COMMENTARY -- You'd think the company behind the third largest fiber optic network would get a little more attention, but Broadwing (NYSE: BRW) is flying under the radar for now.
Broadwing, which was spawned from the merger of Cincinnati Bell and IXC Communications, brings about 18,000 fiber-network miles to the table, following Williams Communications (NYSE: WCG) and Qwest (NYSE: Q).
Broadwing's network is just about complete, which opens a lot of possibilities. While the big players in the telecommunications arena struggle, companies like Broadwing, Williams and Qwest will become the new leaders.
I first noticed Broadwing after perusing the SEC filings of Corvis (Nasdaq: CORV), a hot fiber optic gear maker that made a huge IPO splash despite not having a dime of revenue. Corvis, which recently reported earnings, reported its first sales, and Broadwing was the big reason.
Williams and Qwest are implementing Corvis gear now and will be roughly six to 12 months behind Broadwing when it comes to using Corvis' gear. Corvis' equipment by all counts lives up to its advance billing, leaving Broadwing with a platform to offer broadband services, metered billing and data centers. Broadwing sells bandwidth to corporate customers and carriers.
Broadwing's pedigree isn't too shabby either. Broadwing's legacy local-telephone business generates cash to build the network, so there aren't a lot of worries about running out of capital. Meanwhile, Broadwing is headed by CEO Rick Ellenberger, an MCI veteran whose profile is growing.
Broadwing's pitch revolves around execution. Indeed, the company reported that earnings before interest, taxes, depreciation and amortization (EBITDA) increased 56 percent to $137 million in its third quarter. Net loss was 12 cents a share, narrower than First Call's expectation of 20 cents a share, a loss of 36 cents a share in the same period a year ago. Revenues increased 25 percent, growing to $531 million.
Some analysts are sold on the story already. "I've liked their story for a long time," said James Ott, an analyst with Hibernia Southcoast Capital. "The market will value them more because they're focused on execution. Their data center business will be a $30 million business by the end of the year from a dead stop."
ZDII recently spoke with Tom Osha, Broadwing's chief of staff and vice president of corporate affairs. Here are the key issues:
Corvis' gear is impressive, but Osha said Broadwing is agnostic about the equipment it uses. Broadwing's goal is to have a best of breed network. Osha said Broadwing's labs are a playground where it tests gear from all the leaders, including Cisco, Ciena, Nortel, Lucent, Juniper and Sycamore.
Williams Communications bullish
Howard S. Kalika, treasurer for Williams, echoed much of Broadwing's bullishness, but disputed Osha's "carrier's carrier" description. He said that the company's traditional base of customers -- Qwest, Telmex and SBC -- is changing to any firm that needs bandwidth.
Like Osha, Kalika, speaking at the recent Prudential Volpe Technology conference, had good things to say about Corvis and noted that Williams "isn't into marginal improvement" when it comes to implementing new equipment. In its field trials, Williams is seeing a huge improvement in its distance by bandwidth ratio.
Williams, like Broadwing, is expected to be a big winner once the telecommunications sector gets back in favor with investors. TDAIN