JOAN LAPPIN
CHIEF INVESTMENT OFFICER
GRAMERCY CAPITAL MANAGEMENT

COMPANY: Broadwing
TICKER: BWNG (Nasdaq)
PRICE: $9.56 (as of 4 p.m. yesterday)
52-WEEK RANGE: $3.46-$10.15
MARKET CAPITALIZATION: $704.86 million

Joan Lappin is president and chief investment officer of Gramercy Capital Management in New York. Broadwing is a national telecommunications company. Ms. Lappin spoke to David Dalley of The New York Sun about why she believes the stock could increase by more than 50% in the next 12 months.

What does Broadwing do?

They’re a telecom provider. They own a first-class fiber-optic network covering about 70% of the U.S. population.

Why do you like the company?

The thing that’s going to propel the company going forward is the demand from major Fortune 500 companies for a reliable, second telecom provider for long-distance service. They want a dependable backup. Broadwing is perfectly positioned to be that second provider.

A few of the big telcos have merged, and so the choice has narrowed. AT&T and SBC joined together (the joint entity is now called AT&T). Verizon merged with MCI, and while that company has a national network, they’re in financial difficulty and it’s not an A+ operation. So after AT&T, a lot of companies are turning to Broadwing as their second choice provider.

Broadwing has a fine, national network, and most of the time they have much better customer service because they’re not a big bloated company. They can get very fat on the crumbs that drop off the other mergers by the companies looking for second source providers. People usually come and give them a little bit of business, but that’s enough to sustain strong growth.

Why isn’t the stock trading at higher levels?

Not many people are following the stock. It’s under-followed and institutionally it’s under-owned.

What will it take for the market to take notice?

It’s the same old story – the way to make money in the investment world is to be ahead of the pack. I’m not a momentum investor – I’m the opposite. A momentum investor chases the spot on the tail of the Dalmatian in front of him. I want to be in front of the Dalmatian. It’s all about doing your homework and understanding what you own and why you own it. BWNG is a company whose network I know and understand. When they started offering a combined voice and data service a number of years ago, Gramercy Capital had the first beta installation of the product. I have firsthand experience with them from the beginning.

One thing that should also propel the company going forward is the recent dismissal of their CEO, Dr. [David] Huber. He was very good at helping them for a period – the network needed some tweaking to become more reliable and needed to be run better, and he had the engineering background to get it on track. But what they need now is a real dynamic marketing leader – someone with real flair. The company doesn’t have the debt problem it once did, its systems work, its network is functioning, its product is first-class – it just needs more customers, and in order to achieve that, they need someone who really knows the telephony business. Dr. Huber was a scientist and an engineer, but he wasn’t capable of marketing the company properly. They have the opportunity now to find someone who will really push the company ahead.

Where do you see the stock price heading?

I could see it trading at $15 within the next year.

What are the risks?

That their revenue growth is slower than I anticipate, or that it’s harder to get new customers. But everything is in place. All they have to do now is just generate more revenue. That’s it, it’s simple.