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RCN Will Cut Capital Outlays in Half

12/31/2000 7:00 PM Eastern

RCN Corp. now plans to slash capital expenditures by 50 percent in 2001, abandoning a strategy to aggressively overbuild cable systems and focusing on existing markets.

The overbuilder said it would reduce its capital expenditures next year by $600 million, to between $770 million and $775 million. Cash-flow losses for the fourth quarter are now expected to be between $110 million and $115 million.

For 2001, RCN estimates a cash-flow loss of about $335 million. But the company said that loss would be reduced on a quarter-by-quarter basis, and RCN expects to be cash-flow positive in 2003.

Analysts had expected the fourth-quarter cash-flow loss to be about $88 million and thought the 2001 loss would be about half the revised figure.

RCN stock was pummeled, reaching a new 52-week low of $3.88 each in early trading Dec. 21-down $5.06, or 56 percent-before closing at $6.06, down $2.88. The stock later regained some ground, closing at $7 on Dec. 26.

RCN said it will use about $2.7 billion in available cash to fund expansion in existing markets, including Boston, New York, Philadelphia, Chicago, San Francisco, Los Angeles and Washington, D.C.

The company said it would not expand into additional markets without obtaining the funding ahead of time.

RCN blamed its present inability to raise more capital for its decision to scale back. The company also is trying to cut costs. It has laid off about 100 administrative workers and put plans for a new headquarters building in Princeton, N.J., on hold.

"We need to rethink our space needs," RCN chairman David McCourt said during a conference call with analysts.

But McCourt said RCN's total employment-about 7,500 people at year-end-should rise in 2001 by about 1,000, mainly field sales workers and installers.

RCN also it is changing its "subscriber trajectory," shooting for 5 million on-network subscribers in the next 10 years, down from 15 million.

"We still want to get to 15 million," McCourt said. "It's just going to take a little longer."

Still, RCN expects to grow in the fourth quarter and in 2001. ResiLink, its bundled offering of residential voice, video and data services, should end the year with about 400,000 homes marketed, up from the previously projected 300,000 homes.

September