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Intermedia tumbles on 2Q warning, BellSouth troubles

Intermedia Communications (Nasdaq: ICIX) tumbled as much as 12 percent Wednesday after announcing second-quarter and full year revenue will miss expectations. It is also filing a lawsuit against BellSouth (NYSE: BLS), which it blames for its troubles.

The telecommunications firm said its revenue for the second quarter and full year will fall 10 to 15 percent below Wall Street forecasts, citing BellSouth's failure to meet their performance obligations and changes in reporting method for reciprocal compensation. The company also said it has suffered from a slowdown in its, Frame Relay and Internet products, as well as continuing declines in its long distance products.

Shares in Intermedia were down 2 to 21 3/8.

Intermedia now expects revenue of $245-$247 million for the second quarter, which is still an increase of more than 20 percent year over year on an adjusted basis.

The company said it will establish reserves and account for reciprocal compensation at lower rates starting in the second quarter in order to improve the visibility for future financial expectations.

The company also said earnings before interest, taxes, depreciation, and amortization (EBITDA) for the second quarter and the full year will be lower. Primarily as a result of the lowered reciprocal compensation rates, recurring EBITDA in the second quarter will be negative $25 million. As a result of this reduction in rate and the reserve established, the reported EBITDA for the quarter will be about negative $70 million. First Call was expecting a loss of $2.92 a share from the company in its second quarter.

None of the changes to expectations have anything to do with Digex, the hosing service provider in which Intermedia has a 62 percent ownership interest in, it said. Digex continues to perform above expectations.

The company said it is re-focusing to align its network assets. It has retained Bear Stearns to explore strategic alternatives with regard to Digex, including the possible sale of Intermedia's stake in Digex to another company.

Intermedia filed an antitrust and fraud lawsuit against BellSouth, charging the company "has acted deliberately to keep its markets closed to competition and to prevent Intermedia from accessing its customers," said Intermedia chairman, president and CEO David C. Ruberg in a company statement.

Intermedia also claims BellSouth refuses to pay it about $100 million it owes for communications traffic which it terminates. As a result, Intermedia has had to file numerous state court proceedings. To date, each state in which Intermedia has filed has ruled that BellSouth owes the compensation to Intermedia.