities access to new competitive opportunities and more robust financing opportunities. Moreover, because Epic Touch and its affiliates do not currently compete with or provide service in any of the territories served by the CP-TEL entities the proposed transaction will not reduce competition.[11]

According to the joint application, the proposed transaction will be completely transparent to Campti-Pleasant Hill and CP-TEL Network Services customers. Both companies will retain their current authorizations and day-to-day operations. The parties assert that both companies will continue to be operated by highly experienced, well-qualified management and technical personnel, and customers will not experience any discontinuance, reduction, loss, or impairment of service.

What Does This Mean For Rural ILEC Mergers & Acquisitions?

So what, if anything, can be gleaned from this transaction? Well a few things. First, it can be argued that the creation of the A-CAM has helped facilitate mergers and acquisitions of rate-of-return local exchange carriers. How so? The fixed universal service support amounts that carriers will receive during the A-CAM’s 10 year timeframe has made it easier to value A-CAM rate-of-return companies. Support from the universal service fund (USF) makes up a large part of each rural carrier’s bottom line. Because of the ever-changing USF cuts and caps in place prior to the implementation of the A-CAM (and the FCC’s recent rate-of-return reform orders), rate-of-return LECs faced significant financial uncertainty year-over-year – some saw their USF support amounts fluctuate every quarter. This made it really hard to put a price tag on a rural LEC if you wanted to buy one. How can you calculate EBITDA with unpredictable, shape-shifting data? The certainty of the A-CAM has addressed that problem for those carriers that elected to move to cost model regulation. Of course, there are only a couple hundred A-CAM carriers out of somewhere around 900-1,000 total rate-of-return carriers. But, to prove this point, there was another sale of an A-CAM carrier about nine months ago – private equity firm Grain Management purchased Nebraska A-CAM carrier Great Plains Communications.

There are a few other interesting take-aways from this transaction, but I’ll offer just one more. Usually when one rural ILEC buys another rural ILEC, the entities are adjacent to one another. As in, parts of their service areas have a common border. Often, they are in the same state or the distance between the two is not great. With this transaction, however, Epic Touch’s headquarters in Elkhart, Kansas are 750 miles away from Natchitoches, Louisiana. That makes it hard to share physical resources. But, economic efficiencies can still be realized. Moreover, as was said in the transfer of control application, the entities will be able to share their management, financial, and technical expertise and resources. The deal is expected to close sometime in the second quarter of 2019.

***** Footnotes *****

[1] Domestic Section 214 Application Filed For The Transfer Of Control Of Campti-Pleasant Hill Telephone Co., Inc. And CP-Tel Network Services, Inc. To Epic Touch Co., Inc.; Non-Streamlined Pleading Cycle Established, WC Docket No. 19-51, Public Notice, DA 19-208 (Mar. 22, 2019).

[2] To allow the FCC to consider fully all substantive issues regarding the application in as timely and efficient a manner as possible, petitioners and commenters should raise all issues in their initial filings. New issues may not be raised in responses or replies. See 47 C.F.R. § 1.45(c). A party or interested person seeking to raise a new issue after the pleading cycle has closed must show good cause why it was not possible for it to have raised the issue previously. Submissions after the pleading cycle has closed that seek to raise new issues based on new facts or newly discovered facts should be filed within 15 days after such facts are discovered. Absent such a showing of good cause, any issues not timely raised may be disregarded by the FCC.

[3] See Letter From Tony S. Lee, Fletcher, Heald & Hildreth, PLC, Counsel for Epic Touch Co., Inc., To Marlene H. Dortch, Secretary, FCC, WC Docket No. 19-51 (Mar. 19, 2019).

[4] See EPICTOUCH to Acquire CP-TEL, Natchitoches Parish Journal (Mar. 7, 2019), available at https://natchitochesparishjournal.com/2019/03/07/epictouch-to-acquire-cp-tel/.

[5] See File No. ITC-214-20001222-00758.

[6] See A-CAM Report 14, available at https://docs.fcc.gov/public/attachments/DOC-356316A1.xlsx. Campti-Pleasant Hill is listed as CP-TEL Holdings, Inc. on Report 14 because A-CAM support is shown at the holding company level.

[7] Wireline Competition Bureau Announces Offers Of Revised A-CAM Support Amounts And Deployment Obligations To Authorized A-Cam Companies To Expand Rural Broadband, WC Docket No. 10-90, Public Notice, DA 19-115 (Feb. 25, 2019).

[8] Connect America Fund, WC Docket No. 10-90; ETC Annual Reports and Certifications, WC Docket No. 14-58; Establishing Just and Reasonable Rates for Local Exchange Carriers, WC Docket No. 07-135; Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92, Report And Order, Further Notice Of Proposed Rulemaking, And Order On Reconsideration, FCC 18-176 (rel. Dec. 13, 2018).

[9] See A-CAM Report 14.

[10] CP-Tel Holdings, Inc. (Transferor), Campti-Pleasant Hill Telephone Co., Inc. and CP-TEL Network Services, Inc. (Licensees), Epic Touch Co., Inc. (Transferee), Application For Consent To The Transfer Of Control Of Domestic And International Section 214 Authorizations, WC Docket No. 19-51 (Mar. 5, 2019) (Transfer of Control Application).

[11] See Transfer of Control Application, Section 63.04(a)(12) statement showing how grant of the application will serve the public interest convenience and necessity, including any additional information that may be necessary to show the effect of the proposed transaction on competition in domestic markets.