Corvis, C III teaming up to buy unit of Broadwing

Md. optics firm acquiring long-distance division

February 26, 2003|By Stacey Hirsh | Stacey Hirsh,SUN STAFF

Corvis Corp., the Columbia-based maker of fiber-optic equipment, has agreed to team up with a St. Louis investment company to acquire Broadwing Inc.'s long-distance unit for $129 million - a fraction of what Broadwing bought the business for four years ago.

Corvis plans to buy Broadwing Communications Services Inc. through C III Communications, an investment firm in which it and Cequel III LLC of St. Louis are investors. Broadwing Inc. will have a minority interest in C III Communications.

"We believe this is an attractive investment that offers promising returns and financial diversification," Lynn Anderson, Corvis' senior vice president, chief financial officer and treasurer, said in a statement.

Under the terms of the deal, Cequel III will run the new company, although the company will keep the Broadwing name. Also, Cincinnati Bell, a subsidiary of Broadwing Inc., will remain a customer of Broadwing Communications Services.

Broadwing Communications Services was formed in 1999 when Broadwing bought IXC Communications Inc. for $3.2 billion. The long-distance unit reported revenue of $296 million in the third quarter, down 3 percent from the third quarter of 2001. Broadwing Communications attributed the shrinking revenue to a slowdown in carrier spending, a problem besetting several telecommunications companies in the current industry slump.

With the acquisition announced yesterday, C III Communications gains Broadwing's 18,700-mile all-optical network. Broadwing Communications Services has more than 150,000 long-distance customers, most of which are corporate customers. More than 1,000 of those customers are companies that use the network for both phone and data services.

Mark Lutkowitz, a telecommunications analyst for Charlottesville, Va.-based Communications Industry Researchers, said he wondered whether the acquisition was a move by David Huber, Corvis' chairman and chief executive officer, to prove that his vision of an all-optical network is viable.

Analysts have criticized Huber's all-optical technology strategy as being too ahead of its time.

Because Broadwing's network uses Corvis equipment, Lutkowitz believes, Huber will try to leverage that to sell even more equipment to other carriers. But Lutkowitz is pessimistic about the short-term prospects of Corvis selling its all-optical equipment to other carriers.

Shares of Corvis, which are traded on the Nasdaq small-cap market, fell 4 cents to close at 61 cents.

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