Integra Telecom Concentrating on Enterprise, Wholesale Markets

COMPTEL PLUS As part of a strategy to zero in on growth in the enterprise and wholesale markets, Integra Telecom this week introduced E-line Ethernet Private Line and Ethernet Virtual Private Line services.

The services are tailored for customers that want to transmit large amounts of data and obtain the security associated with Ethernet, said Bryan Adams, senior product manager of Ethernet services with Integra Telecom, in an interview this week at the COMPTEL PLUS Spring 2011 Convention & Expo in Las Vegas.

The products will be available April 1 for carriers and in late April or May for enterprise customers, Adams said. In a prepared statement, Integra Telecom Chief Marketing Officer Steve Zimba said enterprise customers will be able to connect their locations together and enable cloud-based services.

Adams said Integra Telecom will offer the Ethernet services in increments of one megabit ranging from five megabits per second to 10 Gbps.

Integra Telecom has ramped up hiring over the last six months and is investing more than $100 million this year in capital expenditures, said John Nee, Integra Telecoms vice president of Corporate Communications.

The company also has new leadership after naming Tom Casey CEO last month. Casey has served as chairman of the companys board since 2009 and will remain a director. He has replaced Dudley Slater, who co-founded Integra Telecom and served as its chief executive for 13 years. Slater remains on Integras board of directors as vice chairman.

Casey, who most recently served as president and CEO of Germantown, Md.-based Current Group LLC, oversees a company with about 2,200 employees and 120,000 business customers in 11 states.

Since its founding 15 years ago, Integra Telecom has largely made a name for itself serving small and medium-sized business customers in the Western United States. The small and medium-sized business markets still comprise the lions share (64 percent) of its monthly revenues. 

But the Portland, Ore.-based telecommunications provider is focusing on growth this year in the enterprise and wholesale markets, Nee said.

The company is striving to woo enterprise clients in the vertical markets of education, engineering, medical, finance and the government sector.

Brian Lippold, executive vice president and chief operating officer for Integra Telecoms wholesale and national accounts division, said the company landed a contract about three months ago with the U.S. Department of Veterans Affairs. Integra Telecoms government clients also include the U.S. Department of Defense and U.S. Department of Justice.

Solidifying a contract with the federal government is not an easy or a quick sale. It takes between a year and 36 months to land a good-sized agreement, said Lippold, who joined Integra Telecom in September and has more than 20 years of telecom management experience.  

We are well down that path,” he said, referring to the status of Integra Telecoms relationships with the U.S. government. We have much higher expectations.”

The enterprise sector currently represents 24 percent of Integra Telecoms monthly revenues. Integra Telecom defines an enterprise customer as spending $2,000 or more per month. Twelve percent of revenues come from the wholesale market. 

Founded in 1996, Integra is one of the largest competitive local exchange carriers in the United States with about $600 million in annual revenues.  

The company was expected to release its annual earnings today to qualified institutional investors that hold its debt and share the results with prospective investors, broker-dealers and securities analysts. Integra also plans to hold a quarterly conference call on March 29.

Integra Telecom only publicly releases select financial data. As a privately held entity equity investors include Goldman Sachs & Co., Tennenbaum Capital Partners, funds managed by Farallon Capital Partners and Warburg Pincus. it is not subject to the reporting requirements of a public company. 

Its 2010 earnings could shed important light on key metrics like free cash flow and EBITDA (earnings before interest, taxes, depreciation and amortization) that investors look for in determining the financial health of a company and its ability to service its debt obligations.

Nee said the company may publicly release certain information, including EBITDA.

Eleven months ago, Integra Telecom announced completing $785 million in debt financing that the company said would lower its cost of debt and provide for greater operational flexibility.

Moodys Investors Service a debt ratings agency has raised concerns about the companys ability to meet its obligations. On April 7, 2010, when Integra Telecom announced its plans to restructure its debt, Moodys changed its rating outlook on the company to negative from stable. 

The debt ratings agency cited Integra Telecoms increased financial leverage and a belief that it would take the company longer than originally anticipated to generate meaningful free cash flow as a result of the economys impact in Integra Telecoms service territories. 

Moodys also cited concerns over pressures from competitors, namely Comcast and Qwest Communications.

Integra Telecom and Qwest compete in several states in the West. CenturyLink is close to finalizing its $22 billion acquisition of Qwest after the Federal Communications Commission conditionally approved the merger last week.

Integra Telecom, which purchases wholesale services from Qwest to support its customers, initially raised concerns over the merger. But the companies reached an agreement in November on wholesale conditions, and Integra Telecom said it would not oppose the merger in any state or federal proceedings.

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