July 28, 1999 21:39
FOCUS-Focal Comm IPO rings a bell with investors
By Eric Wahlgren
NEW YORK, July 28 (Reuters) - Shares of Focal Communications Corp. rose
50 percent in their launch Wednesday as Wall Street bought into a local
carrier in the increasingly tight market of high-speed data and voice
transmission.
Stock of the Chicago-based Competitive Local Exchange Carrier (CLEC),
which competes with the larger Baby Bells as well as up-starts closer to its
own size, ended up $6.50 at $19.50 after 9.95 million shares were priced at
$13 each.
In a sign of strong demand, the offering price had been raised from its original
$10 to $12 a share range.
Focal raised about $129.4 million by floating about 17 percent of its
outstanding shares in an initial public offering led by Salomon Smith Barney.
Based on its closing price, Focal has a market capitalization of more than $1.1
billion.
"The key difference between Focal and other companies is that we are
uniquely positioned to serve the most sophisticated and demanding customers
out there," Bob Taylor, Focal's president and chief executive officer, told
Reuters shortly after his company's debut on the Nasdaq Stock Market.
Focal customers include International Business Machines Corp. , United
Airlines parent UAL Corp. , E*Trade Group Inc. , Citigroup Inc. and Internet
service provider MindSpring Enterprises Inc.
It faces a host of rivals, including AboveNet Communications Inc. , which went
public last year and competes with Focal in the so-called co-location
business, or the managing of telecommunications equipment such as service
routers.
Focal plans to invest its take from the IPO to add fiber optic cables, which can
move voice and data more quickly than regular telephone lines, to existing and
new markets.
The company also said it is moving rapidly to capitalize on the growing market
for another turbo-charged transmission technology -- digital subscriber line
(DSL) -- that enables high-speed Internet connections through ordinary phone
lines.
CLECs that have been slow to enter the market for speedy data transmission
have generally been weaker than carriers that have rushed to offer this kind of
access.
Now that the Baby Bells are also starting to provide this service, analysts said
smaller companies like Focal must go to battle with bigger companies that can
offer additional services such as long distance calling. But Taylor said Focal is
not worried. "The fact that they are getting into this business does not scare
us at all," Taylor said.
Taylor said Focal does offer long distance features, but that the company's
emphasis is on local service.
Focal's revenues rose to $43.5 million in 1998 from $4 million in 1997. It earned
$6.3 million in 1998 after posting a loss in $2.9 million in the previous year.
Irv DeGraw, research director at WorldFinanceNet.com, said he sees Focal on
track to top $100 million in revenues in 1999.
"I think they are in a good spot," said DeGraw. "If a company can get to a
$100 million fast, that's a good thing."
Focal said in its IPO prospectus that it sees substantial operating losses in
fiscal years 1999 and 2000 as it expands its business.
Taylor said Focal has enough funding to last at least through the third quarter
of 2000 before it must rely on its success to raise capital. "Our business plans
have us funded through the third quarter or fourth quarter of the year 2000,"
Taylor said.
Since the company opened for business in 1996, it has sold more than
133,000 access lines and expanded into 13 major metropolitan markets,
including Chicago, New York, Los Angeles and Boston.
By the end of the year 2000, it plans to have set up shop in seven new
metropolitan areas: Dallas, Fort Worth, Seattle, Atlanta, Houston, Minneapolis
and Cleveland.
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