Why Williams Sold Its Sonus Shares

At first glance, the recent sale by Williams Communications Group (NYSE: WCG) of an enormous block of shares in Sonus Networks Inc. (Nasdaq: SONS) doesn't look good for Sonus.

On closer scrutiny, though, the sale appears to have more to do with Williams's need for fast cash than with any possible disadvantage to holding Sonus stock.

"This doesn't mean anything for Sonus," says Steve Levy, analyst at Lehman Brothers. "It means that Williams needs the money."

Sonus is generally acknowledged to lead the market in voice-over-IP gateways. These gateways use so-called softswitch technology to mimic circuit switches and port legacy voice traffic to packet-based networks. The company has been public since May 2000 (see Sonus Networks Inc. (SONS)).

According to Thomson Financial Network, Williams filed with the Securities and Exchange Commission on February 9 to sell 635,061 shares of Sonus stock valued at about $25 million. The filing apparently wasn't made online, and thus came to light later than it would have otherwise. Williams, which has been a stakeholder since the Sonus IPO last May (see Sonus Raises $115 Million in IPO), hasn't disclosed the full amount of its position in the company.

Both Williams and Sonus say the sale won't affect their separate customer/supplier relationship. The two have a deal that dates to February 2000, when Williams agreed to a $20 million, three-year purchase of Sonus gear. Sonus still says that deal could produce up to $100 million in revenues, based on estimates of the size of Williams's requirements to port voice circuits to its broadband IP network.

Porting the circuits is part of a larger-scale $1.9 billion access-network buildout that Williams is eager to complete this year -- and for which it's been revamping its finances and drumming up cash.

In February, for instance, Williams Communications reduced its debt and increased its assets by reworking its equity agreement with parent company Williams (Nasdaq: WMB). The carrier also arranged for more credit (see Williams Increases Credit Facility). Williams also has told its suppliers that it won't pay for equipment until it's actually using it.

Williams isn't alone in its struggle to fund capital expenditures this year. The call for capex cash reportedly motivated Broadwing Communications (NYSE: BRW) to sell 2.4 million shares of Corvis Corp. (Nasdaq: CORV) last week (see Broadwing Sells Corvis Shares).

Separately, Qwest Communications International Corp. (NYSE: Q) engineered a debt sale last month (see Qwest Tidies Up Finances) to fund capex. Others, including XO Communications Inc. (Nasdaq: XOXO), plan sales of debt and equity combinations to fund their ongoing network needs.

It's not clear just how reliance on stock transactions may have played into Sonus's recent nosedive. Today, for example, shares were selling at 20.62, down 3.12 (over 13 percent).

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

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