Carrier Channel: BellSouth, Broadwing Retrench from International Wholesale

Posted: 12/2002

BellSouth, Broadwing Retrench
from International Wholesale

By Josh Long

U.S. CARRIERS CONTINUE to retrench
from the international wholesale market, a sector characterized by low margins
and cutthroat competition. BellSouth Corp., the No. 3 local phone company, and
Broadwing Inc., the Ohio-based carrier that owns Cincinnati Bell, each announced
plans in October to exit international wholesale operations.

Analysts said the announcements were
not much of a surprise given the dismal state of the wholesale market and the
belief that both companies do not have as big a presence overseas as some other
U.S. carriers.

"A lot of the industry focus
has been on the problems faced by the U.S. wholesale industry, but when you look
at the international market I think the picture is much bleaker," said Seth
Libby, a senior analyst covering the wholesale market for the Yankee Group.

Frank Barbetta, a senior analyst
with Probe Research Inc., added, "What are you going to do? It’s a tough
market. It’s driving a few people crazy."

The telecom giants made the
disclosures as part of a more comprehensive strategy to focus on their most
profitable units.

BellSouth also announced plans to
discontinue some wholesale long-distance operations. BellSouth bought capacity
on the West Coast and overseas and resold part of it to other communications
companies.

The company will close down
switching facilities in Los Angeles and London, spokesman Todd Smith said. The
company is eliminating wholesale and resale operations in a variety of locations
overseas, but its decisions are based more on its customers’ credit risk than a
specific geography, according to the company.

"All of these businesses aren’t
bringing in the revenue which we anticipated and we are in a situation where we
are having to cut costs everywhere," another BellSouth spokesman, Jeff
Battcher, said. "Any of those businesses posing potential credit risks we
are exiting also."

It has outlined a revised strategy
for its wholesale long-distance business. BellSouth will support wholesale
operations in Latin America, where the company does business in 11 countries
primarily through wireless affiliates; leverage its local network to support
domestic termination and origination in the Southeast; and continue to meet the
long-haul data needs of business customers as well as those of communications
companies.

Also, the carrier will shut down its
Multimedia Internet Exchange (MIX) in Florida and its Web-hosting e-Business
Centers in the Southeast.

The incumbent does not disclose the
number of customers in the MIX, a public network access point where Internet
service providers (ISPs) can pass traffic to one another. But the "revenue
impact is very small with negative margins," Battcher said.

Meantime, Broadwing announced plans
this fall to exit the international wholesale market and axe 500 jobs within its
broadband unit, Broadwing Communications.

Broadwing Communications posted $28
million in operating losses in the third quarter off $296 million in revenue.
The unit burned $39 million in the quarter, down from $178 million a year ago.
It says restructuring the division could save an estimated $200 million a year.

Its parent company posted a profit
one quarter ahead of guidance, reporting $62 million in positive cash flow.