Cutting to the core: GST sells off assets, possibly positioning for acquisition

GST Telecommunications peeled away another layer of its company last week by selling its network analysis management system software product to Carrier Management Systems. In addition, the carrier revealed it would lay off 100 employees from its managerial and support staff. The goal is to reduce costs and direct focus toward its core data and Internet business, a GST spokesman said. The company had no further comment.

The moves are part of what has been a rough first quarter. Since January, GST has sold its Global Light Telecommunications stock on two separate occasions for a total of $56.8 million. The carrier also sold its U.S. consumer Internet customer base and additional assets to ClearData.net to focus on data and Internet, a company spokesman said.

Separately, the carrier announced on March 6 that it would push back the release of its fourth quarter earnings to March 23.

GST also would not disclose the amount of the latest sale of its NAMS product division to Carrier Management Systems. Originally the NAMS division was part of Action Telecom, which GST divested in November 1999.

"In 1997 [when GST purchased Action], we were part of the telephone company so we couldn't segregate ourselves," said Paul Bilberry, president and CEO for Carrier Management Systems and one of the founders of Action. "The software didn't fit into GST's core business, so we bought it back from them." The buyers included five investors from GST and five investors from outside the company. "It was a smart move for GST," he said, because the carrier needed to focus on its core business.

All this focus on focus may seem redundant, but it isn't surprising. When up against the new, extremely competitive data competitive local exchange carriers (CLECs), older CLECs such as GST find themselves "a mile wide and an inch deep," said Andrew Cray, research analyst for The Aberdeen Group.

"[The older CLECs] look at the data-oriented CLECs and see how successful they are in the market and think, `if we focus on broadband data services, we'll get rewarded by Wall Street,'" he said. "They are itching to divest their legacy voice and focus on broadband."

Voice isn't in the lead anymore, Cray said. "[Service providers] will be able to provide voice over their data networks very soon. So carriers instead are building out data networks to offer enhanced data services and then layering voice on top," he said. "Older CLECs based on Class 5 infrastructure will soon be left with stranded assets."

By positioning itself to offer integrated voice and data, GST must focus on broadband data services, which could account for GST's string of divestitures, Cray said.

Delaying the earnings announcement could be an indication that the company is the target of an acquisition by another service provider. "They could be cutting pieces off in order to get ready to be bought," said Kevin Mitchell, analyst of service provider networks for Infonetics Research. "In general, we are seeing a lot of specialization and consolidation of service providers, and that's just going to accelerate."

GST could be attractive to regional and national service providers because of its fiber infrastructure and its strong regional business, he said.