SBC, WilTel enter into new service agreement

SBC Communications will pay WilTel Communications $236 million dollars to terminate its previous service agreement and enter into a new master service agreement to use WilTel’s fiber optic backbone network to provide redundancy and off-net even after it completes its merger with AT&T, the two companies announced today.

Under a new master service agreement, SBC and WilTel have negotiated the terms under which SBC will use network facilities of WilTel while SBC and AT&T are merging and after the merger is complete. WilTel had been SBC’s long-distance partner for voice and data services. SBC has committed to purchase a minimum of $675 million in WilTel voice and data services, at current price levels, between now and 2009. Under the current conditions, that would translate into $2.7 billion in operating revenues, according to the SEC 10-7 form filed by Leucadia, WilTel’s parent company, but since the future service mix is not yet determined, that number will likely change.

“This new agreement sets out parameters for how we will work with WilTel during the planned integration process and beyond that will establish how we will use WilTel as a diversity provider,” said an SBC spokesman.

In announcing the new agreement, Bob Ferguson, CEO of SBC’s Enterprise Business Solution, acknowledged what he called WilTel’s “critical” role in enabling SBC to launch nationwide voice and data services. Maintaining a relationship with WilTel will enable SBC to provide secure and reliable services for its customers during the transition to a merged SBC-AT&T, he said in a prepared statement.

WilTel President and CEO Jeff Storey said his company is committed to helping SBC manage a smooth merger process.

One advantage to WilTel of the changing agreement is that the company is no longer prohibited from selling voice services to enterprise customers. While still largely focused on the carrier market, WilTel is selling data services to businesses, such as its recently announced storage extension services for business continuity and disaster recovery.

In its SEC filing, WilTel parent company Leucadia said the new agreement puts WilTel in position to meet its long-term debt obligations, but if the debt under current credit agreements comes due because of changes in its contract with SBC, its largest customer, Leucadia is committed to paying the debt.

WilTel is also looking for its own opportunities to grow by consolidation, the company stated.