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Monday, June 10, 2002 |
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• Thirdspace
investment insulates Concurrent • MSOs dealing with Motorola recall • Sprint joins Moody's downgrade club • CommScope falls victim to Adelphia's plight • Forstmann looks to back out of XO • Speakeasy talks its way into $6M Thirdspace investment insulates
Concurrent Video-on-demand vendor Concurrent Computer Corp. is sufficiently insulated from the ongoing VOD patent war being waged between
nCUBE Corp. and
SeaChange
International, a Concurrent executive said. Related stories:
MSOs dealing with Motorola recall Comcast Cable Communications and AT&T Broadband have said they are dealing with the recall of some of Motorola Inc.'s DCT-2000 digital set-top boxes in stride. On Friday, Motorola announced it was recalling a small percentage of its DCT-2000 boxes manufactured between March 1 and May 31 this year due to a mechanical defect in the power plug. “The actual impact is a pretty small percentage of (the 1 million boxes shipped between March and May), but we have to go through the population and be very careful to identify potentially affected units by serial number and by delivery date,” says Carl McGrath, vice president and general manager, digital consumer gateways. Comcast has said that the recall will affect less than one half of one percent of its 2.5 million digital cable customers. The company expects to recall between 4,000 and 6,000 DCT-2000s, and is in the process of identifying and notifying the affected customers. While AT&T Broadband is not releasing any numbers, the company has said a "small number" of these boxes have been installed in customers' homes. The majority of the affected boxes are still in the warehouse, according to AT&T Broadband. Although no timeline has been established for how long the recall will take, both AT&T Broadband and Comcast said they will communicate with their customers until the recall process has been concluded. The companies intend to inspect and replace the installed DCT-2000 manufactured in between March and May. The problem appears to center on a mechanical defect in the power supply circuit within the detachable power plug, Motorola said. While it would pose no danger to units if they are left alone, it would potentially pose a problem if customers decide to unplug or power down the digital box. The recall will likely affect Cox Communications Inc., Charter Communications Inc. and Time Warner Cable as well. Related story:
Sprint joins Moody's downgrade club Sprint has become the latest telecom company to be hit with a rating downgrade from Moody's Investors Service. The recent cut puts Sprint's credit rating one notch above "junk" status. On Friday, Moody's cut Sprint's senior unsecured long-term rating from Baa2 to Baa3 -- a notch above junk. The downgrade, which affected roughly $22 billion of debt, was sparked by Moody's view that Sprint will not generate material free cash flow as a percentage of total debt until 2004. The firm also cited Sprint PCS's need for "heavy" capital spending while it grows, the struggle its long-distance business faces to turn itself around and liquidity remaining a possible concern until Sprint secures a new bank facility. The rating outlook is negative, Moody's said. Standard & Poor's also sees the rating outlook as negative for Sprint, while Fitch Ratings believes the outlook is stable. Although Sprint is disappointed by the action taken by Moody's, the company does not believe the downgrade will have an impact on its financial flexibility or its operations. Moody's has been busy lately in the telecom sector, downgrading Qwest Communications International Inc. and WorldCom Inc. to junk status, and cutting AT&T Corp.'s rating two notches to Baa2 -- two notches above junk status. Verizon Communications Inc. is being reviewed for a possible downgrade. Related stories:
People on the move: Robinson steps down from Motorola Broadband; Hardin takes AOL Broadband job Dave Robinson has announced plans to step down as the head honcho of Motorola Broadband Communications Sector, Dan Moloney will take up the post. After nearly two decades with Motorola and General Instrument, Robinson is leaving his positions president of the broadband communications group and as executive vice president of Motorola Inc. to pursue a career as a CEO, said Motorola Inc. president Edward Breen. Dan Moloney, senior vice president and general manager of the IP Systems Group, will replace Robinson at the end of the second quarter. General Instrument merged with Motorola in January 2000. In other people news, Shawn Hardin has been named senior vice president of product and programming for AOL Broadband. At his new post, he will be responsible for product and application development for the AOL High-Speed Broadband service.
CommScope falls victim to Adelphia's plight CommScope Inc. has looked into the crystal ball and without new revenue from Adelphia Communications Corp. coming in, the broadband coaxial cable maker is being forced to lower its second-quarter outlook. The company now expects to post second-quarter sales in the range of $150 million to $160 million. In the first quarter, CommScope reported sales of $160 million. Second-quarter gross margin will be between 19 percent and 21 percent. The company had previously predicted a modest improvement over the first quarter margin of 22 percent. In the first quarter, Adelphia accounted for 11 percent of CommScope's total sales and 16 percent of total accounts receivable. As of May 31, receivables from Adelphia were roughly $22.5 million, CommScope said. The company is considering the need for a charge related to an allowance for these receivables. As of 11:52 a.m. EDT, CommScope shares were shedding 5 cents to trade at $13.05. In May, ARRIS and C-COR.net Inc. lowered their quarterly outlooks, and said they do not expect to generate any revenue from Adelphia in the near-term. Related stories:
Forstmann looks to back out of XO Copyright 2002 The Deal L.L.C. An investment group fronted by Theodore Forstmann is trying to get out of its $800 million offer to recapitalize XO Communications Inc. But the troubled broadband provider is not going to let Forstmann walk away that easily. In a letter sent to XO's attorneys Thursday, June 6, lawyers for the Forstmann Little & Co.-led group "requested" that XO agree to terminate the stock purchase agreement to "clarify for all of the company's stakeholders the restructuring options available to the company." But in a reply Friday, Reston, Va.-based XO said it wasn't going to agree to the buyout group's request and intends to move forward on two fronts - namely, responding to the group's concerns regarding a restructuring and formulating a standalone recapitalization plan. "We do not believe that the investors have any right to terminate their obligations unilaterally, and see no reason to believe that the closing conditions cannot be satisfied," XO said in a statement. "We flatly reject the investors' notion that it is 'virtually impossible' for conditions to the investors' obligations to be fulfilled." Forstmann Little and Telefonos de Mexico SA de CV have offered to inject $400 million each into XO in exchange for an 80 percent stake. In addition, the agreement required XO to file for bankruptcy to put the whole thing in motion. The Forstmann group's letter essentially stated that it wanted out for fear that XO would never satisfy all the conditions in the purchase agreement. The group based its reservations on XO's financial condition and the continued opposition by the company's unsecured noteholders to the deal. The noteholders previously backed a bid from Carl Icahn, XO's largest noteholder, who offered to inject $550 million into the company in exchange for a 55 percent stake. Other noteholders would get the remaining equity stake. But Icahn pulled the bid off the table in May. That Forstmann is threatening to do the same isn't surprising to some observers. "The valuation of the company has suffered due to the fact that all comparable competitive local exchange carriers have declined substantially since the time they decided to do the deal," sources familiar with the buyout offer said. The source also said XO's bank syndicate, which is led by a branch of Toronto-Dominion Bank Inc., recently approached Forstmann about doing an offer at a "lower valuation," but that never came to fruition. If that happened, XO still wouldn't owe the buyout group a termination fee because no higher offer is on the table by another bidder. If one existed and was accepted, XO would have to pay the group 1 percent of the company's enterprise value. XO has had a decent few months financially recently. Revenue jumped to $333.4 million in the first three months of this year, compared with $277.3 million during the same period a year ago. Also, a federal judge last week threw out a class-action shareholder lawsuit filed against XO in connection with the Forstmann proposal. Senior bankers would then "backstop" the offering by acquiring additional equity or secured debt in the reorganized company if the earlier offer does not yield the capital needed to implement the reorganization. In its statement, XO noted that it "has made substantial progress with the steering committee of its senior secured lenders to formulate a standalone plan" in the event the company's deal with the Forstmann group fails to be completed. And then, of course, there is always Icahn. The former corporate raider seems to never disappear from these distressed situations. "Icahn is still interested. We shall see," said sources close to the company. Icahn wouldn't return calls seeking comment. A Forstmann Little press officer said the New York private equity firm had no comment. Related stories:
Speakeasy talks its way into $6M Copyright 2002 Securities Data Publishing By Danielle Fugazy Growing quietly under the radar screen, Speakeasy started out as an Internet cafe in 1994. Since then the Seattle-based company has transformed itself into a broadband service provider and is expected to announce today that it has secured $6 million in fresh capital. "We grew organically and in January 1999 we started focusing on broadband," says Mike Apgar, founder and CEO of Speakeasy, adding that he feels broadband services are getting ready to make a comeback. "After the shakeout, demand stalled, but I think it's coming back." Just in case the demand isn't as great as Apgar expects it to be, Speakeasy has added some features to its service that might make its proposition seem a little sweeter. In addition to computer hook-up services, Speakeasy is offering entertainment packages that focus on Internet games and music. An avid game play can use up a new game in a couple of days, Speakeasy's service allows players to pay a subscription fee and get a certain amount of new games each month. Led by Colorado-based Cornerstone Ventures, the third round of funding included original investors Matthew G. Norton and Granite Ventures. The company's first round, which took place in May 2000, raised $11 million, then one year later Speakeasy closed on a little more than $8 million. It was about that time that Cornerstone, which put $3.5 million into this round, first met with Speakeasy. At the time, Speakeasy was bringing in about $10 million in revenue and had big growth plans. "We felt their ambition to grow was not in line with the marketplace so we passed on the deal," says Neville Vere Nicolle, a partner with Cornerstone. Just recently Cornerstone went back for a second look and was pleasantly surprised, the company had tripled its revenue in the past year. That's when Cornerstone decided to give Speakeasy another shot. However, Vere Nicolle's assessment of the telecom industry isn't as positive's as Apgar's is. "The telecom meltdown concerns me, but in any situation there are survivors, who haven't had major money to play with and became successful," says Vere Nicolle. "This market is not going away and we don't fund companies that have huge financial requirements. This round clearly takes Speakeasy to break-even." Apgar says there is no question that Speakeasy will be profitable by the end of the year. Additionally, this is expected to be the company's last dip in the private equity pool. The capital from this deal will be used to accelerate expansion of the company's network into regional areas and add further depth to its coverage in targeted urban markets. Right now Speakeasy is deployed nationwide in 80 residential areas and in 20 small business communities. Related story:
• EarthLink, AOL launch high-speed service in
Alabama Separately, EarthLink has announced plans to acquire PeoplePC for about $10 million. As part of the deal, EarthLink will assume $35 million in PeoplePC's liabilities. • iTV Alliance takes shape • Qwest inks Flagstar Bank contract • Bridge Broadband signs on as HNS Europe
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