<A> Not Just Collecting Rent Anymore: Big Landlords Join Telecom Fray
By SCOTT THURM and BARBARA MARTINEZ
Staff Reporters of THE WALL STREET JOURNAL
Ma Bell, meet Sam Zell.
Eight of the nation's biggest office landlords, including
the biggest, Mr. Zell's Equity Office Properties Trust of
Chicago, are making an unusual leap into the crowded
telecommunications arena. Joined by venture-capital
heavyweight Kleiner Perkins Caufield & Byers, they are
expected to announce Tuesday that they have formed a
new company, Broadband Office, to offer their tenants
both local and long-distance phone service as well as
high-speed data lines.
The move signals that real-estate owners are tired of just
sitting back and collecting the rent. They have amassed
giant portfolios of buildings full of captive customers
and are now ready to tap into some of the billions of
dollars these tenants spend on various products and
services.
For instance, Equity Office, which owns more than 285
properties in 23 states, has more than 320,000 people
walking in and out of its buildings daily. Broadband
Office's owners control 2,000 buildings, representing
about 10% of the nation's offices.
The landlords are joining a big crowd in the lucrative
telecommunications market, including the Baby Bells,
long-distance providers, and upstart companies focused
on both telephone and Internet services. Businesses
spend about $125 billion annually on telephone service,
according to market researcher International Data Corp.
Amid the bewildering array of choices, backers of
Broadband Office say they will appeal to tenants on
simplicity, convenience and cost. They'll offer a single
contact for local phone service, long-distance, and data
connections. Broadband Office plans to spend as much
as $100 million during the next 12 months to install
fiber-optic and other high-speed lines through its
owners' buildings. The plan is to undercut prices the
Bells typically charge, which can approach $1,000 a
month for a single high-speed data line. Broadband says
new users will have to wait a matter of days, not weeks,
to get its service.
"This is a way of bundling services under one provider
that only focuses on business customers," said Craig
Vought, co-chief executive of Spieker Properties Inc., of
Menlo Park, Calif., one of the new company's
owner-members.
Broadband Office will have one clear advantage over
outside telecommunications suppliers: When the
property owners who also own stakes in Broadband
Office sign up new tenants, they will refer them to the
new service. The backers say they won't force tenants to
use Broadband Office and will give other
telecommunications companies access to their buildings.
The assurances may help address complaints from
upstart phone companies, who say some landlords have
sweetheart deals with established telephone companies
and drag their feet or deny access altogether to new
telephone-service providers. The Federal
Communications Commission is considering whether to
force landlords to allow all telecom providers access to
their buildings.
'Total Flexibility'
"We are still leaving with our tenants total flexibility in
how they obtain their service," said Staman Ogilvie,
executive vice president of Hines, a Houston owner of
80 buildings and another partner in Broadband Office.
Both Hines and Equity Office have stakes in a rival
venture, Allied Riser Communications Corp., of Dallas,
which filed for an initial public stock offering in August.
Indeed, Mr. Ogilvie said Hines is aligned with both
Broadband Office and Allied Riser to promote
competition. More services at lower prices, the
landlords hope, will attract more tenants willing to pay
big rents.
Backers say Broadband Office expects to raise $50
million to $100 million in equity to install equipment
and wire buildings during the next year. Although
Broadband Office officials say they hope to sign up
other more equity investors, for now Kleiner Perkins is
the only one. The property owners received undisclosed
stakes in Broadband Office in exchange for the access
and tenant references.
Eventually, the company's backers would like to take the
company public. Dan Chu, an associate partner at
Kleiner Perkins, will be Broadband Office's director of
business development. Kleiner Perkins's other
telecommunications investments include America Online
Inc., AtHome Network, a unit of Excite At Home Corp.,
and Juniper Networks Inc.
Mr. Chu says Broadband Office expects to begin
offering service on Nov. 1. The company has recruited
executives from MCI WorldCom Inc., BellSouth Corp.,
and Level 3 Communications Inc. It still is seeking a
CEO.
Meanwhile, Allied Riser has raised $117 million from
Goldman Sachs & Co. and other investors and hopes to
raise $232 million more via its IPO. Another player,
OnSite Access, New York, has raised $60 million from
venture-capital firms and AT&T Corp.'s AT&T
Ventures. Allied Riser and OnSite Access focus mainly
on high-speed Internet access. |
