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Corvis Buys CLEC for $210M

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News Analysis
Light Reading
3/8/2004
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Corvis Corp. (Nasdaq: CORV) has added to its carrier business with the acquisition for $210 million of U.S. national competitive operator Focal Communications Corp. (Nasdaq: FCOM) (see Corvis Buys Focal Communications).

The deal, which involves the issue of $101 million in new Corvis stock to Focal's shareholders and "the assumption or payment of approximately $109 million of Focal's existing debt and other long-term capital lease obligations," will not come as a shock. Corvis was on the hunt for a carrier that would help expand the market and cut the access costs of its existing subsidiary long-haul carrier Broadwing Communications LLC (see Corvis Gets Ready to Pounce).

"Focal will help us expand our nationwide network footprint and reduce our access costs," said Corvis CEO David Huber in a prepared statement. "They will also help add valuable customers and revenue without putting undue stress on our balance sheet." Corvis expects to close the acquisition in the third quarter.

Focal provides voice and data services to business customers, resellers, and other CLECs. It expects to report 2003 revenues of about $320 million.

Corvis had originally been interested in bankrupt operator Allegiance Telecom Inc., but dropped out of the reckoning before an auction that saw XO Communications Inc. (OTC: XOXO) expand its business (see XO Buys Allegiance ).

— Ray Le Maistre, International Editor, Boardwatch

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ksig25
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ksig25,
User Rank: Light Beer
12/5/2012 | 2:18:07 AM
re: Corvis Buys CLEC for $210M
Not a bad deal, better than the Allegiance attempt, at least from a cost perspective.

Could one of the technical experts be so kind as to explain how easy/hard/expensive it is to tie in a network like Focals to Broadwing? The concern would be that if Broadwing was built using the "Huber model" and Focal obviously was not, how much equipment must be replaced, how much remapping must be done of the network, et al?

ksig25
sevenbrooks
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sevenbrooks,
User Rank: Light Beer
12/5/2012 | 2:18:06 AM
re: Corvis Buys CLEC for $210M

The answer is it depends. Like many things its all grey.

First, if you look at the 2 network maps you will find dramatic overlap. One would have to guess that the bulk of Focal customers are in places that Broadwing already serves. This is good news from a long term cost saving standpoint.

Since Focal already exists, one could just leave its network in place. Alternately, Focal's network could just get wavelengths from Broadwing. Finally, these networks could share wavelengths. Costs go up as integration gets tighter.

Question is what do Focal's customers want? Is there a better deal to expand BW service offerings to include some of Focal's? Should BW service offerings replace Focal service offerings where possible?

But back to my first statements, this gives BW a straightforward way to add traffic to a network that is in place.

seven
gzkom
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gzkom,
User Rank: Light Beer
12/5/2012 | 2:18:04 AM
re: Corvis Buys CLEC for $210M
Seems to be a situation of 1+1=3.
fw23
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fw23,
User Rank: Light Beer
12/5/2012 | 2:18:03 AM
re: Corvis Buys CLEC for $210M

The answer is really simple. Shut down Focal
gradually and throw its network away. The
Corvis LIGHT-based network that broadwing has
can handle much more capacity than is currently
travelling over it. The aging electric legacy
network that Focal has brings negative value.
Its an expensive drain on profits.

The customers need to be carefully migrated in
an invisible way, but other than that the only
thing I can think of doing is starting an
employee retraining program to bring them up
to speed with modern networks.

Corvis will bring the new customers in, scrap
the old network and turn the new revenue into
100% new marginal profit. Don't be SHOCKED
if this happens again. As Corvis gets bigger
and more profitable, its appitite for eating
larger and larger networks will grow. They are
trading money for profit now. And with the
LIGHT-base network, they can grow to infinity.

And don't be suprised if their next move is
against an international undersea operator.
They still have Dorsal in their back pocket
ready to go despite what the peanut gallery is
saying.

I'm glad to see that Qwest learned its lesson
last time and didn't try to get in the way of
this BIG DEAL.

Dr. Dolby
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Dr. Dolby,
User Rank: Light Beer
12/5/2012 | 2:18:02 AM
re: Corvis Buys CLEC for $210M
I don't see how this addresses the need for Corvis to tweak its flux capacitor.

The Inertial Damping Field on the Corvis Isolinear chip has an inferior peak transitional threshold compounded with a quantum singularity power spike.

Haven't seen problems like this since we noticed soliton waves emitting from the rear of the Klingon battlecruiser T'Blak.

I'm not even sure if Dr. Brown could help out here. Smaller relative motions can be achived through the use of a Doppler compensator.

That or a tricobalt phased locked loop neuron decompressor.
sevenbrooks
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sevenbrooks,
User Rank: Light Beer
12/5/2012 | 2:18:01 AM
re: Corvis Buys CLEC for $210M

fw23,

You should probably actually take a look at Focal's website. Its pretty clear:

1 - That Focal's backbone was Optical.
2 - That Focal sold primarily to Small-Medium Enterprises (SME).
3 - That these services were delivered primarily over T-1.

Now, given that your local flower shop is an SME can you explain to me how this relates to an all optical network? I guess my point is that Access to smaller customers generally involves copper at some point.

Finally, I think you confuse Network Operators with Network Equipment Suppliers. Undersea cable operators buy equipment from companies like the former Dorsal. Buying one of them does not necessarily create a market for these products and certainly does not eliminate competitors for them.

By the way, Corvis has been and is continuing to shop its equipment business.

seven
ksig25
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ksig25,
User Rank: Light Beer
12/5/2012 | 2:18:00 AM
re: Corvis Buys CLEC for $210M
sevenbrooks,

You would have better luck explaining that stuff to a dead cat than fw23. Intelligent comments should be saved for those of us who are educated enough to understand.

It sounds like Focal's footprint is not anywhere that Broadwing isn't already, so the question would be are they going to keep Focal's network running, or are they going to migrate their customers over to Broadwing?

ksig25
sunra
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sunra,
User Rank: Light Beer
12/5/2012 | 2:17:59 AM
re: Corvis Buys CLEC for $210M
fw23,

For the past 2 quarters in which Broadwing's revenues have been fully incorporated by CORV they have lost the staggering sum of $173 million on $285 million of revenue.

For the past 2 quarters telecom revenue and the cost associated with that revenue has been flat. Direct cost, forget SG&A, R&D and depreciation, just direct cost is 75% of revenue.

How does CORV propose to fix this?
romulusx
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romulusx,
User Rank: Light Beer
12/5/2012 | 2:17:57 AM
re: Corvis Buys CLEC for $210M
Please stop ksig25 - all we need is two of them. Just kidding buddy. Now, getting away from "Dexter's Lab [fw23]"; why would Corvis scrap Focal's network when the problem was having a presence that was closer to the customer (which Focal's network is supposed to provide)? I also have a question for Seven - why would Corvis sell the equipment company when part of the network buildout depends on the equipment?
ksig25
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ksig25,
User Rank: Light Beer
12/5/2012 | 2:17:57 AM
re: Corvis Buys CLEC for $210M
Sunra, let me see if I can give you the answer fw23 will most likely give.

The answer is LIGHT! All you dino-brains and dot-BOMBERS won't stop bashing until Corvis, Broadwing, and Dorsal show you the LIGHT! Corvis is making more money than any company in the world, they are just hiding it so that Rumsfeld and the boys at the Pentagon can use them to build an trans-atmospheric network to the moon, then to Mars. You will see how much Corvis really has when they go HEAD<to>HEAD with QWEST and pull and end-around, buying them. Soon Broadwing will buy EVERY antique electronic network in the world and retire them all, and the whole world will see the LIGHT from Huber's ALL-OPTICAL vision.


Did I get that about right fw23??

ksig25</to>
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