ITC^DeltaCom ready to roll after Chapter 11 bankruptcy - For Starters

Perhaps the Chapter 11 filing that ITC^DeltaCom made in late June will turn out to be a blip in the history of the company. After going public five years ago, ITC^DeltaCom was growing at a rate of 40 percent a year until things started to slow down for the West Point, Ga.-based CLEC in 2000.

The company recently announced that Welsh, Carson, Anderson & Stowe, a private equity investor, had snapped up 49.4 percent of the company's outstanding stock and, according to Drew Walker, ITC^DeltaCom's president, things are looking up for the company.

While ITC^DeltaCom's retail business remains healthy, its wholesale business, which accounted for about a one-third of revenues, fell prey to the industry downturn despite a marquee line-up of service provider customers such as AT&T, Sprint, Cable & Wireless, Global Crossing, Genuity and WorldCom.

Fiber-based ITC^DeltaCom operates in the nine-state BellSouth territory in addition to Arkansas and Texas. On the wholesale side it focuses on providing short-haul (average routes are about 230 miles) bandwidth to carriers along with PRI lines to ISPs offering dial-up access, The company's wholesale business was hit by problems at Global Crossing and Williams, while on the PRI side it was hurt by problems at customers such as Genuity and Cable & Wireless, although Earthlink continues to be a large user. Interestingly, the Chapter 11 filing of ITC^DeltaCom's biggest wholesale customer, WorldCom, hasn't impacted the CLEC.

ITC^DeltaCom's future clearly lies with retail customers to whom it offers local/long-distance voice, private line, ISDN, frame relay, ATM, IP VPNs and Internet access. Its flagship retail product is Integrated T, which offers customers any combination of local/long-distance, Internet access, frame relay and IP-VPN services over a single T1 circuit.

Enabled by a TDM-based IAD from Adtran, the Integrated T product has been slowly moved down market. Where it once offered the service to customers that needed a minimum of 10 voice lines, it is now offering it to those who need just six lines, and will soon offer it to those that have a requirement of four lines.

With the aim of further leveraging its ATM backbone, the company also has been testing an ATM version of Adtran's IAD and plans to offer an Integrated T service in Q1 2003 that would enable customers to use as much or as little of the total T1 bandwidth for voice or data applications. Despite the bankruptcy, the company claims to have kept customer churn to less than 1 percent by continuing to communicate with them orally, in writing and through on-site visits.

ITC^DeltaCom's time operating under court protection lasted a short four months. With backing from a majority of bond holders, it unloaded $515 million of debt, which reduced its yearly interest payments from about $55 million to about $11 million. Although the company won't say when it'll turn a profit, it claims to have sufficient cash on hand to stay in the game. Indeed, ITC^DeltaCom might be on the lookout to snap up other CLECs.

COPYRIGHT 2002 Horizon House Publications, Inc.
COPYRIGHT 2003 Gale Group