ICG buys Netcom in CLEC/ISP merger

Englewood, Colo.-based ICG Communications Inc. last week acquired Netcom On-Line Communications Services Inc., a San Jose-based Internet service provider, in a deal valued at $284 million.

ICG wants to market more aggressively to businesses, and Internet service rounds out its full service portfolio. Netcom has been paying heavily-about 25% of its annual revenue-for network use. It will now use ICG's network and take advantage of ICG's large sales force.

Another boon for the merged company is that 50% of Netcom's customers are located in ICG's service territory.

"The whole reason for this merger is to offer Internet services to our customers," said an ICG spokesman. "Netcom was by far the best strategic fit for ICG."

The merger will reduce churn for both companies and give each access to the other's distribution channels, said Mike Kallet, Netcom senior vice president for products and services. The merger is an ideal situation for Netcom to partner with a telephone service provider, he said.

"One of the nice things is that it's really a merger rather than an acquisition," Kallet said, adding that a large company would have swallowed Netcom. "Netcom will have a significant effect on the future of the merged company."

Although ICG's stock dropped when the merger was announced-primarily because of investor concerns that Netcom's business is dial-up, not direct connection-the merger appears to be a winner, said James Henry, telecommunications analyst for Bear Stearns, New York. "Keep in mind, people questioned MFS and UUNet because of [UUNet's] dial-up customers," he said.

ICG Netcom Headquarters: Headquarters: Englewood, Colo. San Jose, Calif.

917,656 customer 8000 business circuits in service customers

2898 operational 550,000 fiber route miles; residential 1117 fiber miles customers under construction

1483 employees 774 employees

Source: Bear Stearns, ICG 1997 10K and 10Q