Business News - CBI To Buy IXC; Carrier Turns from Wholesale Roots

Posted: 09/1999

CBI To Buy IXC; Carrier Turns from Wholesale
Roots
By Ken Branson

John Zrno, president and CEO of IXC Communications Inc., Austin, Texas, already has
begun turning the carrier away from its wholesale business, a process he expects will
accelerate when IXC’s $3.2 billion acquisition by Cincinnati Bell Inc. (CBI), Cincinnati,
goes through late this year or early next year.

"Historically, it was basically a wholesale company, and only recently had they
decided to diversify," he says. "My strategy was to make a much greater
commitment to the retail and commercial sales force. We have about 200 people selling to
medium [-sized] and small businesses, and we’re hiring more. Of course, you can’t just go
out and hire them, you have to train them, but we’re working on that."

Zrno and CBI executives call the acquisition a "transformational
transaction," and when it closes, they expect the new company to be radically
different from the present form of either company.

For CBI, the purchase is a break with history. Before the breakup of the Bell System in
1984, CBI provided local dial tone in its namesake city and the surrounding counties in
Ohio, Kentucky and Indiana. The company now offers local and long distance services,
Internet, wireless, entertainment, directory and data networking services to customers in
the Cincinnati metropolitan area and in many other Midwestern cities. For CBI, the prize
is IXC’s Gemini 2000 fiber optic network, which eventually aims to include 18,000 route
miles of fiber in most of the major markets in the United States.

Cincinnati Bell CEO Rick Ellenberger is eager to exploit Cincinnati Bell’s Internet and
web portal subsidiary, ZoomTown.com, over IXC’s net. "We will now start a rollout of
a smart-build to the top 50 markets that will link ZoomTown to our next generation fiber
network, tapping in on a CO (central office)-by-CO basis, [which is] the most significant
opportunities for us to deploy ADSL (asymmetric digital subscriber line) ZoomTown across
the country," he says.

Ellenberger and his colleagues plan to capture medium-sized to large corporate
customers in the 100 largest markets in the United States. To succeed, Ellenberger
explains, they have to do five things: provide executive leadership, create revenue
growth, fix IXC’s provisioning and back-office systems, and capture the synergies that
exist between the two companies.

Zrno is supposed to be a temporary answer to the leadership problem. Some IXC employees
may lose their jobs as a result of the acquisition, but Zrno will lose his job for sure.
And that’s OK with him. He was, he says, "gainfully unemployed" before he took
over IXC on June 2, replacing Benjamin Scott. To gainful unemployment he will
return–though he and IXC Chairman Richard Irwin will have seats on the new CBI board.

Zrno says the difficulties with IXC support systems are grounded in the company’s
history: it acquired other carriers and their systems with them.

"We have seven or eight separate billing systems," Zrno says. "None of
them is particularly bad, but we really can’t collect information to run the business with
seven or eight systems. We’re going with Kenan (Systems Corp., Cambridge Mass., a
subsidiary of Lucent Technologies Inc., Murray Hill, N.J.), and sometime around the end of
the year, we’ll use Clarify (Inc., San Jose, Calif.) for order management."

Cincinnati Bell executives ask investors to look beyond to the future–and not the
distant future, either.

"Our expectation is that revenues for the combined company in the year 2000,
assuming a close on Jan. 1, would be just under $2.1 billion," says Kevin Mooney,
Cincinnati Bell’s chief financial officer. "EBITDA (earnings before interest, taxes,
depreciation and amortization) of $477 million would derive from those combined revenues.
We expect capital expenditures of just over $800 million next year. By the year 2004, we
expect combined revenues of just over $5 billion, EBITDA of $1.357 billion, capital
expenditure of just under $500 million. We believe that this type growth, at 25 percent of
revenues on a compound annual basis … and 30 percent on EBITDA is not only achievable,
but something that we feel confident, at this stage of the game, committing to the
market."