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Utility Backbone Buy Would Aid Overbuilds

Kansas City Power & Light last week unveiled an acquisition that will ultimately offer cable overbuilders in four states a way to enter second- and third-tier markets more quickly.

The Kansas City, Mo.-based electric utility announced plans to acquire a controlling interest in DTI Holdings Inc., a St. Louis-based firm that owns a $350 million high-capacity, fiber-optic nationwide network.

KCP&L's strategy is to offer access in Kansas City, Memphis, Tenn., St. Louis and Tulsa, Okla., in order to allow overbuilders to come to market as quickly as possible.

"We're talking about overbuilders and competitive local-exchange carriers looking for an advantage in time-to-market," said Greg Orman, president and CEO of KTL Telecom Inc., KCP&L's unregulated investment arm. "We've had talks, although not substantive, with some overbuilders."

DTI's network begins in upstate New York and moves south down the East Coast before turning west into Texas and California, then moving north again to Oregon.

Orman would not say which overbuilders the company has talked with. But two logical candidates are Everest Connections and Digital Access Inc., telecom startups looking to enter the Kansas City and Tulsa markets.

Tom Snethen, corporate marketing director for Everest, said there were no "meaningful" discussions going on with KCP&L at this time.

"You never want to say never, but we have a lot of faith in the network we're building," he said.

Digital Access officials could not be reached by press time.

The proposed deal between KCP&L and DTI would replace a $110 million transaction announced last September, but later scrapped because of volatility in the capital markets.

Acting through KLT, KCP&L will now pay $33.6 million for an additional 31.2 percent of the fully diluted DTI common stock held by chairman and CEO Richard D. Weinstein.

"We are seeking the controlling role in DTI's management, along with needed changes in the capital structure, to implement the company's enhanced business plan," Orman said.

Orman said completion of the deal will depend on restructuring DTI's debt and KTL's plans for acquiring another 6 percent through a tender offer for DTI's outstanding warrants. If successful, KCP&L would own more than 80 percent of DTI's diluted stock.

Weinstein will resign his posts with DTI but retain a 15-percent interest in the company, as well as a seat on the board of directors. KLT has the right to acquire Weinstein's shares after 2005.

The utility investment arm has also committed to help DTI arrange a revolving credit facility for a minimum of $75 million.

Through its Digital Teleport Inc. subsidiary, DTI is building a 20,000-mile high-capacity fiber-optic network composed of 23 regional rings connecting markets in 37 states.

At present, it sells communications services at wholesale to interexchange carriers and other communications outfits in underserved secondary and tertiary markets. Customers include telecom carriers such as Sprint Corp., MCI WorldCom and SBC Communications Inc.