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Telecom start-up grabs Lucent investment

KMC Telecom says it is receiving $182 million in funding from a host of investors including communications equipment provider Lucent Technologies.

KMC Telecom today said it has raised $182 million in funding from a host of investors including communications equipment provider Lucent Technologies, as it aims to strengthen its foothold in the fiber-optic networking market.

Bedminster, N.J.-based KMC is a competitive local exchange carrier (CLEC), meaning it partners with local cable and phone providers to gain access to their systems to build its own fiber-optic networks.

The company intends to use the new capital to further fund its existing business plan of building and operating fiber-optic networks in 39 U.S. cities, along with advancing its plans to provide data services.

Dresdner Kleinwort Benson Private Equity Partners, CIT Lending Services, Nassau Capital Partners and KMC founder Hal Kamine also contributed to the equity financing. KMC also said it will appoint Alex Coleman, investment partner at Dresdner Kleinwort Benson, to its board of directors.

Like companies in its market that offer similar services, such as Covad Communications, KMC is bolstering its services to include packet-switched, Internet Protocol-based data services for business customers, rather than just local voice service for consumers.

Over the past year, CLECs have been aggressively marketing digital subscriber line (DSL) services to Internet service providers and corporate customers as the Web continues to revamp the way businesses transmit data. DSL allows high-speed Internet access over standard copper telephone wires and is the chief competitor to cable modems for broadband connections to the home and small office.

Today's equity investment represents KMC's largest equity sale to date. The investors purchased "Series G" preferred stock in KMC, which will automatically convert into KMC common stock upon a public offering. Preferred stock typically provides a specific dividend that is paid before any dividends are paid to common stock holders. KMC "Series G" preferred stock carries a 7 percent cumulative dividend, the company said.