1/6/98 Wall St. J. (Page Number Unavailable Online)
1998 WL-WSJ 3477791
The Wall Street Journal
Copyright (c) 1998, Dow Jones & Company, Inc.
Tuesday, January 6, 1998
Technology & Health
Williams Re-Enters Wholesale Market For Long-Distance With U S West Pact
By Terzah Ewing and Stephanie N. Mehta
Staff Reporters of The Wall Street Journal
Williams Cos. re-entered the wholesale long-distance market with a bang, saying it reached a five-year agreement to provide long-distance transmission and other services to U S West Communications Group Inc., as well as additional agreements that will expand its network and its customer base.
Williams, a Tulsa, Okla., natural-gas pipeline company, rolled out its new telecommunications strategy on the day before a non-compete agreement with
WorldCom Inc. expires. Williams built a national network of fiber-optic cable and sold most of it to WorldCom for $2.5 billion three years ago. Williams made that deal somewhat reluctantly, having turned down an earlier $2 billion offer from WorldCom after insisting the unit wasn't for sale. Williams executives say they never intended to exit the business entirely.
Since the sale, Williams, which retained the rights to one strand of fiber in WorldCom's network, has been rebuilding its communications business, centering it on television feeds, Internet services and internal phone networks. Meanwhile, the company has been adding to its own network, and by late 1999, it expects that network to cover more than 25,000 miles and 120 cities.
The new agreements "lay the groundwork for them to be a major player" in communications, said Paul Elliot, whose Elco Energy Fund owns 50,000 Williams shares. Williams executives have said they are comfortable saying the telecommunications business will add $200 million to Williams's bottom line by 2001. In 1996, the company earned $362.2 million, or $2.17 a share, on revenue of $3.53 billion.
In New York Stock Exchange composite trading, Williams shares rose 50 cents
to $29.1875 a share.
U S West Communications, Denver, a unit of U S West Inc., said its five-year, multimillion-dollar agreement with Williams will give it additional capacity for its burgeoning national data-networking business. Sol Trujillo, president of U S West Communications, called the relationship a "virtual acquisition," in which the Baby Bell gets access to the network's capacity "without having to spend hundreds of millions of dollars."
U S West currently offers data networking in its 14-state territory, plus an additional 22 markets nationwide. Like other carriers, it needs the fiber networks to enable its customers to, say, access an on-line database in another state, or send e-mail across the country. Carriers have begun forging agreements with fiber wholesalers in anticipation of a data explosion, fueled by growing use of the Internet and other on-line services.
U S West last week won a U.S. District Court decision that could enable it to offer long-distance services in its home territory. The Williams network, which stretches across the country, also could provide U S West with a platform for offering long-distance services.
Williams called U S West its "anchor tenant." Williams also announced a new 20-year agreement with Intermedia Communications Inc. of Tampa, Fla., valued at $260 million, and it expanded its relationship with Concentric Network Corp., a Cupertino, Calif., Internet service provider in which Williams owns a 12% stake. Williams said it expects the three agreements to add "meaningful revenue" later this year.
As part of the new thrust, Williams said it agreed to buy a 350-mile length of fiber-optic cable in Florida for an undisclosed price from a division of U S West Media Group, the other publicly traded U S West Inc. unit. In New York Stock Exchange composite trading, U S West Communications shares fell 75 cents to $45.375 while U S Media shares gained 75 cents to $29.125.
Separately, Williams also agreed to purchase $150 million in switching equipment from Ascend Communications Inc.
In its second go-round in long-distance services, Williams may face more competition from companies like IXC Communications Inc. and Qwest Communications International Inc. But Howard Janzen, chief executive officer of the Williams Communications unit, said he believes Williams's strategy of leasing all of its space to customers, rather than selling long-distance
itself, will set it apart.
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Adding Fiber
Some recently announced domestic network-construction projects
COMPANY MILES OF FIBER COMPLETION
Qwest 16,000 Late 1998
WorldCom 9,000 Feb. 1998
IXC Comm. 7,500 Late 1998
Williams 7,000 Late 1998
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