- The Washington Times - Monday, March 8, 2004

Corvis Corp. yesterday announced it will buy Focal Communications Corp., a Chicago company that provides phone service for businesses, for $210 million in stock and debt.

Columbia, Md.-based Corvis, which sells fiber-optic equipment and phone services, said the deal will add 4,000 business telephone customers, and save money on capital expenditures.

Corvis will pay $101 million in stock and assume $109 million in debt-and-lease obligations from Focal.

Shares of Corvis rose 9 cents on the Nasdaq Composite Index yesterday to close at $2.04.

Focal operates in 23 major cities including Boston, Miami, New York and Los Angeles. With the Focal purchase, Corvis said it will be able to extend the reach of the fiber-optic network it acquired when it bought Broadwing Communications Inc. last year.

Corvis said it will save money in the long run by integrating Focal’s network with Broadwing’s.

Otherwise, the company said, it may have spent a large amount of money trying to expand Broadwing’s network from scratch.

“Focal will help us expand our nationwide network footprint and reduce our access costs,” said David Huber, Corvis’ chairman and chief executive officer.

“[Focal] will also help add valuable customers and revenue without putting undue stress on our balance sheet,” Mr. Huber said.

Fiber-optic networks are similar to phone networks, but have far more capacity, allowing companies to offer phone, Internet and video service on the same line.

The deal between Corvis and Focal involves two companies that did not live up to expectations created during the technology boom of the late 1990s.

In August 2000, Corvis’ stock price reached nearly $115 per share, but demand for its fiber-optic equipment fell, causing shares to plummet and forcing the company to shift its focus to phone and Internet service.

Last June, it bought Broadwing, which operates an 18,500-mile network across the country.

Focal, once a phone company in strong position to compete with the Baby Bells locally, filed for bankruptcy in December of 2002, emerging last year.

It expects to report sales of about $320 million for 2003, compared to $328.5 million in 2002, Bloomberg news reported.

Corvis lost $55.4 million, or 12 cents per share, for the fourth quarter of 2003, compared with a net loss of $190.2 million, or 47 cents loss per share, for the fourth quarter of 2002.

The company reported revenue of $142.5 million for the quarter, nearly all of which came from the Broadwing division.

Analysts said the Focal acquisition will help Corvis solidify its presence in the phone and Internet market.

It was a good strategic decision, they said, to attract service vendors, because now it can route phone and Internet traffic on Focal’s network instead of paying other companies for access. And, Corvis will now be able to offer video and Internet services to Focal customers who may have previously only had access to phone service.

“They can become a full solutions provider,” Vik Grover, an analyst with Needham and Co., told Bloomberg news. “They get revenue synergies by cross-selling each other’s products.”

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