Broadwing may sell its broadband division

CINCINNATI - Broadwing Communications, which once touted liquid bandwidth and optical networks as keys to success, now spends a large amount of time talking about debt reduction and zero-cash burn.

Broadwing, Inc., the parent company of Broadwing Communications, has been restructuring its broadband services arm since October. However, layoffs totaling 500 and the sale of its wholesale voice business have not been enough to stop the bleeding. This has led Broadwing to consider three options: selling the broadband business, restructuring the company's debt or bankruptcy.

Broadwing has moved on the first two fronts, and the third remains a distinct possibility.

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CINCINNATI - Broadwing Communications, which once touted liquid bandwidth and optical networks as keys to success, now spends a large amount of time talking about debt reduction and zero-cash burn.

Broadwing, Inc., the parent company of Broadwing Communications, has been restructuring its broadband services arm since October. However, layoffs totaling 500 and the sale of its wholesale voice business have not been enough to stop the bleeding. This has led Broadwing to consider three options: selling the broadband business, restructuring the company's debt or bankruptcy.

Broadwing has moved on the first two fronts, and the third remains a distinct possibility.

"This management team has done everything in its power to avoid bankruptcy," says Tom Oshea, chief of staff at Broadwing. "Many people have asked us, 'Why don't you just declare bankruptcy and wipe out your debt?' Well, we don't do business that way."

The costs incurred when building out its switched optical network, based entirely on new gear and fiber, turned out to be more than the company could bear in today's business climate. While Broadwing believes its broadband unit is a valuable asset, Wall Street's opinion differs.

While the company last week announced that it's exploring all options, it did confirm that Lehman Brothers is "shopping around" Broadwing Communications to potential buyers. But Broadwing is selling in a depressed telecom market where some analysts have been frowning on the company's services because of concerns about the effect workforce cuts might have on service.

"There was a lot of appeal for Broadwing services when they were first launched," says Counse Broders, an analyst with Current Analysis. "But we've been down on their IP services for a while because of their downsizing."

The company is aware of the market, which is why it is trying to make the unit more attractive to an acquirer.

Through staff and capital expenditure cuts and the divestiture of some business lines, Broadwing is attempting to reduce its need for cash beyond its revenue to zero by mid-2003. In the third quarter of 2002 Broadwing used $39 million in cash beyond its revenues to run its business. This is cash that came from sister subsidiary Cincinnati Bell and would have been added to the parent company's bottom line.

Analysts have a tough time speculating who would or could buy Broadwing. Names that come up include Level 3 Communications, which recently announced the acquisition of Genuity after the latter filed for bankruptcy.

"It's hard to figure out who has enough cash and the need for additional capacity," Broders says.

Broadwing says its search for a suitor has been "positive."

Broadwing also is renegotiating its debt to "refinance" the $2.5 billion that will come due in 2003 and 2004. If Broadwing successfully renegotiates this debt, Goldman Sachs says it will invest $350 million in the company.

"This is a delicate dance," says David Rohde, an analyst at TechCaliber. "The problem with the Goldman Sachs investment is, when Broadwing can prove it no longer needs the money, that's when [Goldman Sachs] will give it new money."