April 20, 2001
Teligent's Dream Proves Disappointing
For Former AT&T President Mandl
By Shawn Young
Staff Reporter of The Wall Street Journal
Alex Mandl has been riding in the front car of the telecommunications roller coaster since 1996, when he shocked the business world by walking away from his job as president and heir apparent at AT&T Corp. to head a little-known start-up called Teligent Inc.
It's been a rough ride.
Back then, Teligent "wasn't even a company yet," recalls Mr. Mandl. What it was: a pile of cash, radio-frequency licenses and the dream of using new wireless technology to bypass the regional Bell companies' monopoly on local phone services.
Teligent, under Mr. Mandl's halo, attracted big backers, including Microsoft Corp., John Malone's Liberty Media Corp., Japan's Nippon Telegraph & Telephone Corp., Telecom Ventures LLC and Hicks, Muse, Tate & Furst Inc. The company raised about $2.6 billion in various forms of capital, according to Securities and Exchange Commission filings. It went public in November 1997 and its shares soared to $100 last year at the height of the tech boom.
Mr. Mandl, Teligent's dapper 57-year-old chief executive, relished the entrepreneurial life. "I borrowed a friend's office and his secretary for the first three weeks," he says. "There was no one to call a meeting with."
But the dream didn't pan out. Today, Teligent stock trades at well under $1 and faces delisting from the Nasdaq Stock Market. According to Teligent's annual report, it had $194 million in cash left as of March 26 -- only enough to see it through the current second quarter. The report also said Teligent had $1.44 billion in long-term debt but just $1.2 billion in assets. The company could violate its credit covenants if it doesn't come up with $350 million in additional financing commitments by April 30. Its auditors have expressed "substantial doubt" about Teligent's ability to carry on.
Mr. Mandl has also taken a personal hit. He has options on six million Teligent shares, which had a market value of $370.5 million at the end of 1999 but were worth only $2.6 million at Thursday's closing stock price of 43 cents. To Mr. Mandl, the options are moot because the market price of the shares is far lower than what he would have to pay to exercise the options, not all of which have vested. Mr. Mandl, who had a salary of $500,000 last year but no bonus, says he never exercised any of his options when it would have been profitable because he would have had to sell shares to pay capital-gains taxes on the income, a statement that as CEO he didn't want to make.
"With hindsight, some people -- maybe including my wife -- might say that wasn't the smartest move," he says.
In the once go-go world of telecommunications, where capital seemed unlimited, Mr. Mandl's experience shows that there are no sure bets, even if you are a star of your industry.
Teligent became a victim of some early technology stumbles and a market mentality that first encouraged growth at any cost -- and then abruptly got very worried about cost. By the time Teligent had overcome its early technological problems it had lost valuable time that could have helped it prepare for the downside of the business cycle.
These days, between calls with financiers about ways to save his company, Mr. Mandl seems a bit stunned. "There's a lot of disbelief and shock at how things have changed," says the native of Austria, who has been in the U.S. since 1959, in a recent interview at the company's Vienna, Va., headquarters.
Teligent's plan seemed to make a lot of sense. The company would use wireless technology to beam phone and high-speed Internet services directly from towers into the office buildings that house small and midsize businesses, still estimated as a $70-billion-a-year communications market. Teligent became one of the most prominent of the so-called competitive local exchange carriers that sprouted after the Telecommunications Act of 1996 opened the Bells' local phone markets to competition. Millions of customers were being offered a choice of local phone carriers just as they needed better ways to hook into the Internet.
In the heady days of late 1999 and early 2000, raising capital was a cinch. It was so easy that Teligent's board rejected a $500 million additional investment from Microsoft and other investors because it would have diluted the ownership stake of some existing investors. It also passed on a proposed $200 million preferred-stock deal that, combined with the $500 million, could have helped the company through its current capital drought. Officials at Microsoft and Teligent declined to comment on the matter.
"Clearly, the market environment a year ago was as unrealistic as it is today on the other end," says Mr. Mandl. In another example of this changed environment, Teligent competitor Winstar Communications Inc. filed for bankruptcy-court protection from creditors this week after failing to find new funding.
Mr. Mandl and Teligent knew they had an uphill battle. "As a new company, you don't have the credibility, the established brand and the certainty that comes from being around for many years. You have to sell harder, be more convincing, more determined," he says.
Teligent faced another problem. "People underestimated the determination and toughness of the Bells" to battle newcomers such as his company, he says. Unlike many telecom upstarts, Teligent's strategy was to use its own network instead of relying on the Bells to provide the coveted "last mile" link into businesses.
The start-up's risks were amplified because Teligent was using a new version of so-called fixed wireless technology to beam phone and data traffic to buildings. It was harder than Teligent expected to get the system installed properly, in part due to software glitches and other issues that often crop up with new technology. "Clearly it developed more slowly than we expected, as often happens with new technologies," says Mr. Mandl, a former shipping-industry executive who joined AT&T in 1991.
As Wall Street clamored for revenue growth, Teligent started reselling long-distance phone services to boost its results. The strategy helped Teligent's revenue grow to $152 million in 2000 from $960,000 in 1998, its first year selling its services. But losses ballooned to $808 million in 2000 from $281.5 million in 1998 as Teligent spent heavily on entering new markets, expanding the reach of its network and buying equipment.
It became clear that things were getting ugly last March, as tech stocks started to tank, when a road show to promote the company's secondary stock offering met a cooler reception from investors than expected and the offering netted just $191 million instead of the hoped-for $500 million. Investors who had been thrilled by growth were suddenly unimpressed with sheer expansion. Now they were voicing worries about losses and spending.
"That was to me a wake-up call," says Mr. Mandl. Still, for two years Teligent had consistently hit its growth targets and met investor expectations. "The assumption is that you do all those things and there's more capital. But we've done all those things and there isn't more capital," says Mr. Mandl. "It's really bizarre."
Yet Mr. Mandl remains hopeful that Teligent can raise funds and survive by focusing on customers it can serve using its own equipment and selling wholesale service over its airwaves to other phone companies. His plan is to become profitable by 2004 and to register positive earnings before interest, taxes, depreciation and amortization by the second half of 2002. That is, if Teligent can hang on.
As for himself, he says, "I have no regrets at all. I hope to continue to work in the technology space. Whether that will be at a larger company or a smaller one or Teligent, I cannot say." |
