The Future of Cbeyond: Mergers, Sales and Cuts

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The Future of Cbeyond: Mergers, Sales and Cuts

Cbeyond, the telecommunications provider based in Atlanta, Georgia known for the development of the world’s first 100% voice over internet protocol (VoIP), has downsized by 100 jobs and speculation abounds as to whether or not the company will be sold.

Cbeyond provides broadband phone service, internet, email, and hosting to small businesses throughout the United States. In 2010 the company expanded its services to include cloud based products in Georgia and Kentucky, and merged the new acquisitions into a side company known as Cbeyond Cloud Services.

One potential buyer is Pleasanton, California based competitor MegaPath Corp. Similar to Cbeyond, MegaPath offers data, security, IT services, hosting, and voice services for businesses of all sizes. Also providing nationwide wholesale solutions to carriers and service providers.

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Neither company has commented on the possibility of a sale or merger, but Cbeyond spokeswoman Helga Ojinmah confirmed that layoffs did occur in approximately 7% of its workforce. With Cbeyond transitioning from network telecommunications to mainly cloud based services, the cuts were necessary to stay profitable.

The Atlanta Business Chronicle suspects that senior management is the next to be affected by the cuts, after the initial wave of 100 jobs. In the next month and a half, the company is expected to continue layoffs, and Ojinmah declined to comment on any additional cuts.

If MegaPath were to buy Cbeyond, the acquisition wouldn’t come without a price, as the westernmost company is approximately the same size as the Atlanta firm. MegaPath would have to cut costs to fund the merger, but it would list MegaPath on the stocks and possibly double the company revenue.

Before going public in 2005, Cbeyond grew to over $160 million since its launch in 1999, and was one of the few internet companies to outlast the dot com era.

The current cuts in employment aren’t the first in Cbeyond’s history. In the beginning of 2012, the company cut 200 jobs after altering their business strategy.  This past November, the company hinted at possible sale, as a special team was formed to evaluate strategic alternatives.

Large telecoms are cashing in on the VoIP market, and smaller companies are falling prey. While most of Cbeyond’s service is VoIP, the company’s stock fell 20% in 2013, with a net loss of 5.3 million in the third quarter. Cbeyond has invested in lucrative cloud services, but it accounts for only a small portion of its profit. With VoIP increasing in popularity, larger companies like Verizon and Comcast are monopolizing the industry and pulling business from smaller companies. Customers prefer to consolidate services with brands they already have business with.

When speculation of Cbeyond’s potential sale to MegaPath first became known, their stock rose 10 percent. Analysts are anxiously awaiting an official announcement, and investors are studying both companies closely.