Mergers & Acquisitions and Telecom and Energy & Environment and Utilities and Technology and Communications

eGix buyout sets up Bell battle

December 17, 2007

The fiercely competitive local telecommunications landscape should get even more heated, following Cincinnati Bell Inc.'s $18 million acquisition of Carmel-based eGix Inc.

eGix, which agreed to the buyout this month, provides bundled voice and data services, as well as high-speed Internet access and messaging products, to about 17,000 commercial customers. The 57-employee firm, with $16 million in annual revenue, operates in Indiana and Illinois, plus another 21 states.

Its client base and revenue could get a lot larger, however, with the backing of behemoth Cincinnati Bell. It's using the purchase to enter the Indianapolis market, setting up an unusual battle with AT&T for commercial customers. In no other city do two original "Bell" companies square off in the lucrative business market.

Cincinnati Bell was one of only two companies in the old Bell system owned independently of the former AT&T Corp. before the antitrust suit prompting AT&T's breakup in 1984.

The merger of SBC Communications Inc., which had a dominant local presence, and AT&T Corp. in 2005 created the largest provider of both local and long-distance telephone services, wireless and DSL Internet access in the country.

"I can't think of another city that has two Bell companies in the exact same place going after the same exact customer," said Thomas P. Dakich, attorney for eGix. "It's a big deal for Indianapolis--this $1.2 billion company coming here to compete."

AT&T welcomes the competition, spokeswoman Molly Cornbleet said. The company's market position in the state has never been stronger, she said, thanks to the depth of products and services it offers through one provider.

eGix, meanwhile, became more attractive to Cincinnati Bell after the General Assembly in 2006 passed legislation easing restrictions on telecom companies.

One of its tenets deregulated the use of copper wire into a home or building. Fiber-optic cables carry the bulk of telephone calls and Internet traffic among major cities and across the country. But the older, slower copper wires carry data between telephone-company central offices and the homes and businesses they serve, a span known in the telecom industry as "the last mile."

The law allowed competitors such as eGix cheaper and more flexible access to the lines from local carriers--in this case AT&T--enabling it to build better systems that use broadband to bundle products.

The legislation also makes it easier to deliver phone service using technology called voice over Internet protocol, or VOIP, that transmits calls using Internet applications.

"It's a great opportunity for us to grow the customers eGix has come across in their day-to-day business, and also leverage the relationships we have in Cincinnati," said Shane Brown, Cincinnati Bell's vice president of business development.

For instance, the acquisition may give the company an advantage in competing to provide services for the local offices of Cincinnati-based Fifth Third Bancorp, Brown said.

eGix has grown in part by embarking on an aggressive acquisition spree, beginning in January 2005.

It bought Noblesville-based Internet services provider iLectis Inc. and the assets of locally based CTI Group's Xila Communications LLC, as well as Bloomington-based Kiva Networking, a technology and Internet services provider.

Founded in 1990 as a voice-message company, eGix bundles voice mail and other services and sells them to small and medium-size businesses.

Through its years in the voice-messaging arena, the company has built a network that runs through 23 states and a number of top metropolitan areas, including Los Angeles; San Francisco; Chicago; New York City; Washington, D.C.; and Indianapolis.

eGix began offering long-distance service in the late 1990s before rolling out local phone service and VOIP in 2004. Today, it is the largest dial-up Internet access provider and the fifth-largest dedicated Internet access provider in the Indianapolis area, according to IBJ research.

Under terms of the deal with Cincinnati Bell, which is expected to close in the first quarter of 2008, eGix initially will retain its name, Brown said. CEO Steve Johns--an eGix founder who, along with other managers, owns majority control of the company--will stay on as vice president and general manager of Cincinnati Bell's out-of-region, long-distance area. No job cuts are expected.

In 2004, Cincinnati Bell expanded from its original service territory and began offering local and long-distance phone service, as well as Internet and wireless, in Dayton.

Expanding into Dayton and Indianapolis enables Cincinnati Bell to broaden its reach at a time competitors are eating away at its original customer base.

Five percent of its Ohio customers left the company from 2005 to 2006, according to Cincinnati Bell's 2006 annual report. It has been able to offset much of the losses, however, by offering Internet services to existing customers.

Indeed, telecom companies have been forced to become much more nimble. A federal study released Dec. 10 shows that 14 percent of U.S. households have no landline phone. The figure is expected to nearly double by 2010.

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