RCN looks to exit Chapter 11
Plans to emerge by December, shed $1.2b of debt
boston.com
By Peter J. Howe, Globe Staff |
August 24, 2004
RCN Corp., the upstart telecommunications provider that has sought to battle giants like Comcast Corp. and Verizon Communications Inc. in Greater Boston and other markets, unveiled plans yesterday to exit bankruptcy protection by December and shed more than two-thirds of its $1.8 billion debt load.
In what has become a common strategy for debt-crushed telecom start-ups, RCN will issue new shares to debt holders to replace about $1.2 billion worth of face-value company bonds they hold. Current shareholders will get only warrants to buy as a group a total of 2 percent of the stock in the reorganized company -- an outcome Wall Street had anticipated by driving shares down to 6.5 cents each Friday, before they dropped to a nickel yesterday. The deal requires approval from bondholders and other parties, which is considered likely.
While analysts said it's too soon to declare RCN will be a certain survivor, the bankruptcy reorganization plan comes as RCN is showing steady momentum in gaining customers in Boston and some other markets, including many lured from Comcast by considerably cheaper bundles of cable television, broadband Internet, and phone service and higher-rated customer service.
According to new filings with Massachusetts telecommunications regulators, between 2001 and last year, in every one of the 15 Greater Boston cities and towns where RCN competes with Comcast, RCN increased its share of the cable television market, growing to more than 72,000 customers locally. In several communities, RCN increased its market share by 10 percentage points or more, among them Burlington, Natick, Needham, Newton, and Woburn. In Lexington, RCN has nearly half the cable market.
"I do think they will be successful once this restructuring is behind them," said Chris R. Roberts, director of research with Tejas Securities Group Inc. in Austin, Texas, a big holder of RCN bonds. Roberts said Boston ranks as one of RCN's strongest markets, along with operations in Chicago and New York and a half-interest in a Washington, D.C. system. The company's predictions that it won't turn a profit until 2008 "are very conservative. I think there's a lot of upside," said Roberts. RCN was one of the first so-called overbuilders launched in the late 1990s to construct networks to provide advanced cable TV and telecom services that many phone and cable companies were slow to roll out. Despite making some headway gaining customers, RCN struggled to handle its huge debt loads, and the general collapse of the overheated telecom market helped push it to seek Chapter 11 protection in May. NStar Electric & Gas Corp., which owned a 49 percent stake in RCN's Boston operations, has since dumped that stake and taken over $200 million in accounting charges to write it off.
But RCN has continued to roll out enhanced services, in many cases ahead of Comcast, including video on demand, high-definition television over cable, digital video recorders, and multi-megabit broadband Internet connections. RCN senior vice president Rick Rioboli said the company credits those innovations with much of its continued growth, as well as a rate simplification in 2002 that makes it easier for customers to create their own personalized bundles of TV, phone, and Net service. Most recently, RCN's marketing has aggressively trumpeted its underdog role as "the little guy" battling Comcast.
Karah Borah, a 34-year-old Needham mother of two, and her husband switched service to RCN last month. "The primary reason was the price -- it's much less expensive" buying TV, phone, and Net service from RCN than separately from Comcast and Verizon, Borah said. She said she was also unhappy with installation problems and poor customer-service support from Comcast, so even though she knew about RCN's Chapter 11 problems, "It wasn't something that deterred us. We thought we might as well try, and we could pick someone else up if they went under."
Another recent convert to RCN, Payson Greene, 56, who lives in Needham and runs a musical instrument workshop in Woburn, also cited RCN's low prices and offers of $20 per month off for the first 12 months of service. For the same price he was paying for Comcast television and an America Online dialup Net account, he now gets comparable TV and high-speed Net service that his college-aged son especially likes.
Greene said he has several quibbles: The on-screen TV guide is worse; some local channels are assigned odd channel numbers; and the e-mail system is less convenient for his wife than AOL. "But overall it's been a good move and we haven't had any problems with RCN," Greene said.
Jeanne Canale, head of the Lexington town advisory board that oversees cable TV, said RCN's continued growth despite its bankruptcy woes "does not surprise me at all. When I got on the cable advisory committee, we had a difficult time even finding a Comcast person to serve. I know of no one at this point who has jumped ship off RCN."
Commenting on RCN's Boston-area subscriber numbers, Comcast spokeswoman Jennifer L. Khoury said that most of RCN's gains came during the 2001-02 period at the expense of AT&T Broadband. In 2003, the year Comcast took over AT&T Broadband's local franchises, Comcast's subscriber losses in communities where it competes with RCN dropped to 4,000 from 19,000 in 2002. So far in 2004, Comcast expects a net gain in those areas, Khoury said.
Many of the communities where RCN has most succeeded in getting subscribers were originally served by Cablevision Systems Corp., which badly lagged other Comcast predecessors in upgrading cable lines for digital TV, high-speed Internet, and phone service.
"It's a very competitive market here in Massachusetts," Khoury said. "Since we've been Comcast, the trend has been a very dramatic upswing."
Peter J. Howe can be reached at howe@globe.com. |
