The great hope at the telecom kennel is that old dogs can unlearn new tricks.

If

Broadwing

(BRW)

fans are right, recent changes in the executive ranks could point to a long-overdue shift in strategy at the limping telco. After an abrupt CEO change Friday, the Cincinnati company looks ready to return to its dowdy but profitable local phone roots after a brief and unhappy trip into fiber optics.

Though a small and almost forsaken player in a broken field, Broadwing's reversal will be closely watched by stability-seeking investors. How the company detangles itself from its costly foray into broadband could offer clues on the fortunes of other Bell-and-broadband outfits, such as

Qwest

(Q)

, as they try to pull out from under expensive but largely idle networks.

Broadwing didn't reply to a request seeking comment. But analysts and investors say the company has a range of options at its disposal. It's not likely the company could find a buyer for the 18,000-mile fiber-optic network, since there are already a few of those available on the cheap. Shuttering all or part of the network is possible, and Broadwing could either continue to serve its customers or sell them to another telco.

"Clearly, now the company will be focused on the business it has historically been in, the local Bell business," says Dmitry Khaykin, an analyst with Gabelli Asset Management. Gabelli is the second-largest Broadwing stockholder, with 13 million shares giving it a 6% stake in the company. "I don't think they will shut down the broadband operations, but I expect it to be de-emphasized."

Pioneering

Despite its low profile, Broadwing isn't new to this sort of pioneering. The company, after all, was the first big telco to cross a number of dubious thresholds following the collapse of the telecom bubble: It was the first to sell its directory business, and one of the first to renegotiate its credit line. Now, with Friday's departure of CEO Rick Ellenberger, the company could be the first to shake off the broadband bug, some investors believe.

Hard Landing
Back to the nest at Broadwing

A creation of the intoxicating late '90s telecom market, Broadwing, like Qwest and

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, typified a trend of grafting old and new. In November 1999, the mildly profitable but growth-stunted Cincinnati Bell merged with the wildly unprofitable growth-chasing fiber-optic network operator IXC.

In 1998, Cincinnati Bell posted $150 million in profits on sales of $885 million. IXC, meanwhile lost $160 million on $668 million in revenue. The combined results for Broadwing the next year predictably unloosed a flood of red ink, but proponents of the deal argued that the short-term value destruction would eventually be offset by the growth in international data services. In 2000, its first full year as a combined company, Broadwing posted a net loss of $377 million on $2 billion in revenue.

But as investors now well know, the industry's gamble on growth didn't pay off. At Broadwing, revenue peaked last year at $2.3 billion; the company now expects further declines and says it's likely to have $2.1 billion in sales for 2002.

Revolving Door

Fittingly, to some eyes, CEO Ellenberger packed his bags Friday, making way for two old Cincy Bell hands. Former COO Kevin Mooney, a onetime Cincy Bell CFO, took the top spot, and Jack Cassidy, the president of the local phone business, moved to COO. Analysts say the company's appointment of a Cincy Bell-bred executive team speaks volumes about where things are headed.

Investors may remember Ellenberger best for complaining loudly at various times in his tenure that Broadwing was undervalued and misunderstood. After peaking at $40 just two months after the merger, Broadwing's stock has since plunged 95% to $1.83. Analysts say Ellenberger became a symbol of a time investors would be happy to forget.

"You see it happen a lot -- an executive will have invested a lot of emotional capital into something they built, but unfortunately that can put their thinking on the wrong side of investors," says Ken Winston with Lee Munder Capital Group, a Boston investment shop with no positions in Broadwing or Qwest.

Where an earnest executive sees a pump primed for future growth, investors are apt to see a fiber-optic fiasco that accounts for half of revenues and all the losses.

Of course no strategic shift will bring back the money squandered on pricey optical gear to build surplus network capacity. But given the course of industry sales, there's no longer any way to continue to justify speculative capital spending, say analysts.

"A lot of companies were waiting for a second half pickup in business spending, but it didn't happen and when the consumer spending fell out it was clear there'd be no recovery," says Gabelli's Khaykin. "The companies waited as long as they could, but now I think we'll see a lot of resolution. They'll have to address some of their problems."

Uncertainty

Indeed, that does seem to be the sentiment that's sweeping a sickly industry. Even once-haughty Qwest recently reversed the take-no-prisoners approach famously advocated by former CEO Joe Nacchio. On a conference call with analysts last week, Qwest's new management team said the company doesn't need to be in every market offering every service if doing so doesn't make economic sense. Qwest is looking to shut down or shrink up to 12 businesses that are not pulling their weight.

While investors seem to agree that cutting losses is a good step, some say it is still too early in industry's collapse to expect any recoveries, regardless of what strategy certain players lay out. After all, wireless is still eating into the local phone business, and we are still battling a capacity glut, says Munder's Winston.

"Broadwing is certainly smaller and more focused, and they've done the right things earlier," Winston says. "But in the end, it's all about pricing, and that's still coming down. So it still feels like an unsettled and ultracompetitive market."

And no matter what Broadwing does, it's going to be tough to shake off those fleas.