January 31, 1997|By Timothy J. Mullaney | Timothy J. Mullaney,SUN STAFF
A tiny Annapolis Junction-based phone company got a powerful boost from MCI Communications Corp. yesterday, as the long-distance giant tapped American Communications Services Inc. to handle parts of both its long-distance service and its emerging local phone service business.
ACSI stock rose $1.625 to $11.125 on the news, though neither side would say how much revenue the deal will bring ACSI during its five-year term. ACSI is one of a breed of smaller phone companies that have sprung up to challenge the Baby Bells for control of the $100 billion local phone industry, especially the lucrative business markets.
"It's a really big boost for ACSI," said Raghu Ram, an analyst at Wheat First Butcher Singer in New York.
The deal creates an example of the hybrid phone networks emerging because of recent telecommunications reform laws, which encourage phone companies to mix and match their capabilities to create new systems.
In smaller cities where MCI does not want to build a call-handling network when it first enters the local service business, it will instead buy service wholesale from ACSI and resell it, the companies said. In effect, ACSI becomes a private-label service provider on MCI's behalf. That part of the deal covers 10 cities, the companies said, but they did not disclose which cities.
MCI has its own local service network in Baltimore, so the deal won't immediately affect local phone service here.
The other part of the deal calls for MCI to use ACSI to connect long-distance calls from the offices of high-volume business clients to MCI's long-distance network in 21 cities, including parts of suburban Baltimore. That work is handled either directly by MCI, by the traditional local phone monopolies or by a combination of the two.
However, long-distance companies have complained that the big local carriers charge too much for these network access services. They also have been wary of buying a service to support long-distance calling from the Baby Bells, which all plan to enter the long-distance business themselves.
Newer carriers such as ACSI don't loom as competitors in long-distance, and they say they provide better, cheaper access services than Baby Bells because their networks are newer and all of their cables are fiber-optic. "It's higher-quality service in many cases," said Steve Mooney, an executive of MCI's local service business. "We'll get immediate savings, which will be significant."
MCI also will get warrants to purchase as many as 2.3 million shares of ACSI, which has 36.4 million fully diluted shares outstanding. ACSI also plans a secondary stock offering to the public but has not decided how many shares it will sell as part of that deal, according to company spokesman Reese Nank.
Ram said ACSI has a deal with AT&T to provide access servicesbut has no deal similar to the agreement with MCI to provide local phone service wholesale to another carrier.
But the analyst said ACSI will be in a strong position to land more wholesale deals to sell local service. Unlike the long-distance carriers and most of the other new local companies, it has concentrated on building networks in smaller cities, Ram said.
That means long-distance companies that want to spend their own money to build networks in big cities, but that want to enter smaller markets by buying and reselling local service there, will have to choose between ACSI and the local Baby Bell in that market.
"How else are you going to get to smaller cities?" he said. "Everyone is concentrating on the top 20. I don't know if Jackson, Miss., is a major priority for" anyone but ACSI.
Pub Date: 1/31/97
