Paetec CEO Sees Cloud Propelling Co.'s Revenue Growth

Paetec Corp. (PAET) is the latest company to bank on cloud services to jumpstart its growth and share price.

The company, which delivers telephone and Internet services to businesses through its network, said it would add 13 data centers by the end of 2013 in a strong commitment to delivering cloud services. Paetec Chief Executive Arunas Chesonis said he expects the business to grow eightfold, to $400 million over the next five years. As a result of the company's growth initiatives, he expects to see 5% to 7% revenue growth over the same period.

"It's a good, solid goal," Chesonis said in an interview on Monday.

Paetec has flown under the radar of Wall Street, thanks to a combination of lackluster growth and a business where it is overshadowed by larger peers AT&T Inc. (T) and Verizon Communications Inc. (VZ). The company, which has carved out a niche of serving medium-sized business customers, hopes the combination of cloud services with its network infrastructure will draw new customers and investors alike. It's one of hundreds of companies looking to tie themselves to cloud services, seen as the next hot trend in technology.

Over the past year, Paetec has lost more than a quarter of its market capitalization as the company has shown minimal revenue growth and continued losses. It currently fell 2.5%, to $3.93.

Chesonis said the recent consolidation in the data storage area is proof that there is demand for a cloud services provider that also runs a network backbone. Over the past few months, Verizon acquired Terremark, Time Warner Cable Inc. (TWC) agreed to buy NaviSite Inc. (NAVI), and CenturyLink Inc. (CTL) agreed to acquire Savvis Inc. (SVVS).

He said the outage suffered by Amazon.com Inc. (AMZN) customers last month resulted in companies flocking to providers with more of a dependable track record.

"Amazon was a great ad for us," Chesonis said. "You have to be a much smarter consumer of cloud services."

Given the explosion of growth in cloud services over the new few years, Chesonis said he expects to easily meet his target if the company maintains its market share. He added he believed the forecast was modest, but wanted to stay conservative in case of sudden spending downturns.

There is an opportunity to upgrade Paetec's existing base of 60,000 business customers to cloud services, Chesonis said. While a third of sales come from the existing base, he expects that to grow to half the revenue.

Paetec hopes to win over new customers through its ability to offer more flexible contracts, better pricing and more support, he said.

"We're not trying to beat (Verizon or AT&T), we are taking a little piece of the top," Chesonis said, adding he expects Verizon to take its time integrating its Terremark assets, allowing Paetec to scoop up some business.

Beyond the cloud, Chesonis said he expects its two other growth areas, managed services and services related to its fiber-optic business, to double over the next five years.

-By Roger Cheng, Dow Jones Newswires; 212-416-2153; [e-mail]