IXC Communications, Inc.

1122 Capital of Texas Highway South
Austin, Texas 78746-6426
U.S.A.
(512) 328-1112
Fax: (512) 328-0624
Web site: http://www.ixc-comm.com

Public Company
Incorporated: 1985 as Communications Transmission Inc.
Employees: 1,567
Sales: $648.8 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: IIXC
NAIC: 51333 Telecommunications Resellers; 51221 Wired Telecommunications Carriers; 513112 Radio Stations; 514191 OnLine InformationServices

IXC Communications, Inc., is among five “new-age carriers” (a group including Frontier Corporation, Level 3 Communications Inc., Qwest Communications, and The Williams Companies Inc.) that own and operate coast-to-coast digital communications networks, selling phone line service to corporate users and other telecom companies. IXC’s two principal products in the late 1990s were private telephone lines (transmitting voice and data over dedicated circuits between two points) and long distance switched services (processing and routing long-distance calls). The private line segment of its business became increasingly important to the company in the late 1990s, as IXC sought to take advantage of the growing demand for Internet and electronic data services. In 1999, IXC announced its intention to merge with Cincinnati Bell in a $3.2 billion deal that all concerned hoped would result in the creation of an integrated data communications powerhouse, according to a company press release.

1980s Origins

On January 1, 1984, the long distance telecommunications industry was changed forever upon AT&T’s divestiture of its 22 Bell System operating companies, a move resulting from an antitrust suit filed against AT&T by the U.S. Department of Justice. Ultimately, the Baby Bells were grouped together into seven Regional Bell Operating Companies that provided local telephone service and local access service to long distance carriers. As a result of this legislative assistance, smaller long distance carriers emerged as alternatives to AT&T, Sprint, and MCI, prompting an explosion in business communications services in 1984.

One such new company was Communications Transmission Inc. (CTI) of Austin, Texas, formed in 1985 when the Times Mirror Company spun off its microwave communications enterprise to a group of investors, among them cable television executive Ralph Swett, for about $175 million. Involved in providing digital microwave and fiber optic communications to long-distance telephone companies and other corporate clients, CTI quickly moved to expand through acquisition, purchasing Michigan-based ALC Communications Corp. for $30 million in 1988. By 1990, CTI was a cross-country network serving more than 90 cities. It was also in financial trouble. On sales of $426 million for 1989, CTI reported a net loss of $18.4 million. In 1990, the company defaulted on several loan agreements, having failed to turn the ALC subsidiary around and struggling unsuccessfully to keep up with shifts in the telecommunications industry, resulting in the loss of some important clients, including Western Union.

Efforts to restructure the company, led by Swett, resulted in the 1992 formation of IXC Communications. The arrangement also involved partnering with the Electra Communication Corporation (ECC), another Texas fiber optic transmission system. Under the reorganization, ECC became a wholly owned subsidiary of IXC. By 1994, management at IXC had begun the planning stages of a new nationwide fiber optic network, financed in part by private loans secured by Swett.

Business Services in the Mid-1990s

Up until the mid-1990s, IXC’s revenues had been garnered from private line services. In late 1995, however, the company expanded into the business of selling long distance switched services. IXC sold these on a per-call basis, with payments due monthly after services were rendered. Eventually, IXC also became a recognized provider of network transmission capacity to national and regional long distance carriers that elected to purchase capacity rather than invest in upgrading or replacing their older fiber networks. Revenues for the company at yearend 1995 were $91 million.

Also during this time, IXC began a fiber expansion program, anticipating great developments in the $100 billion-plus long distance industry, and the exponential growth in packetized (“packet-switched”) services, or broadband communications systems, including ATM (Asynchronous Transfer Mode), Frame Relay, and Internet-related applications. IXC, as well as the other so-called next-generation carriers—Frontier Corp., Qwest Communications, Level 3 Communications, and Williams Network—differed from the traditional carriers in that they constructed their networks around a packet-switched, data-friendly model rather than the slower circuit-switched, voice-centric models.

In 1996, the Telecommunications Act of 1996 began allowing for greater competition in the long distance business. Partly as a result of this legislation, IXC put in place its own nation-wide ATM/Frame Relay network, launching the first broadband services product offering in early 1997. Regional and local Internet service providers began to purchase capacity from IXC. By leasing, selling, and swapping fiber capacity, IXC was able to significantly cut the costs involved in constructing its network. By the end of 1996, IXC had tripled its revenues from 1992, earning a total of $203 million. IXC was taken public in 1996, trading on the Nasdaq exchange under the symbol IIXC.

Acquisitions, Joint Ventures, and “Swap” Agreements

The stage was thus set for growth at IXC. In 1997, IXC acquired Network Long Distance, Inc., a Virginia-based long distance reseller. Also that year, IXC entered an agreement to share network capacity with Vyxx, a telecom unit of Williams Companies, which provided IXC with greater network access in the South. In turn, Vyxx received access to an IXC line between New York and Los Angeles. The agreement, part of the company’s “capacity swap” growth strategy, saved IXC’s network expansion budget an estimated $100 million. IXC also began the next stage of its growth strategy by entering the retail market and concentrating on gaining small- to medium-sized businesses as clients. Toward that end, the company purchased Telecom One of Chicago, which served business customers in 32 states.

In September 1997, Ben Scott was named the company’s president and CEO. Scott had been among the veterans of the cellular industry who had helped shape the evolution of wireless communications. He came to IXC from his post as president and CEO of PrimeCo Personal Communications, a joint venture among Bell Atlantic, US West, and AirTouch, where he was responsible for the largest wireless business launch in telecommunications history.

Under Scott, expansion was not limited to the United States. IXC formed a joint venture of its own with Telenor AS, the Norwegian national telephone company. The venture, called Storm Telecommunications Ltd., was formed to provide telecommunication services to carriers and resellers in nine European countries. The company also acquired a minority interest in the Mexican long distance markets through an indirect joint venture in Marca-Tel S.A. de C.V. Marca-Tel held a long distance concession in Mexico that reached over 80 percent of the population.

IXC also became a member of InterconnX, a consortium of ATM/Frame Relay network companies, to further extend its data networking reach. By the end of 1997, IXC’s facilities, in addition to its coast-to-coast digital communications network, included seven long distance switches and 15 Frame Relay-ATM switches to capitalize on the growing demand for Internet and electronic data transfer services. IXC’s revenues stood at $420 million, double that of the previous year, and the company had over 100 long distance resellers as customers.

Industry Milestones and Influential People

By April 1998, IXC completed a major industry milestone: the first new coast-to-coast fiber-optic network in the United States in more than a decade, joining Los Angeles with New York City. The company commemorated the lighting of the network by hosting a special event from New York City’s Waldorf-Astoria Hotel, demonstrating the network’s nationwide capabilities as it linked simultaneous events in Austin, Texas, and Los Angeles via videoconference.

IXC also announced a four-year, $156 million agreement with Excel Communications, Inc. to provide private line and switched network services. Excel, a Dallas-based firm with more than 3,000 employees, was the fifth largest long distance carrier in the United States at the time. IXC continued to grow through acquisition, adding several Internet service provider (ISP) companies, including SmartNAP (a web hosting company in Austin, Texas); The Data Place, Inc. (an Internet systems integrater in Newark, Delaware); and ntr.net, of Louisville, Kentucky, which had sophisticated back-office capability, such as online ordering processing and web-enabled billing.

Company Perspectives:

We develop and market network-based information delivery solutions for the global communications market. IXC Communications, Inc. will differentiate itself in the marketplace through: Innovative Service Development; World Class Network Engineering; Exceptional Delivery.

The company’s retail arm, comprised of Telecom One and Network Long Distance, was organized as Eclipse Communications, Inc., a wholly owned subsidiary of IXC offering a comprehensive set of communications services to business customers around the United States, including Internet-related data services. By this time, IXC was providing a solid national Internet access service and was meeting the growing demand of its reseller customers for expanded Internet offerings. Through the knowledgeable sales professionals of Eclipse, IXC could provide cost-effective communication services with flexible, customized billing to small and medium businesses. The company’s Internet services were headed up by senior vice-president Dominick DeAngelo, previously head of Sprint’s Internet division. Bringing DeAngelo on board the executive team, according to some analysts, meant that IXC was serious about providing its resellers the whole range of Internet-related services, including hosting, security packages, and other services. Also joining the IXC executive management team was former AT&T executive David Hughart, who became president of IXC’s retail business division. Hughart was put in charge of expanding Eclipse.

By September 1998, total revenues rose 40 percent to $498.8 million. The increase was attributable to increased private line revenues and increased wholesale billable minutes. At the same time, higher net losses reflected $4.5 million in merger-related costs alone, as well as increased headcount.

On November 8, 1998, IXC was selected by Bell Atlantic to help extend the latter’s nationwide ATM cell relay service. Being part of IXC’s digital fiber network would mean that Bell Atlantic could provide its business customers with cost-effective, high-speed communications beyond its local access borders in the East Coast region.

1999 and Beyond

By December 1998, the company’s business included three major services: private line services (long-haul transmission of voice and data over dedicated circuits under the long-term bulk contracts), long distance switched services (billing based on actual minutes of use, including origination and termination fees), and broadband services (Frame Relay, ATM, and IP transport).

During this time, IXC further enhanced its coast-to-coast, next-generation Internet backbone by dividing it among eight regions, containing a central traffic aggregation point (core site). This network, named Gemini2000, would be the first next-generation carrier to support both commercial and research community traffic, plus offer high-speed communications 100 to 1,000 times faster than other ISPs. The Gemini name was chosen because the NASA missions of Gemini 6 and Gemini 7 achieved the first rendezvous in orbit between two spacecraft on December 15, 1965, orbiting the earth in parallel six inches apart. IXC wanted to reflect the duality of diversity and change, critical in a new Internet for the next millennium. By December 31, the company had the New York, Washington D.C., and San Francisco Core Sites online and activated. Other Core Site facilities were planned for Atlanta, Chicago, Dallas and Newark, Delaware and Austin, Texas.

In July 1999, a future-shaping event took place at IXC, when the company agreed to a merger with Cincinnati Bell, one of the country’s leading local communications providers. In preparation for big changes at the company, a new IXC management team was brought on board; Scott resigned as chairman of the board and was replaced by Richard Irwin, and Stanley W. Katz replaced James Guthrie as chief financial officer.

The merger with Cincinnati Bell was expected to be completed in the year 2000, barring any complications in obtaining the necessary regulatory approval. Together the two companies hoped to become the next century’s most powerful data communications company, with more than one million customers, 5,000 employees in 35 locations, and a communications network of about 13,000 miles, coast to coast, in the United States.

Principal Subsidiaries

Applied Theory (34%); Data Place, Inc.; Eclipse Telecommunications, Inc.; IXC Communications Services, Inc.; Marca-Tel S.A. de C.V. (Mexico; 24.5%); Network Evolutions, Inc.; ntr.net Corporation; PSINet, Inc. (16.3%); Storm Communications Ltd. (Europe; 40%); Telecom One, Inc.; UniDial Direct (20%).