• Industry Telecommunications

• Fate Acquired by Worldcom

• Founded 1988; 32 years ago

• Defunct December 31, 1996; 23 years ago

• Headquarters Omaha, Nebraska

• Revenue $506 million (Q1 1997)

• Net income $82 million (Q1 1997)

• Total assets $12.335 billion (1997)

• Total equity $10.190 billion (1997)

MFS Communications Company, Inc. (Metropolitan Fiber Systems) was a competitive local exchange carrier that owned and operated local network access facilities installed in and around major U.S. cities and several major European cities. MFS also possessed significant transmission and switching facilities and network capacity that it leased from other carriers in the United States and Western Europe.

History

• The company was founded in 1988 as Kiewit Communications, a subsidiary of Kiewit Corporation.

• By 1991, the company owned fiber-optic lines that serve large business customers in 11 cities.

• In 1993, the company became a public company via an initial public offering.^[2]

• In April 1996, the company announced the acquisition of [UUNET Technologies, Incorporated] .

• In August 1996, [WorldCom Corporation] announced the acquisition of the company^[5] and the transaction was completed in December 1996.^[1]Worldcom filed bankruptcy in 2002.

• Level 3 Communications and NorthPoint Communications were founded by former executives of MFS.

[As of 1994 :] One Tower Lane, Suite 1600 , Oakbrook Terrace, Illinois 60181 , U.S.A. [...]

Incorporated: 1987 as Kiewit Communications Company, Inc.

Employees: 654

Sales: $141.1 million

[...]

A leading provider of communication services for businesses and government agencies in the United States, MFS Communications Company, Inc. competes with regional telephone companies by supplying such customers with telephone and data services through fiber-optic networks, enabling its customers to place long-distance telephone calls and transmit data without going through the local phone utility. Through five subsidiary companies, divided into two business segments, telecommunications services and network systems integration and facilities management, the company operated in 24 U.S. cities in 1994, with additional operations in the United Kingdom and Germany. Before the conclusion of the decade, MFS Communications planned to extend its service area to approximately 50 additional cities, an objective that included establishing service in ten international markets.

One of a new breed of telecommunication companies engendered by the deregulation of the telephone industry in the early 1980s, MFS Communications began operating in 1988 as a wholly owned subsidiary of Kiewit Diversified Group Inc., which in turn was a wholly owned subsidiary of Peter Kiewit Sons’Inc., one of the largest construction and mining companies in the United States. Peter Kiewit Sons ’ entered the telecommunications business as part of a diversification strategy the company effected during the early 1980s, engaging in a series of acquisitions that led to the formation of Kiewit Holdings Group in 1986. From Kiewit Holdings Group evolved Kiewit Diversified Group, which oversaw the parent company’s interests in telecommunications and incorporated MFS Communications ’ predecessor, Kiewit Communications Company, Inc., in 1987.

Led by James Q. Crowe, who would continue to oversee the company once it became MFS Communications, Kiewit Communications was founded to test a theory formulated by himself and other members of Kiewit’s management regarding the rapidly changing telecommunications market, the dynamics of which were transforming in the wake of the consent decree that deregulated the telephone industry and ushered in a new era of competition. Before deregulation, they theorized, competition in the telecommunications industry had been predicated on technology, guided by regulation, and driven by expansion into new markets; a company’s success was largely determined by its ability to extend the geographic boundaries of its operations. The emphasis had been on securing new markets essentially through technological sophistication and financial might, but, as with monopolized industries before it, the telecommunications industry paid little attention to marketing toward specific types of customers or developing diversified services to suit the divergent needs of its clientele.

This was the direction Crowe and others saw the telecommunications industry moving toward after deregulation: a market reorganized around customers, spawning specialized market niches that addressed the specific needs of specific customers. Indeed, many of the characteristics that defined the industry before deregulation would continue to characterize it in its new competitive era. Technology and market expansion would continue to be the foundation from which growth and success would develop, but in a more competitive arena customer satisfaction and loyalty would play a much larger role in determining success in the industry.

With this perspective in mind, Kiewit Communications was organized to provide telecommunications services to specific clientele: large corporations and government agencies. In so doing, the company carved a niche in the broadly defined telecommunications market as a bypass provider of telecommunication services, generating revenue by enabling its customers to place long-distance telephone calls without going through the local telephone utility, thereby avoiding additional connection fees charged by the local utility.

Initially targeting financial institutions—large banks and investment firms—as the company’s primary type of customer, Kiewit Communications began operating in 1988 with an emphasis on building its presence in its newly created market niche at the expense of short-term profits, structuring its growth around particular customer types located in particular metropolitan areas. Six years later, the company still had not recorded a profit, but prodigious growth had been recorded, as each metropolitan area added to the company’s network increased its presence and influence in the U.S. telecommunications market and limited its capability to post any profit.

Chicago was the first city in which Kiewit Communications provided telecommunication services through a fiber-optic network, beginning in April 1988. By the end of the following year, seven more metropolitan areas were added, bringing Kiewit Communications ’ revenues for the year to $397,000. Its net loss, however, approached $18 million, significantly more than the $2.9 million recorded as a loss the previous year, evidence that the company’s initial intent was not to operate at a profit, but to establish itself as a long-term participant in the telecommunications market through rapid growth. This strategy was made possible by the financial support of its parent company, Peter Kiewit Sons ’, and afforded Kiewit Communications an opportunity to grow more rapidly and pay less attention to the bottom line than other, newly emerging competitors.

Kiewit Communications focused on expansion, increasing the number of cities to which it provided long-distance and data transmission services to 12 by 1991—when Kiewit Communications became MFS Communications, Inc.—then to 14 the following year. In the course of this growth, the company’s annual sales increased exponentially, rising from the $397,000 generated in 1989 to $10.6 million the following year, then soaring to $37.2 million by 1991 and $108 million in 1992. With robust revenue growth and market expansion, however, came further increases in MFS Communications ’ net losses, which peaked at $30.9 million in 1990, then slid to $13.1 million by 1992. As these losses mounted and growth continued unabated, the company, still operating as a second tier subsidiary of Peter Kiewit Sons’, began to look for additional ways to finance its growth. The most obvious solution involved a public underwriting of MFS and a separation from Peter Kiewit Sons ’, which the company did the following year, in May 1993.

Once a publicly-held company, MFS Communications used the money raised from the sale of its stock—approximately $1 billion was realized in 1993 and early 1994—to begin marketing the company’s services to a new class of customers: small and medium-sized businesses employing between five and 200 employees and using between one and 250 telephones. Before MFS Communications ’ efforts toward entering this much larger and virtually untapped market materialized, the company unveiled a revolutionary telecommunications service in August 1993, when it built the first nationwide Asynchronous Transfer Mode (ATM) network, enabling customers to transmit voice, video, and data signals simultaneously through a single telephone or cable-television line. The company’s establishment of nationwide ATM service evidenced its ability to offer more sophisticated telecommunication services than other much larger rivals, such as AT&T, MCI, and Sprint, without recording any profit, an ability that enabled the company to compete in a market dominated by wealthier competitors and provided a springboard for further market penetration.

The springboard provided by the establishment of an ATM network carried MFS Communications overseas the following month, when the company received a telecommunications license from the British government to build and operate a local fiber-optic network. Also utilizing an ATM network, the company’s expansion overseas initially led to an agreement with roughly 70 business customers, primarily U.S. and U.K. multinational companies that MFS Communications had served in the United States, and established a base of operations for further European expansion. Entry into the United Kingdom, where telecommunication regulations were most permissible for such a foray, was also a suitable starting point because approximately 300 of the company’s 800 business customers in the United States had operations in the United Kingdom. Building from this base, MFS Communications planned to operate additional telecommunication networks in Frankfurt and Paris in the imminent future, then expand to other areas in Europe within the next several years, drawing on its established clientele in the United States and in the United Kingdom to fuel its international growth.

As the company was defining itself in its new era of operations after becoming a public company, two strategic objectives were readily apparent: international expansion and the development of a small and medium-sized business clientele. The former was being executed through the construction and operation of a fiber-optic network in England under the purview of a subsidiary company, MFS International, Inc., while the latter was being executed through another of the company’s subsidiary units, MFS Intelenet, Inc. Although plans were developing for both of these objectives as the company effected the transition from operating as a subsidiary of Peter Kiewit Sons’ to becoming a publicly-held corporation, neither materialized in any substantive form until 1994, when the company’s transatlantic audio, data, and video service began and it purchased Centex Telemanagement Inc. in a bid to accelerate the introduction of its fiber-optic network services to small and medium-sized businesses.

A San Francisco-based telecommunications management company with 11,000 customers, Centex was among the first businesses in the United States to manage local and long-distance telecommunication services for smaller business, giving MFS Communications valuable assets, experience, and talent in a market it hoped to considerably strengthen its presence. In addition to the Centex acquisition, MFS Communications also constructed two new fiber-optic networks in 1994 in Phoenix and San Diego, further broadening its service area in the United States, which by mid-1994 comprised 31 U.S. metropolitan areas either serviced or under development by MFS Communications ’ fiber-optic networks. Internationally, the company began offering telecommunication service in Frankfurt in July 1994, its first Continental European city of operation, and planned to begin offering service in Paris in September 1994. Positioned as such, the company entered the mid-1990s planning, as it had since its emergence in 1988, for further growth without expectations of posting a profit in the immediate future, but with considerable expectations of increasing its domestic and international presence.

Principal Subsidiaries

MFS Telecom, Inc.; MFS Network Technologies, Inc.; MFS Datanet, Inc.; MFS Intelenet, Inc.; MFS International, Inc.

[...] In 1988, Kiewit formed a subsidiary, Kiewit Communications Co., which eventually became MFS Communications Corp. (MFSCC), to pursue business opportunities in the telecommunications industry and to provide businesses with an alternative source of local telecommunications services. In June 1989, MFSCC increased to 80% its ownership interest in Metropolitan Fiber Systems, Inc. (MFS Telecom), a company that managed an alternate local communications network in Chicago. James Crowe, CEO of MFSCC; Royce Holland, president and chief operating officer; and Terrence Ferguson, general counsel; were the MFSCC executives primarily involved in these negotiations, with Crowe acting as the lead negotiator. The original owners of the companyArthur Brantman, Anthony Pompliano, Howard Gimbel and David Husmanretained the remaining 20% of the shares in MFS Telecom. In August 1990, the 20% interest was further divided so that 10 individuals held the shares. [...]

Of all the beneficiaries of last week's $2 billion deal for MFS Communications Co. to take over Internet access provider [UUNET Technologies, Incorporated], one of the biggest will be a Baltimore venture capital firm that stands to make $189 million on a $4 million investment.

New Enterprise Associates controlled 10.1 percent of Fairfax, Va.-based Uunet, having paid $3.9 million for the stake in 1994. NEA endured a wild roller-coaster ride in Uunet's stock price after the company went public last May, and stands to make a killing for its clients when the merger goes through. [...]

The 18-year-old firm has invested in about 320 companies, which [NEA general partner Charles W. Newhall III] said have $18 billion in annual revenues. NEA has capitalized on the historic bull market for new stock issues that has made millionaires out of people who founded NEA-backed companies such as Genetic Therapy Inc. of Gaithersburg and Integrated Health Systems Inc. of Owings Mills.

In most cases, venture capitalists get paid when a company is sold or goes public. NEA's 15 initial public offerings last year topped the venture capital industry for the third time in four years, according to a report by San Francisco-based Venture-One Corp.

"Over the last five years, NEA has averaged one IPO a month -- a remarkable track record for an entrepreneurial money machine," Venture-One said.

Not nearly all the cash from the [UUNET Technologies, Incorporated] takeover will go to NEA's principals, however. The investment was made with part of a $200 million fund the firm raised from pension funds and other investors in the early 1990s, Newhall said. NEA principals put up 1 percent, and otherwise get paid a share of the profits above the $200 million invested. Given the hit on Uunet, almost any return at all on the other $196 million in the pool is pure profit. [...]

[UUNET Technologies, Incorporated] founder Richard Adams was basically an engineer with a vision when he went looking for money in 1994. He met up with NEA, and with two other venture firms, and quickly raised the money he needed to move forward.

But it came with a price. The venture capitalists decided that [UUNET Technologies, Incorporated] needed upgraded management. "They said, basically, we're going to hire a management team and we're going to put some money in," said Uunet President and Chief Executive [John William Sidgmore (born 1951)]. "They brought people in in early '94."

[John William Sidgmore (born 1951)], a colleague of NEA partner Peter Barris when they both worked for General Electric Co., was at the top of the list. He had sold Intelecom Solutions, a Montgomery County software firm, to Computer Sciences Corp. in 1991 and was still running Intelecom for the new owner when Barris approached him.

"He basically convinced me this would be an exciting area to work in," Sidgmore said. "It was a little tiny company, much smaller than the one I was running. But Peter convinced me it was a terrific opportunity." [...] Sidgmore said. "No, of course [I didn't know how terrific the opportunity was, ... ] but you have to remember no one knew anything about the Internet two years ago. Now everyone thinks they're an expert."

What happened in between was 1995. [UUNET Technologies, Incorporated] did some big things right, and also rode a wave of interest in the Internet that was mostly beyond its control.

On its own, UUNET decided to focus on the business market, avoiding low-margin competition with the likes of America Online for consumers' business. And it made a key alliance with software titan Microsoft Corp., which took a 13 percent stake in Uunet.

"Microsoft, in essence, financed development of the network," [John William Sidgmore (born 1951)] said.

By then, the media had joined the Internet hype, and so had the stock market. And, Sidgmore says, there was good reason.

"People realized the Internet would become a revolutionary technology," he said. "It enables virtually everyone to communicate with each other, and it was dramatically cheaper than conventional networks. These two things were a sea change."

The wave allowed [UUNET Technologies, Incorporated] to go public at $47 a share last May. From then it was a roller-coaster, with the stock rocketing above $70, then plummeting as low as $24.50 after AT&T; Corp. said it was getting into the Internet access business, then rebounding as optimists comforted themselves with the idea that upstart AT&T; challengers past have grown into companies like MCI Communications Corp.

The takeover price was $61 a share. But the deal attracted negative attention as well, because suspicious trading in Uunet options made it appear news of the deal had leaked prematurely. Sidgmore said the company doesn't know who bought the options before the deal.

"A lot of communications technologies have come and gone, and AT&T; hasn't dominated them," Newhall said. "We felt that if you went into the business end of the Internet backbone, you could add products and services to be competitive."

But Sidgmore said the company made the deal because moves like AT&T;'s entry make the Internet business much more competitive.

The Virginia company simply needed a bigger partner with deeper pockets to make the technology investments Uunet will need to keep up.

"The Internet is getting very serious, and there are going to be a lot of very serious players," he said. "If we want to remain a leader, we were not going to be able to do it on our own."

Newhall said NEA's 16 investment professionals, based on St. Paul Street and in Silicon Valley, live by their ability to spot trends, mostly in health care and information technology industries. "In our business, our success is determined by our ability to participate in things that change the way the world is," he said. "I think we've done that."

"We've basically succeeded in what we dreamed of doing: starting businesses that are important."

In a sign of the rush toward ''one-stop shopping'' in telephone service, [WorldCom Corporation] agreed to buy MFS Communications yesterday in a stock deal worth approximately $12 billion.

The combination of Worldcom and MFS creates the nation's first fully integrated local and long-distance phone company since the breakup of the Bell System in 1984. And though the companies are hardly household names, together they promise to be a new giant in the lucrative market of providing communications services to business customers.

By combining networks, MFS Worldcom will be able to offer corporate customers a full complement of services: local and long-distance phone, data transmission and access to the Internet. Worldcom, the fourth-largest long-distance carrier, has until now primarily sold its network capacity to other long-distance companies. MFS is the leading provider of alternative local phone services to business customers seeking better prices or services than are available from the local telephone monopolies.

For all its size, however, yesterday's merger is only the third-largest deal of the year in the roiling telecommunications industry, outranked by the $22.1 billion combination of Bell Atlantic and Nynex and the $16 billion merger of SBC Communications and Pacific Telesis.

And unlike those pending mergers, yesterday's deal will have scant impact on residential customers. Worldcom and MFS plan to focus almost exclusively on the business market, where for years big corporate customers have purchased phone service from carriers that lacked such familiar brand names as AT&T or Nynex.

Still, analysts and executives said the merger was another milestone in the redrawing of the communications landscape that began when the Government deregulated the industry in February.

''It's highly significant because it elevates one more player into the ranks of end-to-end service providers,'' said Paul T. Unger, a telecommunications consultant at A. T. Kearney.

Together, MFS and Worldcom will have $5.4 billion in revenues, operations in 45 domestic markets and 500,000 corporate customers. Worldcom will issue 500 million to 550 million shares to acquire MFS.

In Nasdaq trading yesterday, Worldcom's stock dropped $3.625, to $22.75, while MFS jumped $9.94, to $44.81.

MFS Worldcom faces plenty of competition in the business market. AT&T, MCI and Sprint are moving rapidly to offer packages of services to corporate customers. And the Baby Bells intend to be full-service providers as well, though they will cater primarily to businesses in their own regions.

Several analysts said the merger presaged even more deals, and they pointed to another alternative local-access provider, the Teleport Communications Group, as the next potential takeover. Teleport announced a deal with AT&T yesterday to carry long-distance calls by connecting its local networks in large cities to AT&T's nationwide network. Teleport's shares rose $1.375, to $23.625.

Neither MFS nor [WorldCom Corporation] is a stranger to mergers. MFS, which is based in Omaha, acquired a leading Internet access company, [UUNET Technologies, Incorporated], for $2 billion in April. And Worldcom, which is based in Jackson, Miss., was cobbled together from several small long-distance companies, reaching its current configuration through the $2.5 billion joining of LDDS and Wiltel Network Services in January 1995.

Analysts generally praised the latest deal, which was reported yesterday in The Wall Street Journal, though some noted Worldcom was paying a lofty premium. Under the terms of the deal, each share of MFS common stock will be exchanged for 2.5 shares of Worldcom stock. Based on yesterday's closing price, that values MFS shares at $47.80 each -- a 37 percent premium to the market value on Friday.

MFS, which has invested heavily to build fiber optic networks, had revenues of $583.2 million in 1995, but lost $267.9 million. ''You're paying $12 billion for a company with negative net income and negative cash flow,'' said one analyst, who insisted on anonymity.

That prospect apparently does not daunt Bernard J. Ebbers, the president and chief executive of Worldcom, who proposed the merger to the chairman of MFS, [James Quell Crowe (born 1949)], over dinner two weeks ago at Mr. Crowe's home in Omaha. The two men took barely two weeks to hammer out a deal the size of Time Inc.'s 1990 acquisition of Warner Communications.

Mr. Ebbers, whose flowing hair and relaxed manner make him look more like a country-and-western singer than a corporate executive, will be the chief executive of the new company. [James Quell Crowe (born 1949)] will be the chairman.

Worldcom's current chairman is John W. Kluge, the billionaire investor and a major shareholder in the company. Mr. Ebbers said Mr. Kluge would step down when the merger is completed in four to eight months. He said it was not clear whether Mr. Kluge would remain on the board.

Mr. Ebbers said the companies did not plan any layoffs. But the merger will probably claim at least one casualty in the executive suite. Royce W. Holland, the president and chief operating officer of MFS and one of its founders, said he would probably depart in a few months.

''I've been at this for nine years,'' Mr. Holland said yesterday, ''It's probably time for me to take a little time off.''

In a joint interview, Mr. Ebbers and Mr. Crowe said the merger would give them a critical jump over AT&T, MCI and other rivals in offering a bundle of services to business customers.

Worldcom owns a fiber optic backbone that snakes around the country, while MFS has scores of smaller fiber optic rings in local markets. By connecting the companies' combined 25,000 miles of fiber, the two executives said they would be able to carry traffic entirely on their own networks.

''Being first to market is a tremendous advantage, because building these networks is not an overnight proposition,'' Mr. Ebbers said.

AT&T, MCI and Sprint do not own local systems. So as they move into the local phone business they must either lease capacity from the Baby Bells, or construct their own local switches and networks. The Baby Bells, meanwhile, are prevented from entering the long-distance business until they can demonstrate that their local markets are truly competitive.

Combining Worldcom and MFS will also squeeze savings out of both companies. Daniel Reingold, an analyst at Merrill Lynch & Company, estimated that MFS would save about $40 million a year by diverting its long-distance traffic from AT&T and other carriers to Worldcom's network. And Worldcom could save $200 million to $400 million in access charges by using MFS's local networks to connect calls from its long-distance customers.

Worldcom has racked up an impressive annual return to shareholders of 57.3 percent in the last decade -- in part by aggressively acquiring and managing other telephone companies.

''They've shown an ability to integrate acquisitions,'' said Simon Flannery, a telecommunications analyst at J. P. Morgan & Company, ''It's important to look at their track record in analyzing this deal.''

Whatever Mr. Ebbers's talents as a manager, some observers question whether he needed to buy MFS -- particularly given the $12 billion price tag. With fiber optics and digital technology expanding the capacity of telephone wires, some analysts forecast an eventual glut of network circuits that will probably enable long-distance carriers to lease capacity on local networks at increasingly favorable rates.

P. William Bane, a telecommunications consultant at Mercer Management Consulting in Washington, said Worldcom might have been able to get into the local phone business simply by leasing capacity on the local networks of the seven Baby Bells.

Indeed, MCI Communications announced something resembling such a deal yesterday with Nextwave Communications, a company that plans to offer a new type of local cellular service, called personal communications services. MCI will lease capacity on Nextwave's wireless system and sell it under the MCI brand name.

''If they can fill in all the pieces, they'll do very well,'' Mr. Bane said of MCI. ''And they won't have to buy anything.''

DENVER -- As he rushed to lace America with fiber-optic cable, James Crowe wasn't the sort to let anything stand in his way -- not the Rocky Mountains and certainly not his crosstown rival, Joseph Nacchio.

By 1999, when Mr. Crowe's [Level 3 Communications, Incorporated] started digging a line connecting Denver and Salt Lake City, Mr. Nacchio's Qwest Communications International Inc. had already threaded its own cable through the most direct route, a seven-mile railway passage through the granite of the Continental Divide. Undeterred, Level 3 swerved an extra 70 miles through southern Wyoming, installing fiber at a blistering 19-mile-per-day pace.

But now, Level 3 has hit a wall even Mr. Crowe may have trouble overcoming. The company's original ambition -- to build history's largest, most advanced fiber-optic network to carry exploding amounts of Internet traffic -- is now part of one of the biggest gluts the country has ever seen.

All told, about 39 million miles of fiber-optic cable stretch underneath U.S. railroad beds, corn fields, natural-gas lines and roads, enough to circle the earth 1,566 times. Companies racing to build or expand nationwide networks laid some $90 billion of fiber during the past four years. Merrill Lynch & Co. estimates that only 2.6% of the capacity is actually in use. Much of it may remain dark forever.

The fiber glut underlies much of the uncertainty plaguing the telecom sector -- and has even spilled over into the economy at large. Billions of dollars in shareholder value have evaporated in some of the biggest owners of fiber networks, including Global Crossing Ltd. ,Williams Communications Group Inc. and Genuity Inc. Many are struggling with massive debt: On Friday, 360networks Inc. said it was delaying a $10.9 million interest payment while it studies ways to preserve cash (see article).

The carnage has spread to suppliers such as fiber-maker Corning Inc. and Lucent Technologies Inc. Also on Friday, Nortel Networks Corp. , which makes gear for the Internet and telecom sectors, predicted a staggering $19.2 billion loss for the second quarter (see article).

Level 3, meanwhile, is fast retrenching. Its stock is off 94% from its high, and executives are expected Monday to announce plans to lay off as much as 20% of the work force, among other cost-cutting moves. The company's game plan: live off its stockpile of cash -- some of it raised from Omaha construction magnate Walter Scott Jr., a close friend of investor Warren Buffett -- until competitors die off and demand returns.

"The shake-out that is occurring is good for Level 3 in the long term, although it is awfully hard to convince someone who is sitting in a dentist's chair being drilled that this is a good thing," says Mr. Crowe. "It hurts."

Level 3's troubles represent an even bigger threat to the economy than the first round of the dot-com meltdown because the telecom companies involved are so much bigger. As a group, telecoms have gorged on some $650 billion in debt and are now failing in record numbers for the industry. The debacle is shaping up to be one of the biggest financial fiascoes ever, with losses to investors expected to approach the $150 billion government cleanup of the savings-and-loan industry a decade ago. And as more companies recognize the depth of their problems, the damage is likely to get worse.

To understand the origins of the mess, it helps to take a close look at two of the industry's pioneers, Qwest and Level 3. Located just miles apart in the Rocky Mountain foothills, each sprang from the ambitions of an old-style Western billionaire. Each dazzled investors early on with visions of rapidly expanding demand for telecommunications bandwidth, only to run into difficulties when Internet usage didn't soar as expected. But in the end, only one of the companies would figure out a way to shelter itself against the coming storm.

It has been said that the fiber glut bears a striking resemblance to the overbuilding of the railroads in the late 1800s. So perhaps it's fitting that one of the first to launch a nationwide network to compete with the long-distance companies was Philip Anschutz, a Denver railroad and mining baron whose net worth last year was put by Forbes Magazine at $18 billion.

By the mid-1990s, when Mr. Anschutz turned his attention to the industry, most of the nation's fiber was owned by AT&T Corp. , Sprint Corp. and MCI, along with a few upstarts. The hair-thin strands of superclear glass carry infrared light generated by tiny lasers that blink on and off billions of times per second, in a code that transmits voice calls or data traffic. Fiber dramatically increased the number of calls that could be handled at one time, making it far cheaper to use than coaxial cable, which is made of copper wire encased in plastic and aluminum.

Mr. Anschutz first became intrigued with the business through his ownership of Southern Pacific Rail Corp., which had a construction subsidiary that installed fiber along railroad tracks for other customers. When he sold Southern Pacific to Union Pacific Corp. in 1996, he retained the subsidiary, SP Telecom.

Laying fiber isn't technically difficult. Networks are built by burying plastic pipes, or conduits, in the ground and then literally blowing the fibers through with compressed air. One recurring problem is obtaining the right-of-way from property owners. It was there that Mr. Anschutz seized on his advantage: SP Telecom was already armed with the go-ahead to build along much of the nation's railroad tracks. He decided to build a newfangled network specifically designed to carry increasing amounts of data traffic -- with the goal of renting space to other telecommunications companies that needed long-distance capacity. In industry lingo, he would become a carrier's carrier.

Mr. Anschutz called the company Qwest and in January 1997 hired Mr. Nacchio, an engineer by training who was then head of AT&T's huge consumer unit, to bring it public. A compulsive workaholic who once finished the New York City marathon with a badly bleeding foot, the 51-year-old Mr. Nacchio left his family in New Jersey and commuted to the Denver headquarters, routinely working until 11 at night.

When Mr. Nacchio took over Qwest, he immediately bumped up the plan to build a 13,000-mile U.S. network to 18,500 miles. It looked like a financial stretch at first. Qwest had $150 million in seed money from Mr. Anschutz, but the rest came slowly. After a two-week road show in March 1997, Mr. Nacchio secured $300 million in debt at a relatively stiff 11.875% interest rate. Three months later, Qwest went public, raising $318 million.

But before long, business took off. As one of the first entrants to the market, Qwest was able to reel in some early telecom clients. GTE Corp., Frontier Corp. and WorldCom Inc. bought about half the fibers on Qwest's network for about $3.6 billion, enough to cover about 90% of the cost of building its entire network. Within six months, Qwest's stock price had doubled.

The success wasn't lost on one of Qwest's board members, a telecom visionary in his own right named Jim Crowe. A former WorldCom chairman, Mr. Crowe was fixed for life financially and testing out retirement.

But he was growing antsy and wanted back in the game. He had long toyed with the idea of setting up a long-distance fiber network himself. And he had a billionaire of his own to back him up: Mr. Scott, his former boss at Peter Kiewit & Sons, the closely held Omaha construction giant.

Mr. Scott was receptive to the idea. At a 1995 gathering in Ireland of executives close to Mr. Buffett, Mr. Scott had been dazzled by a talk by Bill Gates. The Microsoft Corp. chairman told the audience that the Internet "was radically going to change the world," Mr. Scott recalls. And Mr. Crowe already had a stellar track record: A few years earlier, he had built a Kiewit telecom spin-off, MFS Communications, and sold it to WorldCom for $14 billion.

So in 1997, Mr. Crowe told Mr. Anschutz that he was planning to leave the Qwest board at the end of the year. "I said that I might start a company and it might be competitive," says Mr. Crowe.

The move, when it came, caught Mr. Nacchio by surprise. He says he knew Mr. Crowe was drumming up a plan but believed he would focus on the local-phone business. "Jim asked me, 'What is the best place to locate a company?' I said Denver," says Mr. Nacchio. "I didn't know he was going to be a direct competitor. If I'd known that, I would have said Pennsylvania."

Mr. Crowe started Level 3 with $3 billion from Kiewit and a select group of investors, including Mr. Scott, who became Level 3's chairman. Instead of having an IPO, Level 3 simply took over a tracking stock held by Kiewit and was listed on the Nasdaq in April of 1998. He located the company in Broomfield -- just 14 miles from Qwest's Denver headquarters -- a spot Mr. Crowe says he picked after a national study about where high-tech talent wanted to live.

The 51-year-old Mr. Crowe, an imposing figure who could pass for a high-school football coach, started with plans for an ambitious global network. He broke ground for a 16,000-mile U.S. route in Schulenberg, Texas, in July 1998, and then drew up plans for a 4,750-mile network in Europe. Tapping an Omaha connection, Union Pacific head Richard Davidson, Mr. Crowe got permission to build on the railroad's lines for some of its routes. Before long, the company was working in 20 different time zones, with 250 crews digging at once in North America alone.

The Sniping Begins

The sniping between Qwest and Level 3 started almost immediately. A clearly hurt Mr. Nacchio groused that Mr. Crowe was pursuing a "copycat strategy" and openly wondered whether his rival had unfairly gained insights during his time on the Qwest board. "At the end of the day, I have always questioned why he would join," he says. "I'll bet you he learned something being on our board."

Mr. Crowe, who insists he was up-front at all times with Messrs. Anschutz and Nacchio, retorted that Level 3's network would be a technological leap beyond Qwest's. Level 3's innovation was to lay 12 conduits in each leg of the network, against Qwest's two. Only one might have any fiber blown through it at first, with the rest to come as demand warranted. Since one of the biggest costs in laying networks was the digging, Level 3 figured it could save money in the long run by doing it just once. It would also be able to adapt quickly as new kinds of fiber became available.

"Qwest is a fine company and I like Joe. However, we have a big disagreement," says Mr. Crowe. "Our goal is not simply to deploy one generation but to build an entirely new model that assumes technology will change quickly, and at times, unpredictably."

Mr. Crowe quickly attracted an almost cult-like following with his theories of how the Internet would revolutionize the stodgy world of communications. One of his best-known principles, and one of the main reasons he built such a large network, was known as disruptive pricing -- using low prices to stimulate Internet demand. "For every one percent you drop price, you get a greater than one percent increase in demand," Mr. Crowe said again and again.

He also had little patience for vertically integrated companies that try to do it all. Instead, he argued, communications would eventually drift toward a high-tech model, where each of the most successful companies carves out its own niche.

Investors ate it up, especially in Omaha, where the Peter Kiewit name was legend. Generations of engineers had already become wealthy through an employee stock ownership plan, and when Level 3 was spun off, the workers' paper profits soared. The fact that Mr. Scott sits on the board of Berkshire Hathaway Inc., and Berkshire's legendary leader, Mr. Buffett, keeps his offices on the 14th floor of Kiewit Plaza, only added to the allure. "A lot of people thought this was the next coming, the next Berkshire Hathaway. They loaded all their assets in," says Marc LeFebvre, a stock broker in the Omaha office of Dain Rauscher Inc. who, along with his father, once worked at Kiewit.

By February 2001, Level 3 had managed to raise $13 billion, enough to finance building its entire network and -- according to its plans -- keep it going until it achieved profitability. Derek Scarth, an equity analyst with Berger Funds, remembers Mr. Crowe's pitch boiled down to this: "If you build it, they will come."

But it wasn't customers who came so much as it was competitors, lured by the easy availability of funding. J.P. Morgan and McKinsey & Co. figure at least 50 companies, offering a range of Internet backbone services, joined the gold rush by the end of 2000.

"There was a time in 1998 and 1999 where we were getting five offerings a week, just in telecom," says Brian Hayward, head of telecom investing for Invesco Capital Management Inc. The pile of prospectuses on his floor was two feet high.

Mr. Nacchio marvels at how easily the money flowed. In the fall of 1998, he remembers coming up with a second round of financing in a 10-minute call with bankers while driving to his son's soccer game. "Before the game was over, we had subscribed for a billion bucks at 8.9% interest," says Mr. Nacchio. "To me, we had arrived."

Once the big dig was set in motion, it was hard for any one player to scale back. Each had raised money by promising investors a new fiber-optic network, and each felt compelled to forge ahead to get revenue flowing as soon as possible. Mr. Crowe, who watched competitors creep up behind him much as he had crept up on Qwest, consoled himself with the conviction that his network would be superior. And he and all the others stood firm in the belief that Internet traffic -- whether e-mail, or pay-per-view movies or the frenetic transactions of day traders -- would soon be gushing so fast that it would engulf all their pipelines and more.

Major Miscalculations

In retrospect, the executives -- and Wall Street -- made some major miscalculations. Too many companies focused on the easy part of building a network: the long-distance loops that cut mostly through rural areas. Too little money went into widening the pipes that run into homes and offices, an extremely expensive undertaking complicated by the fact that the Baby Bells already own such "last-mile" connections. With high-speed access slow to reach businesses and consumers, development of the sort of "killer applications" that might spur new usage dwindled.

Some analysts tried to sound a warning. In October 1998, an Internet researcher at AT&T Labs named Andrew M. Odlyzko published a paper debunking the widely held view that Internet traffic was doubling every three months. Mr. Odlyzko laid out an argument that in fact Internet use was doubling only once a year. "It was an extremely convenient myth," says Mr. Odlyzko. "Every entrepreneur who was getting financing could quote it."

With the flood of investment money continuing unabated, few in the business paid him any heed. But Mr. Nacchio was starting to get rattled. With so many new entrants, he figured, life as a carrier's carrier might get tough. The entire wholesale market, Mr. Nacchio calculated, was roughly $9 billion a year. "There wasn't enough revenue to go around," he says. So Mr. Nacchio began converting Qwest into a retail company instead, acquiring LCI Communications, which made Qwest into the nation's fourth-largest long-distance company.

In June 1999, he dropped a bombshell by making a bid for U S West, the Denver-based Baby Bell. Coming as it did in the midst of America's Internet euphoria, the move stunned investors, who wondered why Qwest would buy such a traditional, slow-growing company. Mr. Nacchio even had trouble persuading Mr. Anschutz that the move was justified. "All I knew is that we were not going to succeed by being a one-trick pony," says Mr. Nacchio.

Whatever the justification, the stock market wasn't buying it. Qwest's shares plunged, but the $35 billion deal still went through. Mr. Crowe, for the time being, was looking brilliant. Level 3 stock surpassed $130 per share in March 2000. Dangling fat stock options, Level 3 poached Qwest employees, sometimes driving Mr. Nacchio to distraction.

Even though Level 3 was still more than a year away from completing its network, it managed to grab headlines. In October 1999, the company snagged a key piece of America Online's business from WorldCom. Analysts estimated that Level 3 undercut WorldCom's price by 50%. Mr. Crowe's theory of disruptive pricing was having an impact.

But Mr. Nacchio had some disruptions of his own in mind. Angered by the defections and worried about market share, the executive ordered his sales teams not to lose any contracts to competitors. The project, code-named "Operation Clean Sweep," turned the tide back in Qwest's favor.

It also kicked off a deflationary spiral the likes of which few industries have ever seen. In the wholesale market -- the business of selling network space to other phone and Internet companies -- prices are expected to plunge at least 60% this year.

It's even worse for so-called "dark fiber," which hasn't yet been connected to the expensive electronic equipment needed to make it usable. A major brokerage house, say, that wanted to purchase its own strand of fiber could pick it up for $1,200 a mile, down from as much as $5,000 in 1997, according to Qwest.

Such sales are becoming increasingly rare, however, because few companies are in a position to invest in the equipment needed to connect the fiber into a network. That equipment, including the ultra-fast switches called routers, costs many times more than the fiber itself.

The pricing collapse, combined with the bursting of the Internet bubble, has left the fiber industry gasping for air -- and Mr. Nacchio looking like a genius.

Saved by the Baby Bell

Thanks to the constant trickle of money from plain-vanilla local phone service, Qwest is projecting revenue of as much as $21.7 billion this year, up from $19 billion in 2000. It lost $81 million last year and won't be profitable anytime soon, but its stock price has been holding steady lately at around $33 on the New York Stock Exchange. That's down 48% from its high but still well above the initial offering price, adjusted for a split, of $5.50.

Life isn't so easy for Mr. Crowe. After trading as high as $130 in March of last year, the company's stock closed Friday on the Nasdaq Stock Market at $7.62, off 34 cents, or 4.3%. By some estimates, investors in the Omaha area alone have suffered paper losses of as much as $20 billion, leading to plenty of grumbling around town.

Tom Dowd, an Omaha attorney, is kicking himself for not selling his Level 3 shares earlier, but he still has faith the situation will improve. "Walter Scott has his reputation on the line with all these people getting it in the teeth," he says. "He doesn't want his legacy to be a foul ball."

It will take some doing to turn Level 3 back into a hit. Due to some environmental problems in California -- the digging was disrupted temporarily by regulators when a trout turned up dead near the route -- the network isn't quite finished. Of the 96 fibers in Level 3's first conduit, only two are currently lit.

And, despite winning high-profile customers such as Yahoo Inc. and XO CommunicationsInc., Level 3 recently lowered its projection of communications revenue for this year to as little as $1.4 billion from $1.7 billion. In 2000, the company reported a net loss of $1.45 billion on revenue of $1.18 billion, including $200 million in revenue from mining operations.

Some acquaintances have noticed that Mr. Crowe seems more subdued these days. But in public the executive remains the picture of confidence. He stresses that the company still has $4 billion in cash and says it will emerge from the shakeout.

"A year ago we were in a hothouse environment where every plant, regardless of its strength, prospered," he says. "Now, we are outside in the cold world. It is a better environment, as painful as it is."

Thomas Dowd and hundreds of other Omahans soon will be digging out their Level 3 Communications Inc. stock records.

The reason: This week [in March of 2014], Level 3 shareholders are voting to sell the company to CenturyLink Communications.

The sale marks the end of an investment saga that began 20 years ago with hopes of riches but ended with big losses for most shareholders, despite the efforts of some of Omaha’s biggest names in business.

“It was a very bad experience,” said Dowd, a retired attorney and former director of the Metropolitan Utilities District. “It’s just one purchase at a time, and you think everything’s going good and then, bam! Anyway, lesson learned.”

Although his loss was “substantial,” he said, it didn’t disrupt his lifestyle, and he figures he’s better off than shareholders who lost their retirement savings or other vital funds. He’s still a Level 3 shareholder and will get some cash and CenturyLink shares in the sale, which is scheduled for September.

But it works out to about $4.43 for shares he bought years ago, some of them costing more than $100.

It all started in the 1990s with the best of intentions, plus the admiration Omahans have for Peter Kiewit Sons’ Inc., the Omaha construction and mining company, along with its then-chairman and chief executive, Walter Scott.

Along the way, Scott’s friend and business associate Warren Buffett also gave an endorsement of Level 3. His Berkshire Hathaway Inc. invested $100 million in the company for a brief time.

In 2002 Buffett issued a statement that expressed confidence in Level 3’s management, finances and “valuable assets” and added: “Level 3 is well-equipped to seize important opportunities that are likely to develop in the communications industry.”

Level 3 started within a Kiewit division called Kiewit Diversified Group in 1990, eventually carving out its own shares of stock available to Kiewit employees. Unlike their shares in Kiewit’s construction business, Kiewit Diversified shares could be sold publicly. Sales started showing up on informal trading sheets.

“All of the old Kiewit people were in it,” said Jon Bischof, who retired in 1992 as a district construction manager for Kiewit. “It was really a hell of a deal. It was all very forward-thinking.”

Under Kiewit executive [James Quell Crowe (born 1949)], Level 3 began building a fiber-optic highway for the upcoming information age. It was a marriage of high-tech fiber technology and Kiewit’s time-tested construction skills, starting with $2 billion of Kiewit’s cash. Scott became Level 3’s first chairman, a position he held into 2014.

For Omahans, the risks of investing in an untested industry were clouded by the reputations of those involved and the logic of a fiber-optic network to serve the fledgling Internet revolution.

Omaha financial adviser Cella Quinn, who was specializing in mutual funds and advising against single-stock investments at the time, remembers the rush to buy Level 3 shares. Even Omaha mayors Hal Daub and Mike Fahey were Level 3 shareholders at one time.

“There was all this pent-up enthusiasm for anything Kiewit,” Quinn said, because of Kiewit’s well-known business success and the fact that only employees could own its stock. Average investors could only watch while Kiewit earned profits from work such as building Interstate highways and mining Wyoming coal.

On April 1, 1998, Level 3 shares began trading on the Nasdaq exchange, raising capital toward building the fiber-optic network.

“It was not only a Kiewit company, it was a Walter Scott company, too,” Quinn said. “The man and woman on the street were looking at people who were involved in it who had become wealthy in private business. It was a way for the little guy to share in that.”

Crowe and many other top Level 3 officers were alumni of MFS Communications Co. of Omaha, created within Kiewit as an early challenger to the newly separated Bell System companies. MFS was purchased by WorldCom Inc. in 1996.

Crowe served briefly as WorldCom chairman and then returned to Kiewit to form the fiber-optic operation that became Level 3. Scott served briefly on WorldCom’s board of directors.

WorldCom filed for bankruptcy in 2002 after an improper auditing scandal that resulted in former CEO Bernard Ebbers being sentenced to 25 years in prison. Scott and Crowe were not implicated in the WorldCom case.

Although Level 3 moved its headquarters to Broomfield, Colorado, in 1998 to attract needed tech workers, some employees and a majority of its individual stockholders were in Omaha. It held annual shareholders meetings in Omaha through 2005.

On March 20, 2000, someone sold and someone bought Level 3 shares for $132.25, a price that made the company’s publicly traded stock worth nearly $20 billion. By 2002, the price had nearly collapsed, putting most shareholders into the red.

Level 3 might have an information highway, but its toll system wasn’t collecting enough to earn a profit. It was clear that the nation had a “bandwidth glut,” a huge overcapacity of fiber networks.

Level 3 had installed its network, at an eventual cost of $14 billion, and could cheaply add more lines by stringing extra cable through its conduits.

But others had built networks, too, and the demand for bandwidth wasn’t growing as Crowe had hoped. Researchers also found ways to send more data along existing fibers, meaning greater capacity along existing lines.

Most of the new fiber networks were unused, or “dark.” Only a fraction of fibers in the buried bundles were “lit” by the light waves that carried digital communications and brought in revenue for companies like Level 3.

The supply of fiber far outran the demand, and Level 3’s losses mounted, along with its stock price. Investors lost confidence that the company would begin making profits anytime soon. In fact, that didn’t happen until 2014.

Local investors were encouraged by Berkshire’s 2002 investment, accompanied by investment groups Legg Mason Inc. ($100 million) and Longleaf Partners Funds ($300 million). Berkshire and the two investment groups received bonds that they later converted into common stock. But the next year, Berkshire sold most of those shares.

It was a case of stock prices reflecting what investors would pay, rather than the value of the company — in short, speculating.

By late 2008, the stock price hit bottom at 60 cents a share, or a total value of about $80 million. Level 3 was losing more than that every three months, but had a healthy supply of capital from Kiewit to keep operating.

Quinn, the financial adviser, said investors had been reluctant to sell their Level 3 shares as the price went up because they didn’t want to pay income taxes on their profits and because they believed the price would go higher.

Many of them also didn’t sell when the price went down, either, thinking it would recover. They couldn’t imagine Kiewit, Scott and Buffett would back a loser.

“One of the lessons to be learned is that falling in love with a local stock doesn’t guarantee that you’re going to make money,” Quinn said. “So many people knew people who were affiliated with Level 3 through Kiewit or elsewhere that it was very difficult for them to realize that they would lose.”

In recent years, Level 3’s stock price rallied somewhat, but only after a 1-for-15 reverse stock split kept its shares in mutual funds and other institutional portfolios. Its operating results improved.

Kiewit, Buffett and Scott declined to comment for this story, but Scott spoke at Level 3’s 2014 shareholder meeting, when he stepped down as chairman. (He was succeeded by James Ellis, who as a Navy admiral had commanded the U.S. Strategic Command in Omaha before retiring in 2005. Crowe retired as CEO at the end of 2013.)

“I wanted to stick around until I was convinced that Level 3 was solidly on a path toward its destiny,” Scott told the shareholders, according to the Denver Post’s account of the meeting.

“With the current management that you have, with your current finances, with the current opportunities that I think are available, and the fact that the market has finally decided that you’re doing a great job, I think my time has come.”

He addressed Level 3’s challenges: “Who would’ve predicted that at the start of our new business, there would be a telecom meltdown, a tech wreck, terrorist attacks, a worldwide financial crisis and the Great Recession?”

In late 2003, Scott transferred most of his Level 3 holding, worth about $54 million at the time, to his family foundation. At the purchase price, those shares have doubled in value.

Level 3 has grown partly by acquisition, including Global Crossing, mostly an undersea cable company, in 2011 and TW Telecom, a networking company, in 2014.

Despite its rocky financial history, Level 3 represents an opportunity for CenturyLink.

The company, based in Monroe, Louisiana, had acquired Qwest Communications, the successor to U.S. West, which in turn was the successor to Omaha-based Northwestern Bell Telephone Co., a part of the old Bell System.

A “yes” vote on the sale is likely because most shares of both companies are owned by investment groups that, by their public silence, appear to favor the deal. Level 3’s largest shareholder, a branch of Singapore’s telecommunications agency, pledged its support in advance.

Directors of both companies endorsed the plan.

In a conference call last week, Ewing Stewart, CenturyLink’s chief financial officer, said adding Level 3 would make CenturyLink the second-largest telecommunications company, moving past Verizon but trailing AT&T.

CenturyLink, which employs about 900 people in Omaha, said Level 3’s past losses would offset income taxes it would owe on upcoming profits. Adding Level 3’s global network will give it a presence in more than 60 countries, making it “positioned to further enhance the scope and transmission speeds of its broadband infrastructure.”

Another advantage: the ability to meet customers’ “demand for more bandwidth” and new communications services.

Eliminating duplication and consolidating operations would save $850 million a year, CenturyLink said.

Bischof, the retired Kiewit executive, said it’s doubtful any other company will be able to duplicate Level 3’s fiber network.

“Two hundred years from now, it’ll turn out that Walter was exactly right,” said Bischof, who sold his Level 3 shares years ago. “The only problem was, Walter’s time frame on everything was 200 years, and for all the rest of us it was like three years.”

He said early Kiewit-based shareholders who still have the stock will make money in the CenturyLink buyout because their original purchase price was so low — in Bischof’s memory less than 50 cents a share.

At 50 cents a share, the equivalent purchase price of $4.43 represents a large gain. But from Level 3’s first price on the Nasdaq exchange, $62 a share, it’s a 93 percent loss. During that time, the overall stock market has nearly tripled.

For more recent Level 3 stock purchasers, the CenturyLink offer is 42 percent higher than the price last year before news accounts of a potential sale affected the trading price.

Some shareholders made money by selling shares at a profit years ago. Others donated shares to charity, gifted them to their children or passed them on through their estates.

But those who bought shares at high prices lost.

“They’re out a bag of bucks,” said one former Kiewit employee.

Dowd, the retired attorney, said he held onto the shares because it didn’t seem worthwhile to sell at the lower prices and he figured someone would buy the company and he would get some of his money back.

“I always thought Walter Scott was going to pull a rabbit out of the hat,” he said. “He never did.”

Besides, Level 3 has improved, he said. The company has focused on cutting costs, improving efficiency and boosting sales, such as a lucrative 2013 deal to supply broadband connections for 7,000 Starbucks locations and high-volume customers like Netflix and Google.

“You’ve got to commend the present management,” Dowd said. “They go in there and got the company moving, and moving well enough that someone was interested in buying them out.”

Henry Flagler came to Florida in 1883 to build grand hotels in what was sparsely populated coastal scrub. Using wealth amassed as one of the Standard Oil Company's founders, he began cobbling together a railroad down the length of the state. He opened up Florida as he went, erecting posh resorts like the Palm Beach Inn, later called the Breakers, that would serve as starting points for future cities. By 1896, he had built 350 miles of track from Jacksonville to Miami.

Now Florida East Coast Industries, the holding company controlling the Flagler railroad, is using the right of way to establish itself in the new economy. Since last May, the company's subsidiary, Epik Communications, has been selling capacity to move digital information through fiber optic cables that run alongside chugging train cars piled high with crushed stone, building materials and vehicles.

Like most railroads, Florida East Coast Railroad had been collecting rent from giant telecommunications companies that had buried cable beside its tracks. But two years ago the company decided to jump directly into the market for bandwidth capacity. Just shy of one year into its venture selling transmission capacity to telephone companies, wireless services and Internet service providers, Epik's network covers 80 percent of Florida's population and extends west to Texas and north to Atlanta. The revenue backlog is $60 million.

''What makes it a great railroad franchise is what makes it a terrific telecom franchise,'' says Robert Anestis, the chairman, president and chief operating officer of Florida East Coast Industries, who came on board in January 1999 to exploit the telecommunications potential. ''We're in the center of growth.''

The story of how the little railroad leveraged the dirt along its tracks to leap into fiber optic communications provides a glimpse into some of the swaps and barters used to create a glass network for the streams of digital bits and bytes cycling around the globe. It also suggests how some old-economy transportation and power companies may find prosperity in a cyberage.

Railroad tracks make good paths for telecommunications cable because they offer cleared, linear routes. In fact, special railroad cars run along tracks plowing cable underground as they move. The cost of assembling such paths for conduits from scratch would be astronomical.

In the same way, energy and utility rights of way are used for fiber optics. For instance, the Williams Companies created a whole new venture by putting cables along its natural gas pipelines. Consolidated Edison's infrastructure is being used for fiber optic lines into 2,000 buildings in New York.

Southern Pacific Railroad is the textbook example of a railroad creating telecommunications companies, having spawned both Sprint and Qwest Communications International.

In this latest sweep of new entries along with FLorida East Coast are the Norfolk Southern Corporation and the CSX Corporation. ''The pickings have been so good, a lot of people have been getting into this industry,'' says Tim Caffrey, who follows telecommunications for Standard & Poor's.

While Florida East Coast is small, it is beginning to attract attention. Since January 1999, its stock has gone from $27 a share to over $46; its market capitalization has risen from $800 million to just under $1.8 billion. In mid-April an investment group including the Texas billionaire Robert Bass acquired a 5 percent stake in the holding company, based in St. Augustine, Fla., with its railroad, trucking, real estate and now telecommunications businesses.

''It's in the nascent stages, but the company is beginning to make a major play in the telecom industry,'' says Andrew Hamerling, an analyst at BancAmerica Securities.

Florida East Coast was a fairly inert company until Mr. Anestis began to kick-start the assets that Mr. Flagler had put into place 100 years earlier. The company and the St. Joe Company, which held a 54 percent stake in Florida East Coast until recently, had lagged under the control of the conservative Alfred I. duPont Testamentary Trust.

But in the early 1990's, investors pressed St. Joe to start exploiting its assets for better shareholder returns. It shed operations like a paper mill, telephone company and bank to focus on its one million acres of real estate in the Florida Panhandle for resort development.

When St. Joe took a look at its 53.8 percent stake, it decided that it should put the company up for sale. But Mr. Anestis, then a consultant to Peter S. Rummel, St. Joe's chairman, convinced him that there was better way to capture the value of the telecommunications potential.

''I told him it's much better to jump into this thing proactively,'' Mr. Anestis recalls.

Mr. Anestis had had an eye on the company's telecommunications rights of way for some time. In the early 1980's AT&T, MCI, WorldCom and other big players installed fiber optic cables along Florida East Coast Railroad lines to reach the state's growing cities. These leases were a no-cost stream of passive revenue. The next big cable construction wave followed the 1996 telecommunications act. During this second buildup, Florida East Coast decided to get a piece of the digital action.

Mr. Anestis started as a mergers and acquisitions lawyer in Pittsburgh, then headed a railroad holding company, Guilford Transportation Industries, that a client had created. In 1984, AT&T leased right of way from Guilford on an unused line in the White Mountains to add capacity to its Boston-to-Montreal fiber link. The old line, with small trees growing in the tracks, showed Mr. Anestis how valuable such linear paths could be. Mr. Anestis left Guilford and started an investment advisory firm, still consulting with railroads and negotiating right of way leases with telecommunications companies.

In 1997, when Qwest wanted to bury cable on Florida East Coast Railroad routes, Mr. Anestis negotiated on behalf of the railroad and got Qwest to build three conduits for Florida East Coast as part of the bargain.

The next year when Williams was anxious to add Florida capacity along the railroad's right of way, Mr. Anestis brokered a deal for 36 strands of dark fiber from Williams. Dark fiber is unactivated cable.

Instead of being just a passive landlord, Florida East Coast now had telecommunication assets, but it did not know how to deploy them. ''We were pretty good horse traders, but we really didn't know what to do with this,'' Mr. Anestis said. Soon after these deals, he was made head of Florida East Coast Industries.

Mr. Anestis hired strategic consultants at the Cambridge-based Monitor Company to determine whether 3 empty conduits and 36 strands were enough to jump-start a new telecommunications company. Each 1.25-inch conduit can hold 216 fiber optic strands. Two strands of activated cable can transmit 129,000 simultaneous telephone calls. New technology is expected to increase that number a hundredfold.

John McClellan, Monitor's head of telecommunications, concluded that the venture could work. Florida's economy was expected to grow 37 percent faster than the rest of the country over the next 10 years. The company's rights of way, conduits and fiber amounted to a base to reach the majority of the state's population.

Florida East Coast also had enough capital to invest nearly $100 million in cash to get the initial parts of the business up and running.

At the end of the consultation, Mr. McClellan decided to leave his 16-year career at Monitor to head the new Florida East Coast venture.

Now, Mr. McClellan splits his time between his home in Groton, Mass., and Epik's headquarters in Orlando. He took a two-thirds pay cut, spurred by the prospect of stock options. Mr. Anestis said Epik could go public in as few as six months, but acknowledged that market volatility could extend that timetable.

''I entered into this knowing we're in this a while trying to build a business,'' Mr. McClellan said.

Under Mr. McClellan, Epik has extended its reach beyond Florida in fiber and conduit swaps with Enron Broadband Services and Broadwing Communications.

''We're becoming experts in swaps and barter,'' Mr. Anestis said. Trade-outs allow quick geographic links without time-consuming installation. Fiber optic companies build excess capacity so they can use it as capital in future trades.

Florida East Coast and Epik officials, meanwhile, are huddling over aerial photos of the 18,000 Florida acres that Mr. Flagler accumulated and that remain under company control.

Gran Central, a real estate subsidiary, has built a portfolio of high-end office complexes and industrial buildings. Now, the company is considering the land for Telecom Hotels, high-rises intended to house equipment needed to keep data flowing smoothly. The company is also considering constructing office buildings prewired for the latest technology.

Many railroad industry executives are looking for new opportunities. Last year, Norfolk Southern created a subsidiary, Thoroughbred Technology and Telecommunications, or T-Cubed. The railroad plans to lay conduit and use its microwave towers to sell bandwidth capacity to carriers.

In March, CSX signed an agreement with Pathnet Inc., a wholesaler of bandwidth based in Reston, Va., to provide railroad right of way in exchange for equity in Pathnet. Burlington Northern Santa Fe and Colonial Pipeline also signed ''right of way for equity'' deals with Pathnet.

With all these new players, Mr. Caffrey at Standard & Poor's and other industry watchers say a glut of fiber capacity may be on the horizon. Mr. Anestis is not flustered by the prospect. ''We assumed that this supply would cause prices to fall,'' he said. ''Even so, with the slope of growth there's a great business here.''

Correction: May 13, 2000

Because of an editing error, an article in Business Day on May 6 about the move of Florida East Coast Industries into the telecommunications business misstated the company's ownership. While the St. Joe Company, which holds nearly 54 percent of the company's shares, plans to spin off its stake to shareholders later this year, it has not yet done so.

Walter Scott, CEO of Peter Kiewit Sons’, calls the group “Our Gang.” They are Warren Buffett’s billionaire and executive friends, including Scott, Microsoft CEO Bill Gates and former Coca-Cola President Don Keough.

Every two years, Buffett invites about 30 of them and their significant others to a multi-day retreat. In the summer of 1995, they gathered at a mansion outside Dublin, Ireland. The topic was the Internet. Gates and his wife, Melinda French, gave a presentation. It jarred Scott.

Over the decades, [Walter Scott Jr. (born 1931)] had so successfully run publicity-shy [Kiewit Corporation] - a builder of roads, dams and other monster projects - that the company often had excess cash to invest. One investment was funding [James Quell Crowe (born 1949)] in 1989 to build [MFS Communications Company, Incorporated], a phone network that would compete against the big local and long-distance phone companies for mostly corporate business. By the time of the Dublin retreat, MFS was the biggest of the so-called alternate access carriers.

Gates told Our Gang that the Internet was going to be huge and that he was swinging Microsoft to meet it. He said the Net would threaten the traditional phone powers by sucking away data and voice traffic. Scott realized MFS, too, could be hurt by the Internet. “Afterwards, I sat down with Bill and talked with him about it,” Scott says. “My gut feeling was, if you weren’t part of it, you were going to be left behind.”

Scott flew back to Omaha with Buffett, whose office is on a floor of leased space in Kiewit’s headquarters here. Scott sat down with Crowe “and talked to him about where Bill’s head was.” Scott wanted Crowe to look into the Internet.

Crowe says, “He told me that anytime anyone’s told him there’s a risk, there’s always been an opportunity there.”

Crowe launched what MFS called Project Silver to study the the Net and what MFS should do in response. That was the genesis of Level 3 Communications. Today, Level 3 is listed for the first time as a public company on Nasdaq. It begins life with a market value of $10 billion and a loud buzz.

A revolution in the making?

Level 3′s business plan, if correct in its assumptions, could drive down the cost of long-distance phone calls to almost nothing and hasten the decline of the big phone companies.

Level 3 plans to build a global fiber-optic communication network entirely based on Internet Protocol (IP) technology. Crowe is betting that the dominant networks of the world — the ones that carry phone calls using circuit-switching technology based on a 100-year-old design — are dinosaurs.

Not everyone agrees, least of all phone company people. “There’s a bright future for IP, but it’s not a walk-away win,” says Arno Penzias, chief scientist for Lucent Technologies.

And there’s a twist to Level 3′s story that could make things interesting. Level 3 has made a dangerous enemy: Bernie Ebbers, the dynamic and powerful CEO of WorldCom.

Yet for many reasons, the industry is watching Crowe closely. After all, he built MFS into an industry power, then sold it to WorldCom in 1996 for $14.3 billion. And he has an injection of $3 billion in cash and assets from Kiewit for Level 3.

“It’s like watching him trying to make lightning strike twice,” says industry analyst Jeffrey Kagan.

In 1995, the Internet was just taking off and Project Silver team members could find little reliable analysis beyond the fact that the Net was messy, unreliable, interesting and cheap.

Crowe’s epiphany came when he flipped through an industry newsletter and saw a chart from consulting firm North River Ventures titled, Cost to Deliver 42 Page Document. Faxing it from New York to Tokyo using AT&T cost $28.83. E-mailing it over the Internet cost 9.5 cents. “That’s when I realized this was not driven by cool people on the cover of Newsweek,” Crowe says. “It was driven by economics. When we figured it boiled down to bucks, all of us took notice.”

The Project Silver team visited 20 to 30 Internet service providers (ISPs). Crowe went to six. The team concluded that to move fast, MFS would have to buy its way into the Internet. The best ISP to buy was [UUNET Technologies, Incorporated]. The path had come full-circle back to Gates. Microsoft owned 14.7% of UUNet and Microsoft Network was its biggest customer.

Crowe and Scott flew to Microsoft headquarters in Redmond, Wash., to talk to Gates. If Gates had said no, MFS would not have tried to buy UUNet. Gates gave his OK. His only condition was that Crowe had to keep UUNet CEO John Sidgmore. In April 1996, MFS bought UUNet for a stunning $2 billion.

Clash of the titans

Crowe, 48, has big facial features and a booming voice. He prefers to dress casually in a Dockers style. He’s a technology nut who wired all kinds of gadgets together in his home. He eats lunch in the cafeteria on the ground floor of Kiewit headquarters. Level 3′s offices are in one small corner of the stoic 15-story building.

People describe Crowe as incredibly focused, good at communicating a point simply, good at recognizing and hiring talented people and a voracious reader. (One of his favorite books: Snow Crash, a science-fiction novel about cyberspace, by Neal Stephenson.) “He’s very intelligent,” Scott says. “And he gets loyalty and enthusiasm from his people.”

That loyalty is what got Crowe in trouble with WorldCom’s Ebbers. WorldCom, based in Jackson, Miss., has grown by making ever-bigger acquisitions, mostly in the long-distance phone business. Ebbers needed a company like MFS, which has lots of local networks and business customers. UUNet made MFS even more attractive. Within months of MFS buying UUNet, WorldCom made its $14.3 billion offer for MFS.

Crowe did not want to sell MFS, but the offer was too good. He knew the Internet train was coming and that MFS, mostly built on the older circuit-switching technology, would have a rough time making the transition — even with UUNet’s help.

Crowe was to become chairman of the merged MFS and WorldCom, but it was clear he’d be second to Ebbers, who would be CEO. Most of MFS’ top management packed up their Omaha homes and moved to Jackson. Three weeks after the merger closed, Crowe quit and returned to Kiewit.

“I was talking with Jim (Crowe) about what he’d like to do and told him we’d be willing to support him if he was interested in starting a business,” Scott says. Kiewit has two parts. The main one is the construction business. The other one is Kiewit Diversified Group, which holds all Kiewit’s investments in companies. Those companies have ranged from small telecommunications ventures to a power company. Scott asked Crowe if he’d like to take over Kiewit Diversified Group. “I felt Jim would do more with it than I would.” Total value of the group: about $3 billion. It would become Crowe’s seed money.

Reinventing a success

The concept for Level 3 is simple: It’s MFS with a fresh start. Same business plan, but this time based on Internet Protocol (IP) technology. Crowe would use Kiewit’s money to start building a network that could carry information and voice conversations far more efficiently than any network out there, then slowly fill his fiber-optic pipelines by siphoning off business from the telecom giants.

Crowe wasn’t the only one with the idea. Around the time Crowe quit WorldCom, Qwest Communications was starting to get noticed. Based in Denver, Qwest was using money from railroad magnate Philip Anschutz to build its fiber network, which would be partly IP-based and partly circuit-switched. Anschutz put Crowe on Qwest’s board. Qwest also hired fiery AT&T executive Joe Nacchio as CEO. From the outset, Crowe told Nacchio he might start a competing business.

Just before unveiling Level 3, Crowe quit Qwest’s board. Now he’s moving Level 3 to Denver, right in Qwest’s back yard, to take advantage of telecommunications talent in that region. Relations between the two are said to be chilly. Nacchio did not respond to requests to talk about Crowe.

In the meantime, Crowe figured that if he was going to do an MFS all over again, he might as well get the MFS team back. One way or another, he got 18 of his top 20 MFS executives out of WorldCom. Most have taken the exact jobs they had at WorldCom. All were wealthy enough after MFS’ sale to never work again, but they’re in their 30s and 40s and sound thrilled to be back together for another run. Mike Frank, 44, head of Level 3′s human resources, says that at WorldCom: “My usefulness was not appreciated, and I wasn’t fulfilled.”

“I have a lot of loyalty to the guys who got me here,” says Ron Vidal, 37, another member of Crowe’s reconstituted team.

Crowe’s departure from WorldCom irritated Ebbers. But the mass exodus made him boil. The rancor runs deep throughout WorldCom. WorldCom would like nothing better than to bury Level 3 in the marketplace.

That threat notwithstanding, the combination of Kiewit’s backing, the old MFS team and Crowe’s savvy makes many in telecommunications believe Level 3 will succeed. “There’s a lot of faith,” says analyst Kagan.

Investors are expected to snap up the stock. Before the Nasdaq listing, shares were tough to come by. Peter Kiewit Sons’ stock is privately held by employees only. Kiewit Diversified was held mostly by employees and former employees, though shares could be sold publicly. With the Nasdaq listing, an official split from Kiewit and a name change from Kiewit Diversified to Level 3, the stock goes public.

It’s too soon to tell whether Level 3 can challenge some of the regional Bells or top long-distance companies. The telecom giants know about the efficiencies of IP, too, and some are building IP-based networks. They scoff at the notion that circuit-switched networks will become albatrosses. “Nobody’s stupid here,” Lucent’s Penzias says. He holds that communications will wind up being a mixture of circuit-switching and IP. “One protocol to do every job would be a step backward.”

Meanwhile, WorldCom, Qwest and others are building IP fiber networks. Teledesic and Motorola’s Celestri will create high-bandwidth IP networks using satellites by around 2003. Still, demand is exploding. Communications capacity is already in short supply for data traffic, which is growing 150% or more a year. Voice calls over IP networks, a business that barely existed in 1997, will be at least a $1 billion industry by 2002, according to Forrester Research. [...]

Most every successful start-up company has been through a period when it seemed things were about to fall apart. For e.spire Communications Inc. of Annapolis Junction, that time was April of last year.

A technology stock slump was hurting all small new companies, including "competitive local exchange carriers" such as e.spire, firms that planned to take on the huge Bell companies on their own turf with discount local phone service.

The company had planned to raise $133 million in a secondary public offering in the summer of 1996, but pulled the plug on the sale after existing shares sank from $14 to about $8. By April 1997, things were even worse -- the stock was around $5. But the company was forced to forge ahead with its stock sale, even at that low price. It raised just $40 million instead of its already scaled-back hope of $80 million.

"We had no choice. We had about three months of cash left," recalls chief executive Jack Reich. "Had we not raised money at the beginning of 1997," he trails off, then finds a way to put it diplomatically, "the company would have been facing decisions outside of its control."

Reich can smile about those hard times now. The company has since raised $635 million through further equity and debt offerings and has a market value of $850 million. Using today's highflying stock market as a tail wind, the shares of e.spire, formerly known as American Communications Services Inc., or ACSI, now trade at $17 to $19 apiece.

But don't give Wall Street all the credit: Reich, who joined the company at the height of those cash troubles, has been busy transforming it from an early-stage construction enterprise, laying fiber-optic lines under the streets of American cities, into a revenue-generating business.

The company moves a broad line of voice and data services through its optical pipes and offers enough hand-holding to persuade business customers to abandon their longtime relationships with their local Bell telephone companies.

It's undergone an image make-over, including the new name. The smell of new carpeting and paint permeates its recently completed headquarters in a rural business park between Interstate 95 and the Baltimore-Washington Parkway. The company employs 350 of its 850 workers there.

How to count the ways in which e.spire has grown? - Revenue: $4.2 million at the end of 1996; $59 million at the end of 1997. During the first three months of 1998, $27.5 million. (It remains unprofitable.) - Phone lines in service: 360 at the beginning of 1997; 71,688 as of May 7. - Number of buildings where the service is available: 595 at year-end 1996; 1,912 as of this month. - Sales staff: 77 at the end of 1996; 220 today.

E.spire's growth is outstripping most other competitive local exchange carriers, also known as C-LECs. It ranked first on Network World magazine's recent list of the top 200 "hot growth companies," edging out Excite, Yahoo and AT&T's Teleport Communications Group.

"E.spire is one of the most attractive" competitive local carriers, said Frank Murphy, vice president for telecommunications research at securities firm Wheat First Union in Richmond. "They've really taken a lot of the complexity out of data sales for customers."

Under Reich and his sales and marketing team, Murphy said, "the company has changed directions. They've been able to distance themselves from the perception of the old ACSI as a fiber company with very little marketing direction."

E.spire and its fellow upstarts are taking advantage of the 1996 Telecommunications Act, the much-maligned law aimed at opening the $100 billion per year local telephone market to competition.

While most residential consumers remain without a choice of local phone service (most companies say there's no money in it), competition is starting to boom in downtown business areas. There, multiple rivals are able to offer local phone service along with data lines. And there's nothing but growth ahead. Companies such as e.spire have just less than 2 percent of the local calling market, and they're picking off business customers from the Bells like so much proverbial low-hanging fruit.

E.spire is among the first of its type to recognize a fundamental shift in the way such companies are valued by Wall Street, according to Murphy: "Now, in the past 12 months the focus has shifted to favor whoever is leveraging those assets into sales and traffic."

Eighteen to 24 months ago, he said, investors were adding $4 to $5 of market value for every $1 a company such as e.spire sank into its fiber property and equipment.

"That was the best way to measure the value of these companies," Murphy said. "E.spire hadn't shown that it had the wherewithal to properly sell its network. But the new management team has focused almost entirely on enhancing the value of its network. In my universe of fiber-based C-LECs, they've got the second-highest annualized revenue growth."

E.spire's strategy has been to focus on second-tier southern cities, leaving the big cities to AT&T Corp., MCI Communications Corp. and other giant competitors. Today the company has strung cable along 100,000 miles of routes and connected it to 50 switches. Those networks serve 250 customers in two dozen cities from Texas to Baltimore.

Most customers are small and medium-sized businesses with at least 10 phone lines. E.spire's bigger clients include Humana Healthcare and oil giant Ashland Inc., both in Kentucky.

E.spire already has entered the Washington market by "reselling" under its own name capacity it buys from Bell Atlantic Corp. Now it is wiring the streets of the area's business centers to begin operating its own network. The company recently completed a 109-mile fiber-optic loop connecting the city to Baltimore, and plans to install new switching equipment in the District.

Reich brings more than 15 years of telecommunications experience to e.spire. He spent eight years, from 1986 to 1994, at MCI, following stints at AT&T and telephone switch maker Rolm Corp.

At MCI he oversaw international accounts and played a key role in the early stages of MCI's venture with British Telecommunications PLC, called Concert. From there he went to the midwestern Bell company Ameritech Corp. for two years, an experience Reich said reminded him "how much more fun it was to grow" than to defend turf.

E.spire founders Anthony Pompliano and Richard Kozak grabbed Reich away from Ameritech in Chicago, where the new company was based until moving to this area in 1995. Pompliano was one of the first people to go up against the Bells. His Chicago Fiber Optic Corp. later evolved into MFS Communications Inc., which then was bought by WorldCom Inc.

With capital spending so much a focus of companies like e.spire, the group is highly vulnerable to fluctuations in interest rates. Recent pressure to raise rates has taken roughly 10 percent off the market value of most competitive local carriers' shares. Recently, e.spire has been trading in the $17 range, down from around $19 earlier this year.

But, given what the company went through in early 1997, Reich said, he's prepared for such seasonal fluctuations: "We've established a great foundation. The sweetness of success is even better when you've gone through a lot of adversity." CAPTION: Jack Reich, chief executive of e.spire, can smile now about the hard times the company faced last year.

U.S. District Court for the Northern District of Illinois - 999 F. Supp. 1169 (N.D. Ill. 1998)

March 31, 1998

999 F. Supp. 1169 (1998)

KIEWIT DIVERSIFIED GROUP INC., Plaintiff,

v.

FEDERAL INSURANCE COMPANY and Pacific Insurance Company, Defendants.

No. 96 C 5346.

United States District Court, N.D. Illinois, Eastern Division.

March 31, 1998.

*1170 Chaim T. Kiffel, S. Jonathan Silverman, Kirkland & Ellis, Chicago, IL, for Kiewit Diversified Group, Inc., Plaintiff.

David J. Hensler, Jonathan A. Constine, Hogan & Hartson, Washington, DC, Royal B. Martin, Jr., Leigh David Roadman, William Kevin Kane, Martin, Brown & Sullivan, Ltd., Chicago, IL, for Federal Insurance Company, Defendant.

William Michael Monat, David L. Koury, Anne Fiedler, Peterson & Ross, Chicago, IL, for Pacific Insurance Company, Defendant.

[...]

In 1988, Kiewit formed a subsidiary, Kiewit Communications Co., which eventually became MFS Communications Corp. (MFSCC), to pursue business opportunities in the telecommunications industry and to provide businesses with an alternative source of local telecommunications services. In June 1989, MFSCC increased to 80% its ownership interest in Metropolitan Fiber Systems, Inc. (MFS Telecom), a company that managed an alternate local communications network in Chicago. James Crowe, CEO of MFSCC; Royce Holland, president and chief operating officer; and Terrence Ferguson, general counsel; were the MFSCC executives primarily involved in these negotiations, with Crowe acting as the lead negotiator. The original owners of the companyArthur Brantman, Anthony Pompliano, Howard Gimbel and David Husmanretained the remaining 20% of the shares in MFS Telecom. In August 1990, the 20% interest was further divided so that 10 individuals held the shares.

Several of the minority shareholders approached Crowe in late 1991 regarding the sale of their shares to MFSCC. Only Anthony Pompliano completed the deal at this time, selling for $85,000 per share in June 1992. In July 1992, negotiations renewed with the remaining minority shareholders, leading to MFSCC's purchase of the remainder of the minority shares for $135,000 per share. MFSCC paid Pompliano an additional $50, 000 per share to equalize his sale price with that of the other minority shareholders.

In May 1993, MFSCC sold 20% of its stock through an initial public offering. As a result, six of the minority shareholders brought an action in March 1994 in the Northern District of Illinois against Crowe, MFSCC and Kiewit. The four-count complaint contained allegations of violations of federal securities laws, fraud, breach of fiduciary duty, and breach of contract and the duty of good faith and fair dealing. MFS was named in all four counts, while Crowe and Kiewit were named in Count I for violation of federal securities laws. Peter Kiewit notified Federal of the lawsuit in June 1994. In August 1994, Pompliano and his wife joined the suit as plaintiffs. Pompliano had served as president and CEO of MFS Telecom from January 1988 until April 1990. He was also a director and vice chairman of Telecom's board from April 1990 until June 1991. Federal learned of Pompliano's joining the law-suit sometime between August and October 1994.

[...]