Not in it, but I id come across an interestng article in today's Boston Globe:
boston.com
Mixed signals
Even as it gains customers, RCN is deep in debt, its stock battered
By Peter J. Howe, Globe Staff, 7/18/2002
Two years after it roared into Boston's suburbs, vowing to smash the cable television monopolies, RCN Corp. is showing some real progress in getting local customers - although you'd never know it from RCN's $1.35 share price and Wall Street angst over its crushing debt load.
New figures filed with state regulators show that RCN is achieving, and in some towns exceeding, the 30 percent market share at which industry analysts say it has a shot at becoming profitable. RCN has more than 37 percent of all cable homes in Lexington, for example, and 33 percent in Framingham. It's racking up solid subscriber counts in Burlington, Dedham, Somerville, and Wakefield.
But the question hanging over the upstart Princeton, N.J., company remains: Is its success here coming too late to ensure its survival?
After pouring $5 billion into an aggressive strategy of ''overbuilding'' new broadband networks to compete with cable and telephone giants, RCN has pulled back from several planned expansions in Greater Boston, Baltimore, Los Angeles, Philadelphia, and other markets.
RCN shares have have plunged more than 95 percent since early 2000.
It has laid off more than 2,000 employees in the past year.
Its Boston construction partner, the electric utility NStar, took a $174 million writeoff last year for its collapsing RCN investment.
And Moody's Investors Service has warned that a debt restructuring or outright liquidation appears ''seemingly inevitable.''
''They have a viable business in Massachusetts,'' said Paul Trane of Telecommunications Insight Group, which helped RCN get its operating franchise in Somerville in 1998. ''But in terms of the company as a whole, they went astray. If they'd stuck to some core markets, they probably would be in much better shape today.''
Michael Goodman, a senior analyst at Yankee Group, a research firm, said: ''In the markets where they're fully upgraded and deployed, they're in pretty good condition. But Boston is one of their better developed markets.''
RCN is among barely a dozen surviving US companies that pursued the costly ''overbuilding'' strategy. Western Integrated Networks of Denver filed for bankruptcy protection in March after completing a partial network in Sacramento. This week, SureWest bought Western's assets for just $12 million.
American Broadband of Burlington and Digital Access Inc. of Pennsylvania shut down before ever building out their franchises. And Baby Bells such as Verizon Communications and SBC are trying to sell the small cable systems they built in the 1990s, which have been huge money losers.
For RCN, the future looked far brighter in the late 1990s when it began rolling out service in Boston and Somerville, expanding to 13 suburbs by 2001. With advertising campaigns featuring images of shattered statues of Soviet dictators, RCN brashly promised to give consumers their first real choice in cable TV providers, along with phone and Internet service. It used consumer outrage over poor cable service to get franchise deals from cities and towns.
As several Greater Boston cable franchises spun through a succession of owners - from Cablevision, Continental Cablevision, and Time Warner to MediaOne to AT&T Broadband and soon to AT&T Comcast - RCN darted in with packages of television, phone, and high-speed Internet service that have proven popular.
Last year, it added services for small businesses, months before AT&T Broadband followed suit. RCN's aggressive sales effort includes door-to-door pitches straight out of the Fuller Brush salesmen era. Company officials say these pitches account for 40 percent of their sales in Boston.
It is no coincidence, observers say, that the two Boston suburbs where RCN has grabbed its biggest market share, Framingham and Lexington, are former Cablevision franchises that AT&T Broadband has yet to fully upgrade for 1.5-megabit-per-second Internet access.
''The market was ripe,'' said David G. Kanter, a member of Lexington's cable TV committee. ''I believe that a substantial portion of RCN's penetration was based on them offering services that just were not available,'' including cable modems, digital TV, and an alternative to Verizon Communications for local phone service.
Kanter said AT&T's pledge to bring those services to Lexington by mid-October, after years of foot-dragging when Cablevision owned the franchise, ''was heavily influenced by the presence of RCN.''
But in both communities, RCN is haggling with town officials over its failure to meet deadlines for building out its cable system in parts of the towns served by underground utilities.
RCN has also suspended most construction in Boston after building networks in parts of Allston, Brighton, Hyde Park, and West Roxbury. It has successfully petitioned federal authorities to allow it to get out of a commitment to build a network throughout Boston, but still needs to reach a deal with the city.
''They're out of compliance'' with the terms of the 1997 Boston franchise deal,'' said the city's cable director, Michael Lynch. ''But one thing you can't ignore is that they have no money to build. So the question is: What do you do?''
Late last year, Boston became the first RCN market to produce positive earnings before interest, taxes, depreciation, and amortization (EBITDA). That has been a popular ''cash flow'' yardstick for media and telecommunications companies carrying big debt loads, although in the era of accounting controversies, many analysts say EBITDA numbers can make company finances look overly rosy.
RCN has built networks with a total reach of 1.5 million homes in Boston and parts of New York City, New Jersey, Philadelphia, Washington, D.C., Chicago, Los Angeles, and San Francisco. Those networks are part of its planned focus on the 6 percent of the US land area that is home to 44 percent of the nation's telecommunications market.
But with $1.7 billion in long-term debt and $2.2 billion of redeemable preferred stock on its books as of March 31, RCN has continued to rack up huge net losses, totalling $148 million in the first quarter on sales of $124.5 million. It had $508 million in cash on hand as of late March, enough to cover more than a year of ''cash burn'' at current rates.
''We're pretty much focused on penetrating even deeper into our existing towns that we're in,'' said RCN spokeswoman Nancy Bavec. ''We think there's still plenty of room for us to grow.''
And RCN remains committed to in-your-face competition with AT&T Broadband and the other cable giants. Rachel Leone, the Boston area marketing manager for RCN, said its rivals are ''getting beaten up in the press right now for raising their modem rates and for their terrible customer service. Their shortfalls are helping us get more customers.''
AT&T spokeswoman Jennifer L. Khoury responded: ''RCN, just like satellite television and DSL [digital subscriber lines], is a viable competitor, and we take all of our competitors very, very seriously.''
Peter J. Howe can be reached at howe@globe.com. |
