News

CLECs with Cable Ties Tap Capital Markets

5/31/1998 8:00 PM Eastern

A pair of competitive local-exchange carriers with cable
ties each revealed plans to tap capital markets to raise $200 million or more, partly to
fund their continuing network build-outs.

RCN Corp., a CLEC that offers bundled phone, video and
Internet services in several Northeast cities, filed a registration statement for a
secondary stock offering aimed at raising a net $229 million.

RCN -- which was spun off from former MSO C-TEC Corp. last
fall -- plans to sell 11 million shares at $22.75 each, including 406,000 shares being
sold by an affiliated firm's employee-retirement plan and by three individual
holders.

Meanwhile, Time Warner Telecom Inc. -- a business CLEC
owned by Time Warner Inc., U S West Inc. and Advance/Newhouse Partnership -- filed a
registration statement to sell up to $200 million in senior notes.

Last month, Time Warner Telecom filed a registration
statement for an initial public offering of stock, aimed at raising about $175 million.
That stock sale has not yet occurred, and the Greenwood Village, Colo.-based unit also
filed an amended registration statement on the planned IPO last week.

RCN wants cash to support ongoing losses and to help with
the expected $785 million in capital expenditures between January 1998 and the end of 1999
that is needed for fiber build-outs in New York, Boston and Washington, D.C. RCN raised
$575,000 in October through senior-debt sales, and it followed that up by raising $350,000
in a debt offering in February.

Time Warner Telecom said it would use some of the cash that
it raises to pay back $117.5 million that was advanced by its parent companies. After that
is repaid, the parent companies have no obligation to pump additional capital into the
telecommunications unit, according to the registration statement. Other uses for the money
raised include developing new networks.

RCN, which is controlled by Level 3 Telecom Holdings Inc.
(formerly Kiewit Telecom Holdings Inc.), has amassed $1 billion in debt since its birth in
September. But it will have $1.1 billion in cash after this offering, which should be
enough to cover capital expenses through mid-2000, the company said.

RCN has also been on somewhat of an acquisition binge,
including deals to buy a pair of Internet-service providers: Erols Internet Inc., for 1.7
million shares of stock and $35 million in cash and assumed debt; and UltraNet
Communications Inc., for 890,000 shares and about $11 million in cash. In February, RCN
also agreed to buy Lancit Media Entertainment Ltd., a New York-based
children's-programming producer, for an undisclosed price.

For all of that, RCN claims about 650,000 "service
connections," only 20,000 of which are served by RCN fiber. Of the rest, 325,000 are
Internet dial-up customers obtained from Erols and UltraNet; 187,000 are from former C-TEC
cable systems in New York, New Jersey and Pennsylvania; and 40,000 are former Liberty
Cable Television Inc. wireless cable customers in New York.

RCN has racked up some joint-venture partners, including
electric utilities in Boston and Washington, which have agreed to kick in about $150
million each over the next two-and-a-half years to build networks in those two cities.

In the first three months of 1998, RCN's pro-forma
total sales amounted to $43 million, a 45 percent rise above the same period a year ago.
Its cash-flow loss was $71.7 million, compared with negative cash flow of $84 million in
all of 1997.

Time Warner Telecom's operating losses are on a much
smaller scale. During the three months that ended March 31, the unit's revenue rose
117 percent from the same period a year earlier, to $22 million, while its cash-flow loss
shrank 24 percent, to $2.4 million from a loss of $10.2 million a year ago. The
business-phone unit offered private-line service in 15 markets and switched-phone service
in 15 markets as of March 31, versus 15 private-line markets and three switched-service
markets a year ago.

Among the new service lines that Time Warner Telecom wants
to tap are "work-at-home" high-speed-data connections for Road Runner, Time
Warner Cable's Internet service. The cable and telecommunications units are hammering
out an agreement to that effect, according to the registration statement.

September