Broadwing Sells Corvis Shares

One of Corvis's biggest customers just sold 30 percent of its equity in the company.

Broadwing Communications (NYSE: BRW) announced yesterday that it has sold 2.4 million shares of the nearly 8 million shares it holds in Corvis Corp. (Nasdaq: CORV). The company still holds 5.5 million shares of its minority stake in Corvis, which it acquired as a result of a vendor-financing arrangement with that supplier.

Broadwing, the carrier formed from the merger of Cincinnati Bell with IXC Communications Inc. in November 1999, was responsible for all of Corvis's revenues during the fourth quarter of 2000.

Corvis says it has no comment on the sale. For its part, Broadwing says technicalities obliged it to report the transaction, though it declined to specify just what those were.

But the sale has turned heads, because Broadwing is one of Corvis's two key customers. The other, Williams Communications Group (NYSE: WCG), says it hasn't changed its position in Corvis. The size of Williams's share isn't publicly known, although Williams says it will be reported in the carrier's next 10K report to the SEC, due out sometime within the next week. A Williams spokesperson says the share is less than 5 percent of Corvis, however.

So far, Corvis hasn't produced any more paying customers than Broadwing and Williams, even though it's been under some pressure to do so (see Customer Questions Dog Corvis).

Broadwing's statement said its monetization of shares had nothing to do with its ongoing faith in Corvis: Indeed, its statement contains the following comment from CFO Kevin Mooney: "We are very committed to our strategic partnership with Corvis and are big believers in the enabling power of their breakthrough technology."

The deal demonstrates how carriers can use equity deals with suppliers as powerful leverage -- and insurance. The carriers can later use the pre-IPO shares in their suppliers to help generate cash in times of need, which also serves to protect their investment in new optical technology. Broadwing claims the $43 million realized from the sale will be reinvested in building out its optical network.

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com