Mini megamerger: Cincinnati Bell/IXC combo is just the beginning

It may not have the scale and scandal of some other recent carrier courtings, but the merger announced last week between Cincinnati Bell and IXC Communications is certainly not without its share of intrigue.

Unlike the just-resolved takeover saga that had Qwest Communications and Global Crossing duking it out for control of U S West and Frontier Corp., this deal involves a small but successful old-school telco absorbing a fiber operator with big dreams but poor execution. IXC has experienced financial and management troubles of late, while Cincinnati Bell has expanded rapidly with the help of services such as wireless and digital subscriber line (DSL).

"We view ourselves as a high-growth company," said Richard Ellenberger, president and CEO of Cincinnati Bell, noting that the carrier holds less than 1% of the access lines in the United States but has deployed 10% of the total DSL connections in the country. "We see in IXC an opportunity to expand these strengths on a national scale," he said.

Clearly, the most significant asset of IXC is its 13,000-mile fiber network, dubbed Gemini 2000, that crosses 25 metro areas and is in the process of being expanded even further. That should give Cincinnati Bell's ZoomTown subsidiary the bandwidth it requires to expand its DSL operation, which goes beyond high-speed connectivity to add features such as multicasting, video streaming and Web hosting.

"It really will help us accelerate our growth outside the current area," said Mike O'Brien, president of ZoomTown. "These guys bring a great backbone to the equation."

Despite that kind of network firepower, IXC's management has been unable to mimic its fiber brethren Qwest and Global Crossing - a factor that certainly contributed to the dismissal of IXC Chairman and CEO Ben Scott earlier this month.

"Many argued that IXC lacked the required oxygen from the beginning," said Roger Wery, executive vice president of Renaissance Worldwide. "Management underestimated the complexity. Global Crossing and Qwest are Wall Street darlings, but in the case of IXC there was no serene outcome."

IXC lacked the ability from the beginning to attract local or regional service providers to its network as large, high-revenue wholesale customers that could help defray some of the costs of running an expensive fiber system, Wery said. That will be an ongoing challenge for Cincinnati Bell, he added.

"You have to have access to large carrier customers to guarantee that your pipes are going to be full," Wery said. "Even if there's tremendous growth on the part of Cincinnati Bell there will not be enough to fill the backbone of IXC."

One Cincinnati Bell representative agreed with the assessment.

"You have to be careful that you're making the network efficient," said Rob Pickering, director of Internet services for ZoomTown.

Wery further speculated that Cincinnati Bell could look to absorb other regional service providers, or that the combined entity might attract the attention of a European carrier seeking a network presence in the United States.

New Media Editor Brian Quinton contributed to this article.