IBD article. Switches Light Telecom Firm's Path
[Is Intermedia Communications an ASND CLEC customer for switches?]
Date: 4/15/98
Author: Reinhardt Krause
Can the regional Bell phone companies take a
lesson from a much smaller carrier on how to
build up data services?
Perhaps. Little Intermedia Communications
Inc. has plotted its own course in offering
data and Internet services to business
customers, analysts say.
The company's game plan paid off earlier this
year when one Baby Bell, US West
Communications Group, tapped it as a
partner. They'll share each other's advanced
data networks.
Instead of building costly fiber-optic
networks - the tactic chosen by many new
entrants in local phone markets -Intermedia
focuses on switching technology. Switches, a
key product in telephony and networking,
choose paths along communications lines,
opening and closing circuit connections as
needed to send and receive data.
''Anybody can bury fiber - all you need is a
shovel,'' said Intermedia CEO David Ruberg.
''Not everyone can design a network like us.''
Intermedia's switch-based network offers US
West a much higher value, Ruberg says.
''That's why US West picked us, not Sprint
Corp. or someone else,'' he said.
Tampa, Fla.-based Intermedia is an
alternative phone service provider, or
competitive local exchange carrier. CLECs
compete with the Baby Bells.
To lure business customers from the Bells,
many CLECs built speedy fiber-optic links.
Fiber-optic networks carry digital data as
rapid pulses of light. They send more data
many thousands of times faster than
conventional wiring.
The Internet has fueled demand for
high-capacity communications pipes. So
many CLECs, along with their fiber links,
have been acquired.
Jackson, Miss.-based WorldCom Inc.
snapped up MFS Communications and
Brooks Fiber Properties Inc. AT&T Corp. is
buying Teleport Communications Inc. of New
York in an $11.3 billion deal.
Because it uses switches to send data along
networks, Intermedia has much less fiber than
other CLECs.
''Only time will tell who has the best strategy,''
Ruberg said. ''All these things are for naught if
you don't own the customer. Having the
highway with no traffic doesn't create an
attractive return. We get the customer, and
then we build the highway when it makes
economic sense.''
Started in '87, Intermedia first sold
specialized services and private phone lines to
business customers in Florida. Its main rival is
Atlanta-based BellSouth Corp.
In the '90s, Intermedia began offering
companies a type of high-speed data
switching called frame relay.
At the same time, Intermedia expanded its
network and marketing throughout the
Eastern U.S.
Enter US West, based in Englewood, Colo.
The Baby Bell is assembling a national data
network. Intermedia will help US West serve
customers outside its 14-state region.
A corporation based in Seattle, for example,
may have 16 regional offices. If those offices
are located in Intermedia's service area,
Intermedia provides local switches, fixes any
problems and tracks customer billing.
For its fiber needs, Intermedia leases capacity
from companies that sell high-speed
communications links wholesale. In early
April, Intermedia signed a 20-year, $450
million deal to lease capacity from Williams
Communications Group, a unit of natural-gas
firm Williams Cos. of Tulsa, Okla.
Intermedia has a sound strategy, analysts say.
''The Bells are filing for regulatory permission
to do next-generation data networks.
Intermedia has that kind of network running
today,'' said James Henry, an analyst at Bear,
Stearns & Co. in New York.
Intermedia isn't missing the boat by not
investing heavily in its own fiber, says Richard
Tomlinson, an analyst at Connecticut
Research Inc., a market research firm in
Glastonbury, Conn.
''The end user doesn't really care how you
put the service together, as long as it works,''
he said. ''The second- and third-generation
CLECs are pursuing a strategy of owning the
key assets, the switches, not necessarily the
fiber.''
Still, like most CLECs, Intermedia has yet to
make money.
Its sales last year more than doubled from
'96, to $247.9 million from $103.4 million.
But its EBITDA loss - loss before interest,
taxes, depreciation and amortization - rose to
$49.8 million from $14.3 million. Companies
heavily in debt, and some others, use
EBITDA as a gauge of operating cash flow.
About 34% of Intermedia's sales last year
came from data services, up from 30% a year
earlier, says Tim Horan, an analyst at
BancAmerica Robertson Stephens Inc. in
New York.
''Intermedia is focused on controlling the
(network) intelligence and customizing their
services,'' he said.
The company also is on an acquisition spree.
Since '96, it's expanded its marketing reach
regionally by acquiring LDS Communications
Group of Monroe, La., and the Syracuse,
N.Y.-based telecom unit of EMI
Communications Corp.
In July, Intermedia bought Internet service
provider Digix Inc. of Washington. Digix
manages Web sites for about 700 companies.
Intermedia plans to buy Shared Technologies
Fairchild Inc., of Wethersfield, Conn., in a
deal worth $640 million. Shared installs
phone gear in office buildings.
What's behind Intermedia's deal making?
''We're after time-to-market - we buy
customer bases and we buy employees,''
Ruberg said. ''And we have a national
footprint, which we've acquired over the last
two years, on the data side.''
If it completes all these acquisitions by
midyear, Intermedia's pro-forma revenue will
almost triple to more than $675 million. That
would make Intermedia the largest
independent CLEC.
Other remaining CLECs include Cedar
Rapids, Iowa-based McLeodUSA Inc., ICG
Communications Inc. of Englewood, Colo.,
and American Communications Services Inc.
of Annapolis Junction, Md.
(C) Copyright 1998 Investors Business Daily,
Inc.
Metadata: ICIX USW FON WCOM BFPT T TCGI
BLS WMB STCH MCLD ICGX ACNS I/4891 I/4811
I/4922 E/IB. Seems likely.]
Date: 4/15/98
Author: Reinhardt Krause
Can the regional Bell phone companies take a
lesson from a much smaller carrier on how to
build up data services?
Perhaps. Little Intermedia Communications
Inc. has plotted its own course in offering
data and Internet services to business
customers, analysts say.
The company's game plan paid off earlier this
year when one Baby Bell, US West
Communications Group, tapped it as a
partner. They'll share each other's advanced
data networks.
Instead of building costly fiber-optic
networks - the tactic chosen by many new
entrants in local phone markets -Intermedia
focuses on switching technology. Switches, a
key product in telephony and networking,
choose paths along communications lines,
opening and closing circuit connections as
needed to send and receive data.
''Anybody can bury fiber - all you need is a
shovel,'' said Intermedia CEO David Ruberg.
''Not everyone can design a network like us.''
Intermedia's switch-based network offers US
West a much higher value, Ruberg says.
''That's why US West picked us, not Sprint
Corp. or someone else,'' he said.
Tampa, Fla.-based Intermedia is an
alternative phone service provider, or
competitive local exchange carrier. CLECs
compete with the Baby Bells.
To lure business customers from the Bells,
many CLECs built speedy fiber-optic links.
Fiber-optic networks carry digital data as
rapid pulses of light. They send more data
many thousands of times faster than
conventional wiring.
The Internet has fueled demand for
high-capacity communications pipes. So
many CLECs, along with their fiber links,
have been acquired.
Jackson, Miss.-based WorldCom Inc.
snapped up MFS Communications and
Brooks Fiber Properties Inc. AT&T Corp. is
buying Teleport Communications Inc. of New
York in an $11.3 billion deal.
Because it uses switches to send data along
networks, Intermedia has much less fiber than
other CLECs.
''Only time will tell who has the best strategy,''
Ruberg said. ''All these things are for naught if
you don't own the customer. Having the
highway with no traffic doesn't create an
attractive return. We get the customer, and
then we build the highway when it makes
economic sense.''
Started in '87, Intermedia first sold
specialized services and private phone lines to
business customers in Florida. Its main rival is
Atlanta-based BellSouth Corp.
In the '90s, Intermedia began offering
companies a type of high-speed data
switching called frame relay.
At the same time, Intermedia expanded its
network and marketing throughout the
Eastern U.S.
Enter US West, based in Englewood, Colo.
The Baby Bell is assembling a national data
network. Intermedia will help US West serve
customers outside its 14-state region.
A corporation based in Seattle, for example,
may have 16 regional offices. If those offices
are located in Intermedia's service area,
Intermedia provides local switches, fixes any
problems and tracks customer billing.
For its fiber needs, Intermedia leases capacity
from companies that sell high-speed
communications links wholesale. In early
April, Intermedia signed a 20-year, $450
million deal to lease capacity from Williams
Communications Group, a unit of natural-gas
firm Williams Cos. of Tulsa, Okla.
Intermedia has a sound strategy, analysts say.
''The Bells are filing for regulatory permission
to do next-generation data networks.
Intermedia has that kind of network running
today,'' said James Henry, an analyst at Bear,
Stearns & Co. in New York.
Intermedia isn't missing the boat by not
investing heavily in its own fiber, says Richard
Tomlinson, an analyst at Connecticut
Research Inc., a market research firm in
Glastonbury, Conn.
''The end user doesn't really care how you
put the service together, as long as it works,''
he said. ''The second- and third-generation
CLECs are pursuing a strategy of owning the
key assets, the switches, not necessarily the
fiber.''
Still, like most CLECs, Intermedia has yet to
make money.
Its sales last year more than doubled from
'96, to $247.9 million from $103.4 million.
But its EBITDA loss - loss before interest,
taxes, depreciation and amortization - rose to
$49.8 million from $14.3 million. Companies
heavily in debt, and some others, use
EBITDA as a gauge of operating cash flow.
About 34% of Intermedia's sales last year
came from data services, up from 30% a year
earlier, says Tim Horan, an analyst at
BancAmerica Robertson Stephens Inc. in
New York.
''Intermedia is focused on controlling the
(network) intelligence and customizing their
services,'' he said.
The company also is on an acquisition spree.
Since '96, it's expanded its marketing reach
regionally by acquiring LDS Communications
Group of Monroe, La., and the Syracuse,
N.Y.-based telecom unit of EMI
Communications Corp.
In July, Intermedia bought Internet service
provider Digix Inc. of Washington. Digix
manages Web sites for about 700 companies.
Intermedia plans to buy Shared Technologies
Fairchild Inc., of Wethersfield, Conn., in a
deal worth $640 million. Shared installs
phone gear in office buildings.
What's behind Intermedia's deal making?
''We're after time-to-market - we buy
customer bases and we buy employees,''
Ruberg said. ''And we have a national
footprint, which we've acquired over the last
two years, on the data side.''
If it completes all these acquisitions by
midyear, Intermedia's pro-forma revenue will
almost triple to more than $675 million. That
would make Intermedia the largest
independent CLEC.
Other remaining CLECs include Cedar
Rapids, Iowa-based McLeodUSA Inc., ICG
Communications Inc. of Englewood, Colo.,
and American Communications Services Inc.
of Annapolis Junction, Md.
(C) Copyright 1998 Investors Business Daily,
Inc.
Metadata: ICIX USW FON WCOM BFPT T TCGI
BLS WMB STCH MCLD ICGX ACNS I/4891 I/4811
I/4922 E/IB |
