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Technology Stocks : Tel-Save Holdings (TALK) -- Ignore unavailable to you. Want to Upgrade?

To: Dave Peterson who wrote (837)	6/27/2000 3:09:00 PM
From: SIer formerly known as Joe B.	Respond to of 840

S&P cuts Talk.com <TALK.O> subordinated debt =2 The downgrade is based on Standard & Poor's assessment of the company's plans to aggressively expand into the residential and small business local telephone market during 2000 through its pending acquisition of Access One Inc. Access One, a competitive local exchange carrier (CLEC), operates predominately in the Southeastern U.S. in the BellSouth Corp. service territory. Regional Bell operating companies such as BellSouth are required to make their full local network capabilities available to such competitors at a favorable price structure established by the FCC in an order adopted earlier this year. However, TALK.com will still face the formidable task of penetrating the residential and small business local telephone markets, which are served by much larger, financially stronger incumbent local telephone companies. Incumbent competitor BellSouth in particular benefits by comparison from its strong brand name and associated high service quality. TALK.com has transformed dramatically over the past few years in terms of its business strategy. Initially a reseller to the small business customer market, since 1997 it has focused its attention on the consumer market. TALK.com had addressed the consumer market through agreements with numerous on-line channel partners, the most important of which is America Online Inc., which provides the bulk of the company's current 1.5 million consumer customer base. Through its marketing agreement with AOL and others, TALK.com has been able to control its marketing expenditures in the face of intense competition in the long-distance marketplace, and has offered competitively priced products. Nevertheless, the company's continued dependence on AOL as its primary marketing arm remains a concern. The acquisition of Access One presents a number of challenges to TALK.com, including integration of Access One's operations over the next year to create a centralized information technology platform. Moreover, customers' appetite for bundled service offerings through the on-line channel partners is uncertain and high customer churn is a concern. The company's financial profile is expected to be adversely affected in the near term by its CLEC expansion plans and concomitant aggressive marketing of bundled service to Access One's target base, with EBITDA interest coverage expected to fall substantially during 2000 to about 4 times despite a relatively modest level of debt utilization. Delays in execution of the local plans could also result in continued pressure on credit measures beyond 2000. Because TALK.com's business plan does not require significant capital expenditures the company is not expected to require additional funding over the next several years, unless it substantially expands its local footprint beyond the Access One region. Furthermore, expected access to $80 million from Soros Private Equity Partners later this year provides a financial cushion should start-up costs prove higher than anticipated. OUTLOOK: NEGATIVE While the company has a degree of financial flexibility to execute its plans, failure to meet aggressive customer targets in its local exchange business over the next year could result in credit deterioration sufficient to result in a downgrade, Standard & Poor's said. REUTERS * end of story *