Broadband Week Direct

Today's report from Web Editor Susan Rush

• Covad, AOL forge broadband deal

• Tellabs warns, cuts jobs

• Gates woos Hollywood with Windows Media 9

• nCUBE to relocate Denver office to Oregon HQ

• UnitedGlobalCom taps Arris

• Charter considers sale of rural systems

• AT&T exec denies it will hook up with Baby Bell

• Broadband briefs

Covad, AOL forge broadband deal

Shares of Covad Communications soared, up more than 20 percent in early trading, following news that the DSL carrier signed a five-year broadband deal with America Online.

As part of the deal, America Online, the Internet unit of AOL Time Warner Inc., will have access to Covad's nationwide DSL network by purchasing DSL services at wholesale. The deal will open up more high-speed access options for America Online to offer its members.

Although financial terms of the deal were not disclosed, it is expected to boost Covad's number of lines in service. Covad ended the second quarter with 2,000 less lines in service than at the end of the first quarter. Covad emerged from Chapter 11 bankruptcy proceedings at the end of 2001.

Covad also issued America Online warrants to purchase a total of 3.5 million shares of Covad common stock, roughly 1.5 percent of the company's outstanding shares. America Online will have the option to purchase the stock at per share prices ranging from $1.06 to $5. Covad has valued the warrants at roughly $3.5 million. Covad expects to record the value of the stock warrants as a deferred customer incentive and charge it against revenue over the term of the service agreement.

Covad's network crosses 40 million homes and businesses in the United States.

As of 11:04 a.m. EDT, Covad shares were up 26 cents, or nearly 23 percent, to $1.40.

Related story:
Covad gets green light to emerge from bankruptcy, 12/14/01

Tellabs warns, cuts jobs

Telecom gear maker Tellabs Inc. has put analysts on notice, warning that it will fall below expectations and post a third-quarter loss. Along with the warning, the company said it will eliminate 14.5 percent of its work force.

Tellabs' North American customers continue to tighten their belts, and as a result, the company expects sales to fall between 15 percent and 25 percent lower than the second quarter. Tellabs posted second-quarter sales of $344.6 million. Analysts on average were calling for sales to be break-even in Q3, according to Thomson First Call.

The company plans to nix 800 jobs, 400 of which will be cut in the United States. A manufacturing facility in Shannon, Ireland also will be shuttered. By 2003, Tellabs expects to generate $80 million in annualized operating expenses. In April, the company cut 1,200 positions.

"As customers spend less, we must take these painful steps to reduce expenses and position Tellabs for a future return to growth and profitability," Tellabs CEO Michael Birck said in a statement. The company will take a one-time $70 million restructuring charge in the third quarter related to these latest cuts. Prior to today's announcement, the company has reduced its employee roster by 3,700.

Tellabs' stock was taking it on the chin. The company's shares were down 60 cents, or 10 percent, to $5.16 as of 11:22 a.m. EDT.

Related stories:
Tellabs' loss narrows, sales dip, 7/17/02
More layoffs in the cards at Tellabs, 7/12/02

Gates woos Hollywood with Windows Media 9

In typical Bill Gates fashion, the Microsoft Corp. front man was working the crowd at the Hollywood and Highlands Complex yesterday when he unveiled the beta version of Windows Media Player 9 Series.

Gates had James Cameron and LL Cool J at his side while he demonstrated the software giant's latest introduction into the audio and video streaming sector, the Windows Media Player 9 Series.

Formerly code-named "Corona," the platform streams audio in full 5.1 surround sound. It is a next-generation digital media platform, with player, codecs, server and new software development kit, according to Microsoft. As is, however, the product only supports MP3 files in a limited capacity.

The player's Services tab gives users access to various music and video subscription services, including pressplay, Full Audio, Cinema Now and Intertainer. pressplay, which is backed by Microsoft, said it will use the player's Fast Streaming technology to virtually eliminate buffering for broadband users.

Microsoft said more than 60 companies have committed to develop digital media products and services on the Windows Media Player 9 Series platform. Avid, ViewCast and Loudeye are among the 60 companies that range from hardware manufacturers to entertainment providers.

Not to be outdone by its rival, RealNetworks Inc. announced yesterday that its RealOne Player version 2.0 supports the Windows Media Player 9, but pointed out that the new Microsoft platform is only a beta version.

In July, RealNetworks took the open-source approach with the introduction on a digital media software that supports various file formats for audio and video, including MP3s, Microsoft's Windows Media technology and Apple's QuickTime.

nCUBE to relocate Denver office to Oregon HQ

nCUBE Corp. will become the latest company involved in the cable industry to leave the Denver area later this year when the video-on-demand and ad insertion vendor relocates its Louisville office to Beaverton, Ore., the site of nCUBE headquarters.

An nCUBE spokeswoman said the company’s lease in Louisville was set to expire in January and that more office space became available at nCUBE’s Beaverton office. The relocation also will cut company expenses, she added.

nCUBE’s Louisville division houses the company's advertising insertion group and handles a portion of the its software engineering functions.

The spokeswoman said “practically all” of nCUBE’s 90-plus Louisville employees have been offered relocation packages. The balance of those workers and those who decline the relocation option will be offered severance packages.

The relocation process will continue through the end of this year, and nCUBE’s Louisville office will officially close during the early part of 2003, the spokeswoman said.

Employees of nCUBE’s Louisville office, which is a stone’s throw from CableLabs, have been given about a month to make their decision.

Overall, nCUBE has about 200 employees. The company has secured VOD deployments in North America with MSOs such as Time Warner Cable, Altrio Communications, Astound Broadband and Charter Communications, among others.

nCUBE marks the latest cable-related company to make plans to move from the Denver area, once considered the cable’s unofficial capital. In July, Time Warner Cable confirmed that it will move about 200 or its 300 Denver-area employees to Charlotte, N.C. and Herndon, Va. Meanwhile, Englewood, Colo.-based AT&T Broadband is in the process of merging with Comcast Corp., which is headquartered in Philadelphia. Multichannel News, a sister publication to CED Broadband Direct, also reported this week that A&E Networks has shut down its Denver-based affiliate sales office.

Jeff Baumgartner

Related story:
Time Warner Cable puts Denver pullout
plans in motion, 7/25/02

UnitedGlobalCom taps Arris

UnitedGlobalCom has looked into its crystal ball and sees a future transition to advanced telephony service over IP, and is turning to Arris to make that vision a reality.

As part of the three-year deal, Arris will supply UnitedGlobalCom with headend systems, including the Cornerstone Voice system, the DOCSIS 1.1 and EuroDOCSIS 1.1 qualified IP cable modem termination systems -- Cadant C4 CMTS and Cornerstone CMTS 1500 -- and voice and data modems. Arris also will supply inside and outside plant equipment, subscriber management solutions and equipment and services ranging from installation to integration. Financial terms were not disclosed.

The agreement will enable UnitedGlobalCom to continue to offer its customers reliable constant-bit-rate telephony and tiered high-speed data services, according to Phil Colby, vice president of engineering at UnitedGlobalCom. It also will enable the company to transition to advanced telephony service over IP down the road, he said.

Last week, Arris signed a deal with Comcast Corp. to supply its Touchstone Telephony Modem for the MSO's voice-over-IP deployment in Philadelphia.

Charter considers sale of rural systems

Copyright 2002 Knight Ridder/Tribune Business News
Copyright 2002 St. Louis Post-Dispatch
St. Louis Post-Dispatch...09/05/2002
From LexisNexis

Jerri Stroud

Charter Communications Inc.'s top priority is getting more cash coming in than going out, a position it probably won't reach until 2004, says Carl E. Vogel, the company's chairman and chief executive.

Charter stressed efforts to control costs, to reduce customer turnover and to trim debt in a daylong meeting with analysts Wednesday at the Ritz-Carlton in St. Louis. The event, billed as an "investor day," was open only to about 100 invited guests, mostly Wall Street analysts. Investors and media members could listen over the Web.

Company executives also discussed initiatives to improve customer service and to bring out new, more profitable products.

Kent Kalkwarf, chief financial officer, warned that Charter's third-quarter results could be at the low end of expectations, with growth of 13 percent to 15 percent in revenue and cash flow.

Charter had a "soft month" in July, a trend that probably continued in August, Kalkwarf said. But he added that most of the quarter's results depend on business in September, when college students return to campuses and order new service.

Charter's best opportunity to pare debt could be a deal to sell cable-television systems with a total of 400,000 to 600,000 customers. At least one buyer has moved into the "due diligence" phase of talks, where the buyers get a chance to examine the books and the equipment for the systems before signing an agreement.

Charter hasn't decided on a sale, Vogel stressed, and it won't sell if the price isn't right. The systems in question are sprinkled around the country, in rural areas and markets that Charter doesn't consider strategic.

Charter has considered retaining a stake in the systems and continuing to manage them, Vogel said. But, he said, the price would have to be in line with the $3,100 per customer paid in a recent sale by RCN Corp., another cable company backed by Paul G. Allen, a co-founder of Microsoft Corp. who owns a majority of Charter's stock.

Charter is trying to improve returns by focusing on customers who bring in the most money: those who buy digital cable, high-speed data products and video-on-demand, managers said. Charter also plans to expand its telephone-service offerings in the St. Louis area and in Wisconsin next year.

But the company also is trying to find a way to hold onto customers in its analog-cable business. Such "low end" customers are the most likely to switch to satellite television from cable, Vogel said. Charter's rates for basic cable are among the nation's highest, and it has lost basic customers in recent quarters.

Charter's expanded-basic package costs $40 to $45 a month and provides 75 to 85 channels. "The market is saying they want a 40-channel package at $30 to $40," Vogel said.

"It's a challenge" that Charter plans to address in the next year, Vogel said. "We have to get away from our reliance on rate increases. We have probably pushed our rate increases about as far as we can go."

William Savoy, who leads Allen's investment company, Vulcan Ventures, affirmed Allen's confidence in Charter.

"We made an investment in Charter because we believe that people will want to be connected," Savoy said in answer to a question posed at a luncheon session. "We feel comfortable that the return on the investments will be worthwhile."

Charter stock closed Wednesday at $ 2.95, down 3 cents. The stock has lost more than 80 percent of its value in the last year.

Related stories:
EarthLink expands deal with computer retailer, 9/3/02
EarthLink, Gateway make broadband pact, 6/5/02

AT&T exec denies it will hook up with Baby Bell

Todd Wallack

AT&T President David Dorman on Wednesday poured cold water on speculation that AT&T and other ailing long-distance firms could soon get swallowed up by the Baby Bells.

"There is this conventional wisdom that . . . they will get together," said Dorman in a meeting with The San Francisco Chronicle editorial board. But "the notion is less likely than it was before."

Specifically, Dorman said that WorldCom's $7 billion accounting scandal makes it an unappetizing target and that Sprint is carrying too much debt. And he said AT&T, the nation's largest long-distance firm, can boost its lackluster stock price more by going it alone.

"We are greatly undervalued," said Dorman, who is in line to become AT&T's new chief executive after AT&T's cable unit is spun off and merged with another cable operator, Comcast. Current AT&T CEO Michael Armstrong plans to chair the combined cable firm.

"I can understand why a Bell would want an AT&T, but we don't need to combine with a Bell," Dorman said.

That's quite a turnaround from 1997, when AT&T first floated the idea of merging with Pacific Bell parent SBC Communications, the largest regional telephone company. But Federal Communications Chairman Reed Hundt torpedoed the potential $50 billion deal by calling it "unthinkable."

Since a federal judge ordered AT&T broken up in 1984, the Baby Bells have faced increased competition from wireless carriers and even cable television operators branching into telephone service.

Meanwhile, there have been growing doubts about whether the long-distance companies can survive alone, particularly in the wake of WorldCom's bankruptcy. Long distance revenues have shrunk dramatically in recent years amid competition from wireless carriers and Baby Bells entering the long distance market in many states.

Last year, AT&T reportedly held merger talks with Bell South. And in July, FCC Chairman Michael Powell told the Wall Street Journal that regulators would consider giving the green light to a merger between WorldCom and a Baby Bell, potentially opening the door to similar deals.

At least one of the Baby Bells also downplayed any merger speculation. Verizon Communications Chief Executive Ivan Seidenberg recently told The Chronicle he didn't think a mega-merger would help his company boost its slumping sales and profits.

Broadband briefs:

• Qwest amends credit facility

Qwest Communications International Inc. and its creditors have reached an agreement to amend Qwest's $3.4 billion credit facility. Under the terms, the maturity of the facility has been extended from May 2003 to May 2005 and the financial covenants have been relaxed.

The company also has completed a $750 million term loan at its QwestDex subsidiary.

• Gable receives Entrepreneur of the Year award

New Age Transportation, Distribution & Warehousing Inc.'s Carolyn Gable was the recipient of the 2002 Ernst & Young Illinois Entrepreneur of the Year Award last month.

The award is designed to recognize entrepreneurs whose achievements place them among leaders in business.

Gable received the award in the services category.

• Artel forms alliance in China

Artel Video Systems has forged a strategic alliance with Beijing Orient Blue Line Sci-Tech Development Co. Ltd. to expand its presence in China. As part of the deal, Beijing Orient will be responsible for sales and support of Artel's single and multi-channel dark fiber products and Cross Stream products designed for the transmission of MPEG-2 video over packet-based networks.

• Sullivan, Yates plead not guilty

Former WorldCom Inc. executives Scott Sullivan and Buford Yates pleaded not guilty to in a Manhattan federal court yesterday. Sullivan and Yates have been charged with conspiring to commit securities fraud, securities fraud and making false filings with the SEC.