PARTNER CHANNEL: C&W Sheds U.S. Voice, Data Customers

Posted: 11/2002

C&W Sheds U.S. Voice, Data Customers

By Tara Seals

FOLLOWING THROUGH WITH A PLAN it announced in May to focus on enhanced IP services, including hosting, IP virtual private networks (VPNs), content delivery networks and voice over IP (VoIP), Cable & Wireless USA Inc. has cut deals with New Edge Networks Inc. and PRIMUS Telecommunications Group Inc. to divest some North American data customers and its U.S. voice business.

New Edge and PRIMUS also will take over Cable & Wireless' affected agent contracts, honoring their terms and conditions, including commission levels.

"Everything stays the same for existing business," explains Jordan Darrow, vice president of investor relations and corporate communications for PRIMUS. "New customers, renewals, that's a business development issue that's really yet to be determined."

PRIMUS acquired Cable & Wireless' retail switched-voice service business in exchange for around $32 million, to be paid out over a two-year period in payments based on each customer's monthly usage. PRIMUS estimates the acquisition could add about 31,000 small- and medium-sized enterprise (SME) and large corporate customers in the United States to its global customer base of more than 2.4 million, generating an additional $150 million in annual revenue and doubling the size of its U.S. retail business.

After the deal gains Federal Communications Commission (FCC) and applicable state PUC approval, Cable & Wireless customers will be transitioned to PRIMUS's network during a four-month migration period.

Business broadband provider New Edge will migrate about 1,500 Cable & Wireless data customers to its network, primarily small-and medium-sized businesses that use dedicated Internet access, frame relay and private line services. The customers have about 3,000 nodes dispersed across the United States and Canada.

New Edge is not calling the transaction a sale, noting that like PRIMUS, it will pay Cable & Wireless a fee, "akin to a commission," says a New Edge spokesman, for each customer migration. Those cash payments will be made to Cable & Wireless over 12 months, and migrations will be completed by January. The deal could boost New Edge revenue by up to $45 million a year, says the company. The potential aggregate value to Cable & Wireless is about $4 million, it says.

"The bulk of revenue is from [direct Internet access], followed by approximately equal amounts from frame relay and private line," says the spokesman. "The types of data services that Cable & Wireless data customers currently use are the same as those we already provide over our national ATM/frame relay/IP network."

Data customers that migrate will retain their current IP addresses and existing premises equipment, and New Edge is honoring current rates for one year and is not charging any fees or transfer costs.

"Customers who prefer to migrate their service to another carrier may incur new connection charges, forced to change IP addresses, change or purchase their premises equipment, and risk potential for service disruption," says the New Edge spokesman.

New Edge and PRIMUS notified the affected Cable & Wireless customers by letter in the fall.

The New Edge spokesman says the company is "opportunistic during these troubled telecom times." Last February New Edge acquired the commercial division of bankrupt AtHome Corp., gaining its direct Internet access customers and network equipment in 30 domestic Internet hubs.

PRIMUS expects the Cable & Wireless acquisition to be cash flow positive next year.

"There are a lot of companies benefiting from the negative environment in the telecom sector, picking up assets for pennies on the dollar," says PRIMUS' Darrow. "We are really doing well, but this move is going to allow us to achieve economies of scale that will allow us to compete more effectively against the Bells and other companies."