OCTOBER 1, 2010, 12:30 P.M. ET.

EarthLink Buys Fiber-Network Operator

By ROGER CHENG

EarthLink Inc. agreed to acquire fiber-optic network operator ITC DeltaCom Inc. for $191 million plus debt, as the company moves further away from simply offering consumers Internet services and toward a heavier focus on businesses.

Earthlink plans to wed ITC DeltaCom's operations with its own business-services arm, New Edge Networks. Rather than just resell Internet access through another provider's network, EarthLink is obtaining physical assets, which the company views as vital to offering business services.

"It was important to acquire a company big enough to meaningfully transform EarthLink," EarthLink Chief Executive Rolla Huff told investors during a conference call on Friday.

EarthLink said it agreed to pay $191 million in cash and assume $325 million in debt. ITC holders will get $3 a share, more than double Thursday's closing price of $1.45. The stock was down 21% this year and last traded at the offer price in mid-2008. EarthLink said it expects the deal to mildly weigh on results next year but add to its cash flow by 2012.

"We believe we've acquired this company at a reasonable valuation," Mr. Hoff said.

Earthlink and AOL Inc. were among the initial Internet firms with a focus on access for consumers. But, as with AOL, EarthLink's fortunes have waned in recent years as subscribers moved elsewhere. The company remains partly in the slower dial-up business, which makes up some 40% of revenue.

While AOL has attempted to remake itself as a media hub for consumers, EarthLink has opted to take the route of delivering Internet services to businesses.

DeltaCom, based in Huntsville, Ala., has a 16,400-mile fiber-optic network in the Southeast, serving more than 32,000 small and midsize businesses, wholesale customers and government agencies.

"It's a network asset that's been well fed with a reasonable amount of investment," Mr. Huff said. "This network can't easily be replicated."

EarthLink's work force will expand to just under 2,000 people from 575. The company will continue to be based in Atlanta with current management in place.

Mr. Huff said the company would continue to pay its dividend after the deal closes. EarthLink also adjusted its earnings forecast for the year, now calling for net income of $94 million to $97 million. In July, it raised its forecast to $91 million to $97 million.

Write to Roger Cheng at roger.cheng@dowjones.com

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