One local multipoint distribution service wireless broadband carrier folded under the financial burden of the stock market last week, and now the futures of several others hang in the balance, potentially impacting the stability of an entire industry that just a year ago was seemingly poised for greatness.
Bellevue, Wash.-based Advanced Radio Telecom Corp., which offered wireless broadband services using the 39 GHz frequency band, filed for Chapter 11 bankruptcy March 30, citing “distressed capital markets” and its inability to complete any of the financing alternatives it had been pursuing. For 90 percent of its 200-employee work force, last Tuesday was their final day with ART, according to Masha Tsiklauri, account executive with DDB Worldwide Communications Group Inc. in Seattle, which represented ART until last week.
It remains unclear just what will happen to the company’s 39 GHz licenses, valued at around $368 million. Tsiklauri speculated that even ART does not yet know, and repeated attempts by RCR Wireless News to contact ART went unanswered. ART said it will provide service to its current customers for the next 30 days to enable them to transition to another service provider.
Unfortunately, consumers may not have many other choices. Teligent Inc., a 24 GHz operator, said its auditors have raised concerns about its future operating abilities.
“The company has incurred recurring operating losses and has a substantial need for working capital. These conditions raise substantial doubts about the company’s ability to continue as a going concern,” said independent auditor Ernst & Young in Teligent’s most recent filing with the Securities and Exchange Commission.
Teligent itself said it cannot guarantee that it will be able to obtain additional funding on acceptable terms, and its shares could get delisted by the Nasdaq National Market by April 24. Shares of Teligent were trading at 41 cents at RCR Wireless News press time, down 99 percent from its 52-week high of $65.88.
Winstar Communications Inc., a majority owner of and operator in the 28 GHz frequency band, announced last week its plans to slash approximately 2,000 employees and halt all domestic and international network expansion for the rest of the year. Widely thought of as the LMDS industry’s most successful carrier to date with 5,400 fully on-net buildings and about 4,700 employees at the end of third-quarter 2000, Winstar stock is trading at about 47 cents per share. Its $1.35 billion bank credit facility is fully drawn.
Winstar also said it is delaying the filing of its annual report because it is in talks on “certain material transactions” which have not yet been completed.
“In light of (1) the uncertainty over these potential transactions and (2) the required use of corporate personnel and resources that would otherwise have been used for the preparation of the annual report on Form 10-K, the company is unable to file such report within the prescribed time,” Winstar said.
The company expects to file its annual report no later than April 17.
Moody’s Investor Service said the outlook for Winstar is negative, and even if the company could secure funding, it does not expect Winstar to generate positive free cash flow prior to 2003.
Winstar’s drastic employee cuts and continued declining value moved Wall Street analysts and investors to speculate that Qwest Communications International Inc. was going to buy the struggling company, but Qwest issued a statement saying there was no truth to this, and it has “no current intention to acquire, purchase any assets of, or invest in Winstar or any other fixed wireless company.”
At a price of $3.53 at RCR Wireless News press time, shares of XO Communications Inc. were the most highly valued of all major LMDS carriers in the United States. XO took a wild rollercoaster ride on Wall Street last week amid analyst reports that its debt load posed future risk.
UBS Warburg analyst Glen Waldorf cut XO’s stock rating from “strong buy” to “hold.” He said XO is an “ambitious international CLEC with strong management with rapid cash burn and debt load that represents significant risks.”
In response, XO issued a statement of its own, saying these “misperceived concerns” regarding its financial position have needlessly contributed to its volatile stock price, and in fact, the company has the ability to fund its operations into the first half of 2002.
“We believe that we have both the existing cash and future funding flexibility to weather the carnage that the telecommunications industry is now experiencing in the market,” said Dan Akerson, chairman and chief executive officer of XO. “In our view, the long-term prospects for broadband service revenue growth remain bright and market forces are now dictating that there will be far fewer companies who will pursue the opportunity.”
If the big carriers continue to drop out, Akerson’s prediction may come true, but there is a glimmer of hope in the yet-to-be-launched services of companies such as Adelphia, CenturyTel and Alltel, said Peter Jarich, director of broadband research for The Strategis Group.
“There are tons of other guys that haven’t even starting launching services,” Jarich said.
Jarich also noted that international markets, where there is little to no wireline infrastructure, hold great potential for LMDS carriers, and because other DSL and cable broadband companies also are having an extremely tough go at things right now, the wireless broadband industry could still have a chance.
“Hopefully between people who have yet to launch and international deployments, everything will be OK,” Jarich said.
