Qwest and VCs buy into Advanced Radio Telecom
By Stephanie Gates
Redherring.com
June 3, 1999
Denver-based Qwest Communications (Nasdaq: QWST), the fourth-largest U.S. long-distance carrier, has banded together with nine prominent venture capital firms to invest $251 million in Advanced Radio Telecom (Nasdaq: ARTT), a wireless Internet service provider located in Bellevue, Washington. This investment will finance the expansion and deployment of Advanced Radio's high-speed local wireless network, which addresses the critical "last mile" of Internet access.
Advanced Radio currently provides wireless Internet services to businesses in Portland, Oregon; Seattle; and Phoenix. It plans on expanding to 40 of the top 50 U.S. metropolitan markets over the next two years. The company owns or manages 38-GHz spectrum licenses in 210 markets in the U.S.
Both companies have agreed that Qwest will integrate its IP-based fiber-optic network with Advanced Radio's local broadband wireless networks. Advanced Radio will provide Qwest with local wireless connectivity, and Qwest will provide the network backbone.
SYNDICATE BREAKDOWN
Qwest committed $90 million for a 19 percent stake in Advanced Radio. The venture syndicate was led by Oak Investment Partners, which invested $40 million.
MeriTech Capital Partners, a mezzanine equity fund created by Oak, Accel Partners, Brentwood Venture Capital, and Worldview Technology Partners committed $25 million to the deal. MeriTech provides "lifecycle financing" for portfolio companies, according to James Wei, a partner with Worldview Technology Partners.
MeriTech backers Accel Partners, Brentwood Capital, and Worldview Technology Partners committed an additional $15 million each to the transaction. Filling out the round, both Columbia Capital Management and Advent International put up $20 million, Bessemer Venture Partners committed $8 million, and Adams Capital Management invested $3 million.
This private placement is part of a larger financing plan for Advanced Radio. The company will also pursue other financing options -- such as high-yield debt -- to build out its network, according to Peter Wagner, a partner with Accel Partners. Mr. Wagner adds, "This financing is a pretty significant jump start."
WHY BUY?
Mr. Wagner explains his firm's motivation by saying, "We're investing in the opportunity represented by broadband access."
Samuel May, wireless communications and mobile computing analyst with U.S. Bancorp Piper Jaffray (NYSE: USB) puts it succinctly: "These guys are buying because it is raw bandwidth."
In addition, the price is right, according to Worldview's Mr. Wei. "The one [company] we thought was undervalued compared to its future potential was Advanced Radio Telecom," he says.
PUTTING TOGETHER A DEAL
Mr. Wei and his firm Worldview, along with Oak Technology Partners, were the architects of the deal. They invited the rest of the venture firms into the syndicate. (Meanwhile, Qwest had approached Advanced Radio independently and ended up in the same private placement as the venture firms.)
Previously, Worldview and Oak had invested in Orlando, Florida-based Triton Network Systems, which has developed a unique architecture for building out a wireless network that communicates over the 28- and 38-GHz spectrums. According to Mr. Wei, Triton's technology could be very competitive with digital subscriber line (DSL). "There is a huge and unrecognized potential in wireless broadband spectrum," says Mr. Wei.
Since his firm invests in all stages of the "food chain" in pursuit of a opportune market, the next step was to find a wireless systems integrator in which to invest. Worldview had also invested in wireless systems integrator Workgroup Solutions, based in Burlington, Massachusetts, in order to help the carrier build out its network.
The last step was to find a wireless carrier. Advanced Radio, with its asset base of 38-GHz spectrum licenses, was the clear choice.
The deal was announced on June 1 and is expected to close in the third quarter. According to Mr. Wei, the various companies in the "food chain" are already talking to each other. It's practically a mini-keiretsu.
MARKET IMPACT
The news of Qwest's investment in Advanced Radio had little effect on its stock price. On the day of the announcement, Qwest's stock closed at $40.19, down slightly from the prior trading day's close of $42.63.
In contrast, Advanced Radio traded up Tuesday by 8 percent, closing at $12.25. The day's trading volume of 1.02 million was more than double Advanced Radio's average volume.
Some other companies are also sensing the potential of a broadband wireless network. For example, look at Liberty Media Group (NYSE: LMGA), part of AT&T's (NYSE: T) cable empire that is run as a separate business. It just bought a majority stake of Teligent (Nasdaq: TGNT), a larger and better-known competitor of Advanced Radio. |
