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Broadwing/Corvis union: Year One

Feb 23, 20045 mins

All-optical IP network offers advantages that have yet to fully pay off, experts say.

Broadwing has no debt, one of the newest national networks and only a small portion of its revenue stems from traditional voice services. Yet as with most service providers, the company’s long-term success is not set in stone.

Broadwing has no debt, one of the newest national networks and only a small portion of its revenue stems from traditional voice services. Yet as with most service providers, the company’s long-term success is not set in stone.

A year ago this week, Cequel III and Corvis announced plans to acquire Broadwing for $91 million. The deal also let Broadwing eliminate more than $2 billion in debt.

In November, Corvis, a maker of optical network gear and a majority owner of management company Cequel III, took 97% control of Broadwing, a move that might just save Corvis.

It’s unusual for an equipment vendor to own a service provider, but with nearly all of Corvis’ revenue coming from Broadwing, it seems Corvis’ position as a gear vendor is taking a back seat.

Corvis reported fourth-quarter revenue of $142.5 million earlier this month. The equipment company only brought in $2.1 million while Broadwing generated $140.4 million.

But as Broadwing’s nationwide, all-optical network is based almost exclusively on Corvis technology, it’s the equipment vendor’s prime example of a large-scale deployment. It is also Broadwing’s biggest asset, says J.P. Gownder, an analyst at The Yankee Group. The network is not saddled with the overhead that companies with multiple legacy networks are dealing with, he says.

AT&T, MCI and Sprint are consolidating their voice and data networks onto a single IP core, the network Broadwing built four years ago.

It’s also the asset that CEO Mark Spagnolo is hanging his hat on. Broadwing offers enterprise customers a “unique experience because of our all-optical network. We have the last network built so we have advantages,” he says.

“You hear a lot in the industry about . . . quarter-over-quarter revenue declines” for AT&T and MCI, Spagnolo says.

Spagnolo says Broadwing can offer unmatched price advantages.

“We renewed a three-year deal last month that was 10% lower than that customer’s prices two years ago,” he says. “That’s pretty good.”

Mazda North American Operations has used Broadwing’s MultiConnect private-line and MultiConnect Redirect disaster-recovery services since early last year. Broadwing provides a dedicated T-3 line to its main office that’s divided into 28 T-1s used to connect Mazda offices throughout the country with its U.S. headquarters in Irvine, Calif.

“The service has run smoothly with excellent quality for [the past] 13 months,” says Michael Swancutt, a systems manager in the company’s IT department. “There hasn’t been any detectable change since Corvis bought the company.”

In 2002, while shopping for a VPN service that runs over the Internet, Mazda chose Broadwing’s private-line service because its price was “very strong” and it could offer flexibility that others could not, Swancutt says.

The service provider’s MultiConnect Redirect service lets Swancutt redirect Mazda’s T-3 connection to a back-up facility within minutes. That’s a feature that others couldn’t offer, he says.

In addition to its MultiConnect service, Broadwing offers IP VPN, frame relay, ATM, traditional voice services and now DSL through a new deal with Covad Communications. The company is also in the process of developing VoIP services, an area in which it trails competitors. Last week, the company named Mark Pugerude its first vice president and general manager of softswitch services.

But if VoIP isn’t a requirement for your company today, Broadwing is worth a look, says David Rohde, analyst at consulting firm TechCaliber.

“Enterprises are, and in a lot of cases should be, considering them. Broadwing’s offers are very attractive,” he says. “Users that are looking for pure private-line services should send a bid to Broadwing, which will always give users very competitive rates for quality services.”

Another issue for Broadwing is the company’s lack of brand-name recognition. The company also does not have deep pockets to launch a big branding campaign, Rohde says. Broadwing is typically going head to head with some of the most well-known companies in the country.

But Spagnolo says Broadwing is making strides to lower its costs in addition to bringing in new customers. The company is examining its local access costs by not only renegotiating local rates where possible, but also building points of presence to more directly connect users to the carrier’s network. If Broadwing has its own POP in an area densely populated with Broadwing customers, it can reduce access costs paid to local providers, Spagnolo says.

The company also is more focused on business users than it was just a year ago, Spagnolo says. “About two-thirds of the company’s revenues come from enterprises and one-third from other carriers,” he says. “Those figures were flip-flopped just last year.”

Broadwing also is selling to the federal government, which is a new effort for the service provider. Last month the company hired Diana Gowen as its first vice president of government solutions.

Despite Broadwing’s market challenges, the company appears to be making a good impression on customers.

“I feel confident that [Broadwing] has lasting value,” Mazda’s Swancutt says. “Through our term commitment they are going to be a viable service provider for Mazda.”