Wholesale: Williams Communications May Leave Parent

Posted: 01/2001

Williams Communications May Leave Parent
By Josh Long

Williams Communications (,
buoyant after nearly completing its 33,000-mile Multi-Service Broadband Network
a year ahead of schedule, may separate from Williams (,
its energy parent company.

The decision could give investors a clearer picture of the carrier’s identity
and help raise the company’s value on Wall Street, analysts say.

The board of directors of Williams, which owns approximately 85 percent of
Williams Communications, authorized its management to continue pursuing a
tax-free spinoff of the company’s communication business, executives said last

The board was expected to vote on the measure possibly early this year. Under
a spinoff, a ratio of a share of the carrier’s stock would be issued for each
share of Williams’ stock, executives say.

"The benefit to the potential [spinoff] is that we are taking the
expertise and value we have in our company and hoping to increase our
shareholder value" and raise growth for capital, says Lisa Price, Williams
Communications spokesperson.

Analysts say a spinoff would give the carrier its own identity, which is
growing more rapidly than that of its parent, and draws a different breed of
investors than those who cover the more stable energy business.

"We know Wall Street has trouble deciding which analyst will cover a
company that has connections with utility and telecom," says Judy Reed
Smith, CEO of Boston-based consulting firm ATLANTIC-ACM Inc. (
"In order to get the attention of the right analyst, they would be well
served to separate themselves."

A spinoff also removes uncertainty as to the company’s future, says RHK Inc.
( analyst Brian Van Steen.
"Wall Street typically does not like uncertainty."

ATLANTIC-ACM analyst Taher Bouzayen adds that "shareholders cannot
really get a 100 percent reward on the performance of Williams
Communications" because its parent company partially undermines the
carrier’s position.

Bouzayen believes the carrier implied in its business plan that it would
become independent after a few years. Price, who compares the company’s desire
to pursue a possible spinoff to a senior gearing up for college, says the
carrier is prepared for its independence.

It seems that way: Having established rights of way through its parent
company, executives said last fall that they expected to reach 33,000 lighted
and operational route miles and 125 cities on its broadband network by the end
of 2000. And while stocks across the telecommunications industry have plummeted
and companies are finding it increasingly difficult to raise capital, Williams
Communications has something that college kids need when they move away from
home: money. The carrier has more than $1.1 billion in cash through its parent
company and venture capital, Bouzayen says.

In October, Williams Communications recorded unaudited third-quarter revenues
of $533.8 million, including a 32 percent increase compared with the second
quarter in recurring domestic network services revenue, a hike executives
attribute to the use of the company’s fiber optic capacity on its multiservice
broadband network.

Meanwhile, Williams Communications has acquired key customers, ranging from
SBC Communications Inc. ( and KDD
America Inc. ( to
MariTEL Inc. (

Executives say they have signed new contracts worth about $3 billion in

SBC, which has a 4 percent stake in Williams Communications, represents a
hefty chunk of the carrier’s potential revenues. SBC now delivers long-distance
service in Texas through Williams’ backbone. But once it can deliver
long-distance in all 50 states, Bouzayen says, the alliance could be worth about
$1 billion a year, which is half the revenue Williams Communications reported in

That amount of money–and strategic planning–is enough to make most parents

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