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Communications duo courts small businesses

Broadwing hopes to expand beyond its local Ohio boundaries by attracting small and medium-sized businesses to its nationwide network.

Broadwing, the result of local phone company Cincinnati Bell's acquisition of communications carrier IXC Communications last year, hopes to expand beyond its local boundaries by attracting small and medium-sized businesses to its nationwide network.

The company today reported strong demand for its wireless and high-speed Internet services, two of the communication industry's hottest markets, despite reporting a quarterly loss.

Broadwing reported a net loss of $55.7 million, or 28 cents per share, compared with profits of $24.7 million, or 18 cents a share, for the same period a year ago. Wall Street expected a loss of 39 cents for the company's first quarter, according to a survey of analysts by First Call/Thomson Financial.

Quarterly revenue increased to $213 million, up from $17.2 million a year ago. Roughly two-thirds of revenue came from data services, the company said. The quarterly loss included the impact of $17 million for a 13-week TV advertising campaign.

Although analysts are confident that Broadwing's local phone operations will continue to be strong, some question whether the company's long-distance and data assets are large enough to compete with the likes of AT&T, Sprint-MCI WorldCom and other major international communications carriers.

"They have to figure out what they want to be and they have to do it quickly if they want to remain independent. They have to find a particular niche," said Lisa Pierce, director of global telecommunications for Giga Information Group. "I still look at Broadwing as a company that could be acquired by a bigger fish."

Many analysts were waiting to see this week's quarterly results--Broadwing's first full quarter as a combined company--before re-initiating coverage and publishing revised financial models.

Analysts and company executives say some basic changes at the former IXC, a new advertising campaign, and a handful of new initiatives such as expanded Web hosting plans and service activation guarantees helped push Broadwing stock to new levels before falling recently.

The stock had climbed steadily since September before slipping this spring with the rest of the market. Shares, which spent years in the single digits during the early 1990s, have traded as high as $41.06 and as low as $16.31 in the past year. Shares closed at $26.63 today.

Prior to their marriage, Cincinnati Bell--well respected in its region--was limited by the local scope of its network; while IXC, with a state-of-the-art national fiber-optic backbone, had been held back by ineffective management and installation and provisioning troubles, analysts say.

The combined companies have streamlined their operations. For example, last quarter the company exceeded Wall Street earnings expectations in part by improving IXC's order backlog and activation times.

Long-term, the new company plans to use the steady cash flow from the local phone business to fuel higher-growth markets such as data services, wireless and digital subscriber lines (DSL).

"We'll capture more than our fair share of the (data) market because we have a brand new network and we focus on the smaller customer," Broadwing chief executive Rick Ellenberger said in a recent interview.

"We want to be the very best business-to-business data and Internet company, and provide the kind of service that we think the medium and small-sized businesses feel like they don't get because they've been disenfranchised by the large carriers," Ellenberger said.

Analysts believe the strategy of combining local communications assets with national long distance and Internet properties is a sound one.

"They've blended the best of the old with the new. This makes the same kind of sense as a Qwest-US West," said Jeff Kagan, an independent telecommunications analyst. "It's a pretty powerful combination of networks and resources and assets."

But some still wonder whether Broadwing is big enough to compete.

"I think the lack of scale will hurt them. They are not as large and they don't have as much experience as their competitors," said Rex Mitchell, a telecommunications analyst at Banc of America Securities.

Broadwing executives believe that by focusing on communications services for small and mid-sized customers, they will not directly compete against larger, more voice-centric competitors that typically target the Fortune 100.

"I'm not trying to duplicate AT&T or MCI, or emulate Bernie Ebbers," Ellenberger said.