POWER PLAYER

By DEBORAH SHAPLEY

How big a wallet do you need to knock the $100 billion-a-year local-telephone industry into a new shape? J. Shelby Bryan, 51, CEO of ICG Communications, Inc., of Englewood, Colo., is trying to find out. Bryan, a former Golden Gloves boxer as well as a banker, entrepreneur and corporate-turnaround artist, took charge of ICG, then known as IntelCom Group, in 1995. A good time to jump in, given the impending passage of the federal Telecommunications Act of 1996, which ordered the Baby Bell phone companies to end their monopolies of local service. Now Bryan is trying to outsprint other new companies by offering phone service via electrical-utility lines.

Bryan's approach is a radical departure from the way most of America's myriad new telephone companies have plotted their growth. Most have tried to break into local-phone markets on the cheap by negotiating with the incumbent to lease and resell service on its lines. Bryan's company decided to exploit a provision in the act that allows utilities to offer phone service. Many of them have modern fiber-optic communications networks to monitor plants and transmission over wide areas, and Bryan offered to use their extra capacity for phone service. Last year, for example, ICG signed a deal with Southern California Edison and won rights to use the utility's 1,260 miles of lines and switches spanning the key markets of Los Angeles and San Diego. Building such a "backbone" for a local telecommunications network from scratch would have cost much more time and money.

The second focus was on building new lines and switches out from these utilities and as stand-alone new networks to offer alternative service in key markets where demand for state-of-the-art data, long-distance and local calling was high. Similar deals were rolled out through the rest of 1996. ICG signed with Midwest giant American Electric Power to offer communications in Columbus and Canton, Ohio. Cascade, a Westford, Mass., company, will supply frame-relay devices to ICG's burgeoning Northern California network, allowing the Bay Area's techie firms to avoid Internet overload. Additional networks are building in the Southeast.

Trying to be, as ICG's motto puts it, "the dominant alternative to the local exchange monopoly" costs a bundle. Capital spending of $228 million last year outweighed $190 million in sales. Bryan has raised a $1.1 billion war chest; without deregulation, he says, "the financial markets wouldn't have been open to us." But a payoff is in sight. In Ohio, where the company is attempting to woo customers away from Ameritech, ICG marketers' cold calls have led to a remarkable 50% in follow-up appointments. Bryan says ICG will probably have a positive cash flow next year.

No new phone network can stand alone entirely, especially at this early stage of reform. Even around ICG's Denver home base, the quality of ICG's service depends on the cooperation of US West. Though the new act is designed to encourage the Bells to allow would-be rivals interconnect--in order to qualify for permission to enter the long-distance business--US West seems stubborn about letting its rival come aboard, says Bryan. "They can be slightly cooperative or uncooperative. Just a scintilla of movement either way can make our lives livable or miserable."

If Bryan's strategy succeeds, it will show how new entrants armed with the latest technology can grab market share from giant incumbents hobbled by old, regulated corporate thinking. And if ICG's concept of teaming with big utilities works out, it could transform the telecommunications landscape dramatically. The catch is that residential-phone customers will have to wait for any benefit; right now ICG is targeting businesses, where concentrated office areas need multiple lines, have high usage and are more economical to connect.

--Reported by Richard Woodbury/Denver

With reporting by Richard Woodbury/Denver