From Pipe to Fiber - Williams Communications Group history and Latin American plans - Brief Article

Latin Trade, March, 2000 by Claire Poole

Williams Communications Group is quietly putting together the pieces that may someday create a region-wide fiber-optic network.

S. MILLER WILLIAMS' EXPERIENCE IN Latin America runs deep. As a teenager in the 1960s, he traveled with his father who built pipelines through South America for Tulsa-based Williams Cos. In the early 1990s, he hammered out an operating agreement with the Cuban government for the then-Williams WilTel subsidiary to create a fiber-optic link between Havana and Miami (a proposition later squashed by the U.S. State Department). Over the last several years, he's helped negotiate investments in telecommunications companies in Chile, Brazil and Mexico.

The 48-year-old company offspring may be about to dive in deeper. As senior vice president of the international division of $1.7 billion (1998 sales) Williams Communications Group, Inc., he is quietly putting together the pieces may someday create a region wide fiber-optic telecommunications network.

The company certainly has the wherewithal to make such a move. Last October, it spun off from its oil-and-gas parent, raising $680 million in an initial public offering (IPO) on the New York Stock Exchange--one of the largest such offerings of the year. The deal attracted the likes of Baby Bell-turned-giant SBC Communications, which invested $425 million for roughly 4.25% of the company (with the right to buy up to 10%), chipmaker Intel, which invested $200 million for more than 1.5%, and Mexican billionaire Carlos Slim Held, whose telephone company, Telefonos de Mexico (Telmex), invested $100 million for less than 1% (with the right to buy up to 10%).

Legendary pipe. Williams also has the expertise. How an oil-and-gas company got involved in the telecommunications business has become something of industry legend. In 1985, when its parent began replacing parts of its pipeline network in the United States, a bright engineer suggested that instead of selling the old, narrow pipe as scrap, it should string telephone line through it, which would cost half as much as doing it from scratch. Williams Cos. went on to build a fiber-optic network that stretches 21,650 miles from New York to California, providing voice, data, Internet and video services to communications service providers. With the proceeds from the IPO, it hopes to reach 33,120 miles connecting 125 cities by the end of 2000.

While the company has become known as the only player in the world with a complete fiber-optic network that is actually up and working, Williams is the first to admit that he already faces some competition in constructing the same thing southward. Spain's Telefonica is busy building a South American fiber backbone. U.S.-based Global Crossing plans to string fiber-optic cable between the United States and Central America and among the major South American cities. Others are said to be studying the idea, including Telecom Italia, which has major investments in the region, and Enron, which, like Williams Cos., is building its own fiber-optic telecommunications network in the United States.

Williams could get a jumpstart from Intelig, a start-up venture among Sprint, National Grid Group of Britain and France Telecom. When Intelig was created in early 1999, it planned to piggyback pipelines, sewage lines and electricity grids with telecommunications equipment to compete with Brazilian long-distance giant Embratel, which is owned by MCI WorldCom of the United States. Now that MCI WorldCom plans to acquire Sprint, Brazilian regulators may force it to sell Sprint's 25% stake in Intelig. Williams admits he is intrigued by the proposition. "There are a lot of people who call me about it," he says. "If they divest, we would be interested to look."

Networking with telecoms. Even if the acquisition doesn't work out, Williams already has a base from which to build a regional fiber-optic network. Over the last several years, the company has invested more than $550 million in a trio of Latin American telecommunications companies.

The first was in Brazil in March 1998, when it scooped up the cellular licenses for the states of Rio de Janeiro and Espirito Santo with partners Algar Telecom and SK Telecom of Korea for $1 billion. The operating company--Algar Telecom Leste (ATL), 55% controlled by Williams--has built up its customer base from zero at the beginning of 1999 to almost 700,000 customers.

Williams' second Latin American acquisition was in Mexico in October 1998, when it purchased Intersys, a Mexico City-based company that installs data networks. But Williams probably won't build its own telecommunications network in Mexico; it's already signed an alliance with Telmex to interconnect the companies' long-distance fiber-optic networks.

Its third--and most strategically astute--acquisition was in Chile. In March 1999, Williams bought 19.9% of MetroCom, which is constructing a fiber-optic network in the Santiago area. The network was scheduled to be completed at the end of 1999. While its piece of MetroCom is small, Williams owns warrants that could increase its stake to 50%.