Broadband Week Direct

Today's report from Web Editor Susan Rush

• Qwest board nudges Nacchio out

• Bankruptcy descends on XO

• Companies develop DOCSIS 2.0 automated
testing equipment

• Mergers & acquisitions roundup

• Study: Movie trailers drain corporate bandwidth

• SEC filing cites more Adelphia woes

• Sandbridge Technologies snags funds

• Broadband briefs

Qwest board nudges Nacchio out

After financial struggles, downgraded ratings and an SEC probe, Joseph Nacchio has resigned his post as Qwest Communications International Inc.'s head honcho.

Although Qwest deems Nacchio's resignation as voluntary, it is has been reported that the board of directors nudged him out. Nacchio has been in the hotseat for months now. The company's stock was downgraded to below investment-grade in May. The SEC recently launched an investigation into some of the company's accounting practices. And, Qwest's debt has ballooned to a point where the company has been looking to shed some assets.

Former Tellabs Inc. chief executive Richard Notebaert has been named as Nacchio's successor. Nacchio will remain on board as a consultant for up to two years.

Amid Qwest's struggles, Nacchio was paid well. Qwest has said it paid him more than $27 million last year. Nacchio has been criticized for exercising stock options and selling Qwest shares. Since taking over Qwest, he has cashed out more than $300 million. Notebaert's appointment is designed to boost investor confidence in the company. As of 1:07 p.m. EDT, Qwest shares had gained 81 cents, or 19.5 percent, to trade at $4.96.

Bankruptcy descends on XO

Not that it should come as a big surprise, but XO Communications Inc. has filed for bankruptcy under the protective blanket of Chapter 11. Along with the filing, the broadband service provider has submitted a two-pronged reorganization plan.

The bankruptcy filing, submitted in the U.S. Bankruptcy Court for the Southern District of New York, is limited to parent company XO Communications, and will not affect XO's operating subsidiaries, the company said in a statement. The company does not expect to reduce its workforce or interrupt operations.

The proceedings will enable XO to hunker down and concentrate on its reorganization plans. The company is offering two possible scenarios to complete its restructuring. The first surrounds a previously announced deal with investors Fortsmann Little & Co. and TelMex, which would give each company would invest $400 million in XO in exchange for a combined stake of nearly 80 percent in XO's outstanding equity. Last week, however, Fortsmann Little and TelMex asked XO to agree to terminate the stock purchase agreement to "clarify for all of the company's stakeholders the restructuring options available to the company." XO rejected the request and said, "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. We flatly reject the investors' notion that it is 'virtually impossible' for conditions to the investors' obligations to be fulfilled."

Although XO does not believe the investors have the right to get out of the deal, it is offering an alternative, stand-alone plan, which calls for the conversion of the $1 billion in loans under the secured credit facility into common equity and $500 million of pay-in-kind junior secured debt. The informal steering committee of lenders under the secured credit facility has indicated that it is prepared to support the stand-alone restructuring plan, XO said.

The SEC also added XO to its growing list of telecom companies it is investigating last week. The "informal" probe surrounds some of XO's sales practices.

Companies develop DOCSIS 2.0 automated
testing equipment

Looking to accelerate the adoption of DOCSIS 2.0, Imedia Semiconductor Corp. and DAQTron Inc. are teaming to develop automated testing equipment systems for the latest CableLabs' spec.

The test systems jointly developed by the silicon vendor and the broadband test systems company will enable DOCSIS 2.0 pre-certification and product design verification testing via DAQTron's Jupiter 200 DOCSIS test system. The system, which will be available in the third quarter, will support A-TDMA and S-CDMA products.

Making its debut in January, DOCSIS 2.0 builds on features of versions 1.0 and 1.1, but adds throughput in the upstream portion of the cable plant to provide a network with 30 Mbps capacity in two directions. DOCSIS 2.0 enables such services as videoconferencing and peer-to-peer applications.

DOCSIS 2.0 includes synchronous code division multiple access and advanced frequency agile time division multiple access (S-CDMA and A-TDMA) modulation techniques, and will be compatible with 1.0 and 1.1 cable modems and CMTSs.

Related stories:
DOCSIS 2.0 more throughput for all, 6/02
CableLabs moves ahead on DOCSIS, 3/25/02

Mergers & acquisitions roundup

As the tech industry continues to grapple with the lagging economy, mergers and acquisitions remain a hotbed of news. The latest: EDS snatches Loudcloud's web hosting business and Proxim buys Agere's Wireless LAN equipment biz.

Loudcloud exits hosting game
EDS will fork over $63.5 million to acquire Loudcloud's managed hosting business, as Loudcloud concentrates on its software business under the new name Opsware.

As part of the acquisition deal, EDS will license Opsware software. Initially the EDS will deploy the software in its managed hosting business, with plans to expand the deployment across its 50,000 servers, 14 major data centers and 140 client-owned and regional data centers. The three-year licensing agreement has a $52 million value.

Loudcloud conversion to Opsware is designed to distinguish the company as an enterprise software company focused on IT automation software and separate Loudcloud from the managed services business.

Proxim offers cash for Agere wireless LAN
equipment biz
Wireless networking equipment maker Proxim Corp. plans to shell out $65 million in cash to acquire Agere Systems' 802.11 wireless local area network equipment business.

Proxim will acquire assets primarily used by Agere in its wireless LAN equipment business, including a range of wireless LAN products used in homes, small offices, enterprises and outdoor environments. The deal does not include Agere's 802.11/Wi-Fi chips, modules and cards business. Agere is holding on to these assets as it narrows its focus to include Wi-Fi components for the emerging wireless computing, networking and entertainment markets.

The companies also have inked a three-year supply pact calling for Agere to provide chips, modules and cards to Proxim.

Study: Movie trailers drain corporate bandwidth

Movie-goers may look forward to windfall of summer blockbusters, but corporate IT directors may only view them as bandwidth drains.

Streaming media Web sites, which include online movie trailers, are on the rise, up 412 percent in the last 12 months, according to new research from Websense Inc., an employee management solution provider. This has led to 400,000 Web pages in total featuring movie trailer clips.

It may seem innocent enough for workers to log on to get a glimpse of the MIBII or Austin Powers in Goldmember, but Websense has found that if just three employees were to stream a 4 Mbps movie trailer simultaneously, a corporate Internet connection could quickly become overburdened. This reportedly will get worse once more video-on-demand services are rolled out.

To assist corporations in reigning in their employees, Websense has introduced Premium Group II, a program designed to enable IT departments to limit employees' use of streaming media by time-based quota, time of day, user/group or block access altogether.

SEC filing cites more Adelphia woes

By David Lieberman

NEW YORK -- Scandal-plagued Adelphia Communications Corp. hung out more dirty laundry in a Securities and Exchange Commission filing late Friday.

The No. 6 cable operator, widely believed to be on the verge of filing for bankruptcy protection, disclosed that:

• On June 9, audit firm Deloitte & Touche said that it could not resume work on Adelphia's 2001 annual report because unnamed executives thought to have been involved in illegal activities were still working for Adelphia.

"There is no way that we would be willing to rely on their representations, and indeed, the mere fact that they remain in their positions raises additional concerns," the company wrote.

The letter appears to have crossed paths with a note that Adelphia sent to Deloitte dismissing the firm.

In response to Deloitte's charge, Adelphia said that its chief financial officer, chief accounting officer and restructuring advisers were hired May 25 and had no connection to the company in the period when the alleged lawbreaking took place.

Adelphia also said that members of the accounting, finance and bank and investor relations staff referred to by Deloitte "are being transferred to other duties pending completion" of a company investigation.

Deloitte said it would respond later in a letter to the SEC.

Thursday, Adelphia hired PricewaterhouseCoopers to be its independent accountant.

• Adelphia is investigating a $100,000 membership fee and a $600,000 investment the company made in 2000 to the Golf Club at Briar's Creek in South Carolina.

Directors want to find out whether the payment was for company business or "for the personal use by members of" the family of Adelphia founder John Rigas. The company says the board wasn't told about the payments.

• Adelphia stopped work on an 830-acre golf club and course it was building on Rigas-owned property near company headquarters in Coudersport, Pa. It has also fired the 11 people still working on it.

• Adelphia discovered $1.9 million in outstanding loans to "current and former employees." It has taken a reserve of $500,000 against possible non-payment.

• Seven people on the Adelphia payroll were there "to provide services to members of the Rigas family," the company says. They've all been fired or moved to the Rigas' payroll.

Adelphia shares closed at 15 cents, up a penny, in over-the-counter trading Friday before the filing to the SEC.

Sandbridge Technologies snags funds

By Katherine Goncharoff

White Plains, NY-based Sandbridge Technologies, a developer of so-called "software defined radio" chipsets designed to allow handheld devices such as cell phones to easily shift between various transmission modes, including 3G and WiFi, has raised $14 million in a first round of funding.

The financing, which was received in two $7 million tranches in 2001, was led by Bessemer Venture Partners and included the participation of Atlas Venture and Columbia Capital. The new funds will be used to complete product development of the ultra-low power and multi-mode chipsets and to acquire licenses

Broadband briefs:

• AOL, EarthLink launch service over TWC systems in La.
Shreveport, La. has become the latest US city to receive high-speed Internet access from America Online and EarthLink Inc. The companies launched their respective services over the Time Warner Cable system there. The Shreveport division serves Shreveport, Stonewall, Greenwood and parts of East Texas.

• deltathree promotes Zimels
Shimmy Zimels has been promoted to chief executive officer at deltathree Inc. He leaves his position as chief operating officer where he was responsible for overseeing all operations, including network operations and customer accounts. Zimels replaces Noam Bardin who has moved into the role of chairman of the board.

• C-SPAN tabs Cogent
C-SPAN has selected Cogent Communications Group Inc. to provide a point-to-point, high bandwidth connection that will enable a two-way distance learning program at the University of Denver.

Other universities, including University of Pennsylvania, George Washington University, Tufts and Stanford, are using Cogent's high-bandwidth metro optical solutions for their distance learning programs.