NEW ICG TO FOCUS BUSINESS ON MORE REGIONAL MARKETS

ICG Communications endured yet another rebirth last week following shareholder approval of its roughly $6 million acquisition by MC Venture Partners and Columbia Capital. The company's new CEO, Level 3 Communications veteran Dan Caruso, said the new ICG will be smaller and humbler.

“The company's going to be a lot more focused than it ever has been,” Caruso said. “ICG always aspired to be a big national company, trying to get to a lot of cities. We're going to focus on regions like Colorado, where it has a critical mass of customers and a deep fiber network.”

ICG's revenue will be smaller, too. Caruso won't say how this year's take might compare with the $360 million or so in recurring revenue the company earned last year (the secrecy a benefit of being a newly private company), but company filings reveal some details. As ICG finishes relinquishing the dial-up business it once owned to Level 3, it will collect about $1.4 million less in reciprocal compensation in the fourth quarter. And it will surrender nearly 7% of its recurring revenue in the form of a wholesale dial-up contract with its largest customer, MCI, that expired at the end of September. According to Caruso, 80% of that business was a take-or-pay contract wherein MCI paid ICG for service whether or not it used the service, and it didn't. “We knew that revenue stream would go away,” he said.

The work force will be smaller as well. Caruso let go of about 100 of the company's 500 workers last week, including about a dozen senior executives. As ICG finishes some terminal contracts and pulls out of unwanted markets, the headcount will shrink even more, he said.

ICG is still pulling out of New York, Boston, Chicago, Seattle and several other unprofitable markets — places where ICG has little or no network but offered wholesale dial-up access — in favor of the 25 where ICG expects to turn a profit. That work was begun by Caruso's predecessor, former CEO Randall Curran, who took ICG out of Chapter 11 bankruptcy in 2002 and later paid down its restricted debt using cash paid by Qwest Communications in exchange for being let out of a wholesale dial-up contract. ICG sold its remote access dial-up business to its customer, Level 3, this April, leaving ICG in self-destruct mode.

“[ICG was] fairly short on cash and burning through it quickly,” Caruso said. “Had we not stepped in, they would have run out of money last July and would have had to go through another bankruptcy.”

Curran felt ICG needed to emphasize a retail strategy — he said shortly before he left the company that it should flip from 80% wholesale to 80% retail in five years — but Caruso has no such goal. Although he intends to grow ICG's retail voice-over-IP (VoIP)revenue, Caruso is comfortable with most of the company's revenue coming from the wholesale business.

Going forward, ICG's business will be two-pronged: bandwidth services such as DS-3 transport, gigabit Ethernet and high-speed Internet access for carriers and large enterprises, and Voicepipe, its home-grown retail VoIP product for small and medium-sized businesses. (Caruso won't say how many Voicepipe customers there are.)

A longtime ICG spokesman welcomed Caruso's view of a smaller, more focused ICG.

“I've seen ICG try to be all things to everyone,” he said. “It didn't work.”