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Focal, Global One make new connections

The communications service providers announce two deals that will bring the companies and their customers closer together.

Communications service providers Focal Communications and Global One announced two deals Wednesday that will bring the companies and their customers closer together.

The first deal links Global One's international phone network with Focal's network, which provides phone and data services to businesses in the United States.

In a separate deal, the two companies will work together to sell Global One's data services to U.S. customers. Global One is France Telecom's international communications services unit. Focal is a Chicago-based phone company.

The companies hope the deals will add to their capabilities because Global One primarily is a worldwide long-distance carrier, and Focal concentrates mainly on serving Internet service providers and businesses in local U.S. markets.

"It's in line with what Focal needs to do, which is grow their enterprise business and get away from exposure to ISPs," said Vik Grover, an analyst at investment bank Kaufman Brothers.

About 28 percent of Focal's revenue in the first quarter came from reciprocal compensation, estimates Jonathan Atkin, an analyst at Dain Rauscher Wessels.

Reciprocal compensation describes the payments made between phone companies exchanging traffic. When a person dials into an ISP, the person's local phone company, such as Pacific Bell or Verizon Communications, pays a reciprocal compensation fee to the phone company that serves the ISP, frequently a competitive provider such as Focal.

Atkin says Focal has been aggressive in signing up ISP customers, which means it has gained significant revenue from compensation payments from local phone companies.

"As long as you're not basing your business around it, (reciprocal compensation) is a great way to earn revenue," Atkin said.

But the Baby Bell local phone companies complained, and now the Federal Communications Commission has limited the fees companies like Focal can collect for handling ISP traffic, which makes the Global One deal attractive because the company cannot depend as heavily on revenue from ISPs in the future.

The deal also increases Focal's ability to compete with the incumbent carriers because it gives them access to more networks. Tony Leggio, president of Focal's enterprise unit, says the company will become more competitive on price because it can spread its costs across more service offerings.

Still, Focal has some immediate obstacles. Atkin says the company needs to raise about $200 million to maintain its operations.

On the other side of the Atlantic, Global One is making moves of its own. In a deal valued at nearly $4 billion in stock, France Telecom will buy a majority stake in Equant, a provider of data services to corporations.

When the deal closes, Equant and Global One will be merged together and France Telecom will own a 54.3 percent share of the newly formed company.

Global One operates networks in about 70 countries. After the Equant deal closes, the new company will be able to serve companies in 220 countries and territories.