Copyright 2006 News World Communications, Inc.
The Washington Times
January 17, 2006 Tuesday
By Tom Ramstack
From LexisNexis

RCN Corp. has emerged from bankruptcy with less debt, new management and a fast fiber-optic network that makes it a tempting takeover target, analysts say.

Since the Herndon company was founded in 1997, RCN has invested about $3 billion to set up a nine-state network of the most modern fiber-optic cable. It now provides high-speed Internet, voice and data services to about 411,000 subscribers.

“Due to advances in fiber technology, RCN’s network offers broadband speeds up to two to three times faster than other cable companies,” said Chris Roberts, research director for the financial firm Tejas Securities Group, which has no financial interest in RCN.

RCN also bundles services for customers into a single package.

“While other cable companies have only recently begun to offer voice services, RCN’s network was built for this ‘triple play’ of voice, video and data,” Mr. Roberts said.
 
RCN’s competitors typically charge for each service separately. But big-name competitors, including Verizon Communications and Comcast, are upgrading their networks and starting to bundle services in the same way as RCN.

“This will not be a sustainable advantage going forward,” said Richard Ramlall, RCN senior vice president. “Thus, we must continue to innovate.”

RCN, which has not reported fourth-quarter results, lost $42.1 million in the third quarter ended Sept. 30 compared with a loss of $75.1 million in the like period the previous year. It earned revenue of $138.8 million, compared with $121.4 a year earlier.

Its stock gained 33 cents, or 1.4 percent, to close at $23.60 per share Friday on the Nasdaq Stock Market. Stock markets were closed yesterday for Martin Luther King Day. In the past year, RCN’s stock price has ranged from $16.69 to $25.67 per share.

RCN says it controls 29 percent of its market for fiber-optic services in Chicago, Los Angeles, San Francisco and along the Northeast Corridor.

Although the company’s huge investment in fiber-optic cable might have contributed to its May 2004 bankruptcy, it also set the stage for more efficient operations, said Ian Zaffino, vice president of equity research for Oppenheimer & Co., a Wall Street financial firm.

RCN emerged from Chapter 11 protection in December 2004 with a new management team.

“They were left with great assets,” said Mr. Zaffino, whose company has no investment relationship with RCN. “The previous management team really built this thing up. Then this new management teams comes in and leverages it without having the debt the old management team put on it.”

Company officials said they are trying to increase revenue by focusing on higher-margin customers while promoting RCN’s bundled services.

Last week, the company raised its cable rates an average of 5.5 percent, citing increased programming fees.

A month ago, RCN agreed to purchase Consolidated Edison’s telecommunications division for $32 million in cash, a deal that will double its fiber-optic network capacity in New York, Connecticut and northern New Jersey.

In December 2004, RCN paid $29 million to buy out Pepco Communications’ 50 percent stake in a joint venture called Starpower Communications, which also operated a fiber-optic network.