ST. PETERSBURG - In a bid to keep up with industry consolidation, Progress Telecom of St. Petersburg said Wednesday it will merge with Epik Communications of Orlando.
Both companies are in the wholesale "broadband" business. They own fiber-optic cable networks, which they lease to local and long-distance telephone companies, Internet service providers and cellular phone businesses.
Merging the two makes sense because their networks cover different geographic areas and the companies share few customers, Progress Telecom chief executive Ron Mudry said. Only four of each company's top 20 clients are shared.
"This is a business where scale and market reach are very important," said Mudry, a former GTE Corp. executive.
The merger marks a new stage in the rehabilitation of Progress Telecom, a 5-year-old subsidiary of utility Progress Energy Inc. of Raleigh, N.C.
Founded when Internet stocks were hugely popular and the potential demand for fiber-optic cable seemed endless, Progress Telecom built a network that spanned from Miami to New York and a staff of more than 300, most of them at its headquarters and network operations center in St. Petersburg.
"Nationally, Internet capacity demand is growing at a rate of 1,000 percent each year," the former Florida Progress Corp. wrote in 1998 in a news release about Progress Telecom. Florida Progress was later acquired by Progress Energy.
But when Internet stocks crumbled and the U.S. economy began to shrivel, demand for high-bandwidth networks dried up. Like many of its peers, Progress Telecom recalibrated the value of its assets, leading to a one-time charge on its income statement of more than $200-million in 2002.
Since then, the company has slowly rebuilt itself, recording three straight profitable quarters and settling on a total headcount of about 150, including 100 workers in St. Petersburg. If its merger with 75-person Epik goes through, the resulting company, Progress Telecom LLC, will become the second-largest wholesaler of broadband access in the southeastern United States, next to BellSouth Corp. Progress will own 55 percent of the company, and Epik parent Odyssey Telecorp of Palo Alto, Calif., the remainder.
"I think both parties were actively considering their strategic alternatives," Mudry said. "Everyone (in the industry) is talking to everybody, basically."
St. Petersburg will remain the headquarters for Progress Telecom. Not every employee at Progress and Epik will be guaranteed a job after the merger, however. Mudry said that while the owners have yet to determine the proper post-merger headcount, it will definitely be lower than the present combined total.
More acquisitions may be forthcoming, Mudry added. "We're certainly open to other strategic transactions that would help gain additional scale."
Odyssey Telecorp is privately held. Progress Energy's stock closed Wednesday at $43.15, up 14 cents per share.
