COLORADO SPRINGS, Colo. — Cincinnati-based Broadwing Inc. is selling its broadband assets to an investment group backed by optical-switch manufacturer Corvis Corp.
By selling physical fiber plant and the Broadwing name to C III Communications LLC for $129 million in cash, the former Broadwing returns to its roots as a specialized competitive local exchange carrier (CLEC), Cincinnati Bell.
The move spotlights the return of both traditional incumbents, and specialty carriers like Cincinnati Bell, to familiar metro and super-regional markets dominated by voice service. It also indicates the potential willingness of long-haul transport OEMs who retain a good cash position, to directly finance long-haul transmission networks in order to preserve a broadband business.
In 1999, Cincinnati Bell merged with IXC Communications Inc. (Austin, Texas) to form a combined CLEC/interexchange carrier called Broadwing Inc. The Broadwing Communications subsidiary, based in Austin, signed contract with Corvis, Ciena Corp., Lucent Technologies Inc. and other vendors to create an all-optical end-to-end network.
The Cincinnati Bell operation, meanwhile, increased its local exchage footprint to include many mid-continent states outside the company's Ohio and Kentucky roots.
The bandwidth glut of the last two years hit Broadwing hard, however. In October 2002, the company announced a restructuring plan to reduce the expenditures of the Austin unit. Goldman Sachs pledged a $350 million investment package to preserve Broadwing's local base, but the company announced in January it was seeking a buyer for the long-haul business.
C III investors include both Corvis and Cequel III LLC, a management company based in St. Louis. Cincinnati Bell will be a customer of Broadwing Communications Services Inc., and will sell its data services to business customers. Long-distance services provided by the Broadwing network will be sold by Cincinnati Bell under the Any Distance brand.
Tom Osha, Broadwing's chief of staff, said the sale will not affect Cincinnati Bell's ability as a a local carrier to offer ZoomTown DSL service within the Cincinnati metro region, nor any future last-mile broadband technologies. Cincinnati Bell already is offering unregulated wireless and long-distance service to nearby markets like Dayton, though Osha said the company would be cautious about expanding into other states given the current economic climate.
The Goldman Sachs commitment was not contingent upon selling the Broadwing operation, Osha said, but was contingent upon Broadwing Inc. restructuring its debt, which is proceeding on track. Osha said that the remaining company, minus Broadwing, will again be known by the Cincinnati Bell name, but it would consider a corporate-level renaming in the future.
Tom Nolle, chief executive of market research firm CIMI Corp., called the C III investment "very unusual, and possibly indicative of a new long-haul paradigm. The only parallel was when AT&T and Lucent split apart their existing business between service provider and equipment manufacturer."
Nolle said few existing carriers at either the local or long-haul level were prepared for the cost of capacity falling below the 50-percent mark associated with the cost of service, and have not figured out a way to make money on data transport. Consequently, it may take OEM involvement to make carrier networks profitable again, Nolle said.
Corvis may not face many direct competition, however. Nolle said large diversified suppliers like Alcatel and Nortel would not dare go down this path, while specialized optical OEMs like Sycamore Networks and Tellium lack Corvis' deep pockets, "which pretty much had to lead by example, because the company wasn't big enough to get carrier wins in this environment."
What smaller specialized OEMs may do, Nolle said, is form tight links with specific carriers, even if it means lessening their chance to win contracts at other service providers.
