GCI pays $10 million for 85% of pipeline-hugging fiber-optic line

General Communication Inc. plans to acquire an 85 percent interest in an Alaska fiber-optic cable system from WorldCom Inc. The system runs from Valdez to Prudhoe Bay via Fairbanks.

Three Alaska Native corporations -- Arctic Slope Regional Corp., Ahtna Inc. and Chugach Alaska Corp. -- which were original investors in the system, will each own a 5 percent stake.

The deal requires approval by the Regulatory Commission of Alaska, probably by late second quarter, said David Morris, GCI public affairs manager.

Terms of the agreement call for GCI to issue WorldCom a new series of Class C preferred stock valued at $10 million, GCI officials said. The stock is convertible at $12 per share into GCI Class A common stock. The new series is nonvoting and pays a quarterly cash dividend of 6 percent.

WorldCom is a major shareholder in GCI.

General Communication Inc. has been operating the system since March 3, 2000.

Kanas Telecom Inc., which was formed to construct the system, originally built the $83 million fiber-optic cable system along the trans-Alaska oil pipeline right of way and aimed to serve Alyeska Pipeline Service Co. and others.

Construction on the Kanas cable was completed in 1998.

Alyeska experienced outages on its voice and data systems operating on the cable, Alyeska officials told the Journal last year.

Also, an avalanche on Dec. 20, 1999, suspended service on the cable for several weeks.

On Feb. 24, 2000, Alyeska terminated its 15-year contract with Kanas Telecom Inc., citing unreliability of the fiber-optic cable system.

Last March WorldCom acquired 80 percent of Kanas and chose GCI to operate the system. Also at that time the three Native corporations reduced their interest from 25 percent to 5 percent each.

Last summer GCI made improvements to the system.

"The major thing we did was to look at Keystone Canyon where the avalanche occurred," Morris said. "We spent $2 million remediating that area."

GCI also reburied parts of the cable to a 3 foot depth, he said. Another improvement changed the fiber-optic cable covering to a more flexible material from a steel conduit that was prone to freezing and expanding from water ingress, he said.

Although GCI recorded no service-affecting outages in nearly a year, the company plans to make more improvements to the system, Morris said.

GCI has entered into an interim services agreement with Alyeska to provide certain voice, video and data services, GCI officials said. GCI and Alyeska have drafted a proposed 15-year agreement due to be submitted soon for review by both companies’ boards of directors, Morris said.

03/03/2001 - 8:00pm