Touch America Makes Final Bet on Data

In Montana, Touch America Holdings Inc. (www.tamerica.com) is placing one final bet.

With its former parent company's utility and energy units no longer in the cards, Touch America will spend the remainder of the year trying to bulk up private line sales and other data services revenue.

The national carrier, based in Butte, Mont., could finish the year in the black if it can meet its annual revenue guidance. Touch America anticipates generating annual revenue of $450 million and an operating net income excluding depreciation of up to $45 million.

Touch America anticipates having $125 million in cash at the end of the year and no debt, although executives said they are considering different options to obtain financing when and if needed.

Touch America owns a 22,000-mile network and serves 300,000 customers, generating most of its revenue from businesses and service providers.

In February,Touch America emerged as a network services operator with no debt and cash in the bank after selling its utility to NorthWestern Corp. (www.northwestern.com) for $1.1 billion in cash and debt obligations, capping off a series of energy and utility divestitures since October 2000 through its former parent, the Montana Power Company.

Touch America still must find a way to make up for a steep decline in voice revenue.

On Tuesday, the company posted $42.4 million in first quarter voice revenue, down from $59 million in the fourth quarter of 2001. Voice represents the company's largest revenue stream, followed by private line services.

Touch America posted a first quarter net income loss of $13.7 million, compared to a net loss of $12.7 million in the first quarter.

Touch America made some progress in the private line sector during the first quarter, inking new customer agreements with Wells Fargo (www.wellsfargo.com), the state of Washington and VoiceStream Wireless (www.voicestream.com). Private line revenue grew $2.1 million in the first quarter, up from $24.9 million in the fourth quarter of 2001.

The company attributed the steep decline in voice revenue to reduced sales to resellers and a reduction in termination revenue, stemming primarily from traffic Qwest Communications International Inc. (www.qwest.com) has moved off Touch America's network.

In June 2000, Touch America closed a $206 million agreement to buy the long distance and private line customer base from Qwest in its 14-state local region.

Nearly two years later the companies are embroiled in multiple disputes, and Qwest has ceased terminating voice calls on Touch America's network.

In February, Touch America filed complaints with the FCC (www.fcc.gov), claiming Qwest has failed to divest its 14-state in-region long distance business. Touch America also alleges Qwest is violating Section 271 of the 1996 Telecommunications Act by selling long distance services in its 14-state local region through so-called Capacity IRUs.

In a separate matter Touch America and Qwest are embroiled in a legal dispute over billing and other contractural issues. Arbitration is set for September.

Touch America executives said the company could lose another $5 million per month if Qwest receives long distance approval within its 14-state region. Touch America is providing Qwest wholesale Internet services among other things.

Touch America's shares closed Tuesday at $3.31 on the New York Stock Exchange (www.nyse.com).

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