1999 Was Another Bad Year for Vancouver, Wash., Telecom Company
Mar. 30 (The Columbian/KRTBN)--At the start of last year,
GSTTelecommunications' chief executive officer Joe Basile
looked ahead and proclaimed 1999 the company's "execution
year," when GST would begin reaping the rewards of five
years and more than $600 million in telecom investment.
It didn't turn out that way.
The Vancouver company failed to meet revenue projections,
its operating debt grew, news about the company was
dominated by lawsuits over past business deals, and GST's
stock stagnated even as the broader markets were soaring.
Finally, Basile himself walked away. He resigned abruptly
last January at what insiders say was a contentious board
meeting about the future of the company.
"I think 1999 turned out to be more a year for getting some
problematic issues behind us," said Basile's replacement,
acting CEO Tom Malone. "At this moment in time a lot of the
nonessential businesses have been sold and a lot of the
legal issues are behind us."
With a new management team in place, Malone said 2000 is a
year for starting over, a chance for the company to rebuild
its identity. Although he's still"acting" CEO, Malone
already has put his stamp on GST, reorienting the company
to focus on Internet service and data communications.
One of the first steps in that direction came early this
month, when GST laid off more than 100 employees out of
1,300. The cuts included six vice presidents,and Malone
said they made way for GST's change in direction.
"This was a top to bottom reorganization, because we're
serious about changing the culture of GST," Malone said.
"We're beginning to focus in a way we haven't on the
fundamentals."
Analysts are skeptical. They've heard big promises from GST
before, and have yet to see the detailed new operating plan
Malone has been promising.
"(To some) they appear to be rudderless," said Dave Heger,
an analyst who follows GST for A.G. Edwards. "I think,
though, even without a (permanent) CEO they appear to be
moving forward in developing a strategy."
GST provides phone, Internet and other communications
services to businesses on the West Coast. It competes
directly with "Baby Bell" companies such as
US West, hoping to provide a cheaper and more reliable
communications alternative for business customers.
To do that, GST built its own telecom network linking
cities up and down the West Coast, from the Silicon Valley
to the Silicon Forest. Even GST critics acknowledge the
network is a great asset, but Malone said GST hasn't
used it to the best possible effect.
GST concentrated on being a phone company. In the Internet
age, he said, that needs to change.
"We will have a much more data-centric strategy than we've
had before," Malone said.
Other competitive telecom companies have already moved in
that direction, and Malone acknowledges that some might
feel GST is late to the game. But he said there's an up
side to that -- GST's network will implement the latest
technology and the most up-to-date equipment.
"He or she who gets in last gets in best," he said.
The Internet strategy makes sense, according to analyst
Heger.
"I support efforts to ramp up in data services," he said.
"That's certainly the fastest-growing piece of the telecom
business right now."
Although Malone has made it plain he plans to focus on the
Internet, he hasn't spelled out just how GST will do that.
He said the company is still "quantifying" its plan --
figuring out where its priorities lie, which customers to
emphasize and what kinds of services GST will add.
To analysts like Heger, though, the details of the strategy
are as important as the broad plan. Investors need to know
more, he said, especially given the recent management
turnover. The company's stock -- which traded near $18 a
share last year -- is now under $7.
"There's been kind of a void of communications over the
last few months over where the company is going," Heger
said. "I don't think they can wait much longer."
And getting a piece of the Internet pie won't come cheap.
GST estimates this year's capital expenditures at more than
$140 million. That's a lot of money for a company that
already has more than $1 billion in debt, posts losses
every quarter, and hasn't been able to turn up revenues
lately.
GST has been trying to unload a subsidiary operation in
Hawaii and has been actively seeking a new private equity
investor. Both deals could provide badly needed capital,
but after months of delaying announcements GST has
stopped predicting when either event will happen.
GST is funded into the second half of the year, and Heger
said projected revenues, asset sales and short-term
financing will probably carry the company through the
year. Long-term, he said, GST needs more.
"I think the thing that they really need to accomplish is
the private equity(financing), but that may be held up
right now by not having a CEO in place,"Heger said.
GST is actively searching for a new leader, and Malone is a
candidate for the job. Malone was hired as chief operating
officer just two months before Basile quit, though, and
Heger said GST might benefit from a more experienced
chief with "marquee value" who could build shareholder
confidence by his or her very presence.
Other issues linger, too. GST received $30 million last
year by settling a suit against a former subsidiary in
Canada, and got an undisclosed amount this month for
settling a related suit against its former law firm. But
other litigation is unresolved.
GST has a lawsuit outstanding against a number of former
company directors,including company founder John Warta. He
has a counter suit of his own filed against GST.
Additionally, a Seattle law firm is leading a class action
suit on behalf of shareholders seeking to recover funds
lost in past business deals alleged to be fraudulent.
Malone says none of the legal issues worry him. Of the
class action suit, he said "I haven't devoted a single
ounce of thought to it."
It will take time for GST to put the past behind it and for
the new strategy to start affecting the balance sheet,
Malone said. He said investors can start expecting
improved financial performance in the second half of the
year.
Already, though, he said GST is becoming a different kind
of a company, a place that values performance and results.
"Favorable winds of change are blowing through GST, and we
are becoming a great place to work, an easy company to do
business with."
By Mike Rogoway
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