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TR DAILY Nov. 26, 2001 -------------------------------------------------- For a Web version of today's TR Daily, go to http://www.tr.com/online/trd/2001/td112601/index.htm -------------------------------------------------- Table Of Contents TELECOM REGULATION -- Verizon Seeks FCC OK For Rhode Island InterLATA Bid -- Slovakia Sets Further Telecom Liberalization For 2003 -- CompTel Seeks FCC Guidelines On Triennial UNE Review -- Z-Tel Says FCC Rules Limit Competition -- NTIA Broadband Comments Due Dec. 19 TELECOM BUSINESS -- European Telecom Stock Bounce Less Likely In U.S. -- NTELOS Mulls Option On Conestoga Bid -- COM DEV To Divest Wireless Unit, Reports Loss -- Counsel Corp. 3rd Qtr Revs Up, To $36.5M -- Glentel 3rd Qtr Revenues Up, To $8.2M -- TRW Gets $1.3B Military Contract -- Korea Thrunet Confirms Merger Talks -- Nortel Sees Asset Sale Closing This Week CAPITAL MARKETS -- Telecom Stocks Soar, TRDaily Telecom Index Up 1.9% -- Loral Unit Launches $927M Debt Swap Offer -- TDS Plans $250M Note Offering -- Vimpel Plans Bond Sale Next Year -- Infowave Systems Raises $13.1M PEOPLE ON THE MOVE -- New Attorney At Harris Wiltshire -- Loral's New Asia-Pacific President -- New Head Of Equant Financial Systems -- Planet Zanett Appoints Director -- Array Networks Names New CEO ************************************************************ TELECOM REGULATION ************************************************************ VERIZON SEEKS FCC APPROVAL FOR RHODE ISLAND InterLATA BID Verizon Communications, Inc., has asked the FCC to allow it to offer in-region interLATA (local access and transport area) services in Rhode Island -- the fifth state for which Verizon has sought such approval. Its previous four applications, covering New York, Massachusetts, Connecticut, and Pennsylvania, received the FCC's OK. The Rhode Island Public Utilities Commission endorsed Verizon's application earlier this month. The FCC must consider the views of the PUC and the U.S. Department of Justice as it evaluates whether Verizon should be cleared to offer in-region interLATA services. Section 271 of the Telecommunications Act of 1996 allows Bell operating companies to offer in-region interLATA services in a state once the FCC finds they've met a 14-point "competitive checklist" of market-opening requirements. Verizon said KPMG Consulting had found that the telephone company's operation support systems (OSSs) in Rhode Island were the same as those it used in Massachusetts. The FCC already has found Verizon's OSS in Massachusetts acceptable in a previous section 271 application. Competing carriers serve more than 120,000 local phone lines in Rhode Island, Verizon said. The FCC said it would hold ex parte meetings related to comments on Verizon's petition on Dec. 12 and 13. Comments from interest- ed parties and the Rhode Island PUC in the Common Carrier docket 01-324 proceeding will be due Dec. 17. Justice's evaluation is due Jan. 4, 2002. Ex parte meetings related to reply comments will be held Jan. 7 and 8, 2002, and replies will be due Jan. 10, 2002. The FCC's statutory deadline for acting on the application is Feb. 24, 2002. -- Brian Hammond, bhammond@tr.com ---------------- FURTHER TELECOM LIBERALIZATION SET FOR 2003, SLOVAKIA PROCEEDS TOWARD EU ACCESSION The Slovak Republic has made big strides in transforming to a market economy over the last six years, according to a World Trade Organization trade policy review body. "Slovakia's accel- erated economic transition has intensified its preparations for EU [European Union] accession. This will provide renewed oppor- tunities and benefits to Slovakia and its trading partners," the TPRB said. Slovakia is gearing up for accession to the European Union in 2004. To more closely match with EU policies, Slovakia has increasingly liberalized its trade and investment policies, the review body said. It found that foreign investment increased to 10% of gross domestic product in 2000, up from 3.5% of GDP in 1999. The TPRB periodically reviews members' implementation of WTO trade policy objectives with input from the WTO secretariat and the member government's own policy statement. Slovakia's second TPRB review was completed Nov. 23. "The private sector now accounts for 80% of GDP and has become the main source of growth for Slovakia," the report said. Regulatory authorities are being established in key services to facilitate privatization, and safeguard competition, it noted. Slovakia Telecom recently divested 51% of its ownership overseas, and the republic created a Telecommunications Office in July 2000, the body noted. "The sector is to be further liberalized from 2003 when the state monopoly over basic telecommunications using the public fixed network is due to end. The Telecommunications Act of 2000 provides licensed entrants from 2003 with non-discriminatory access to the public network within a reasonable time at a price based on justified costs," the body said. Slovakia also is set to implement universal service mechanisms, it added. Slovakia also is crafting competition legislation along EU lines with greater independence given to its antimonopoly office. Price fixing is banned, as is abuse of dominant market power by companies not subject to "substantial" competition, it said. Slovak law prohibits mergers if they create or strengthen a firm's dominant market position in a way that reduces competi- tion, according to the report. Privatization remains a key policy objective for the Slovak Republic. Since 1999, the privatization initiative has been revitalized and made more transparent, the report noted. State- owned monopolies are no longer excluded from privatization but private ownership limits apply to a few state-owned enterprises, such as 34% in telecommunication, banking, and insurance markets, the report said. -- Ed Rovetto, erovetto@tr.com --------------- CompTel ASKS FCC TO SET GUIDELINES FOR TRIENNIAL UNE REVIEW The FCC said in a 1999 order that it would review its rules on unbundled network elements (UNEs) every three years. Now, the Competitive Telecommunications Association wants the FCC to establish "procompetitive procedures and standards" for conduct- ing such reviews. CompTel President H. Russell Frisby Jr. said carriers have "wasted vast amounts of time and resources fighting premature attempts" by incumbent local exchange carriers to convince the FCC to eliminate some elements from the national list of UNEs that ILECs must offer to competitors. CompTel recommended that the FCC establish May 18, 2003 as the "earliest date upon which any party could file a petition to have a UNE removed from the mandatory list." It also recommended the FCC convene a federal-state joint conference to get feedback from the states on UNE issues. CompTel added that the FCC should "clarify that the three-year UNE review is not an inquiry into all national UNEs, so any party seeking to scale back or remove a UNE" from the FCC's mandated list "bears the burden of proof." Finally, it asked the FCC to announce that it would "not consider removing or scaling back" the availability of a UNE "if the requesting ILEC has not com- plied with its obligation to provide the UNE for a commercially reasonable period of time." -- Brian Hammond, bhammond@tr.com Z-TEL STUDY: FCC RULES LIMIT COMPETITION -- Z-Tel Communications, Inc., says that if FCC restrictions on the availability of unbundled local switching were not in place, competitive local exchange carriers could serve 60% more mass- market customers. That was one of the conclusions in an economic study that Z-Tel filed with the FCC Nov. 21 in Common Carrier docket 96-98 aiming to demonstrate the need to eliminate the restrictions on unbundled local switching. The rules under attack by Z-Tel state that incumbent local exchange carriers don't have to provide unbundled local switching to competing carriers for use in serving customers (1) with three or more lines and (2) located in the top-50 U.S. markets. The study is available at Z-Tel's Web site at www.ztel.com. DEC. 19 DEADLINE FOR NTIA BROADBAND COMMENTS -- The deadline for submitting comments to the National Telecommuni- cations and Information Administration on broadband deployment in the U.S. is Dec. 19, not Dec. 14 as published in the Nov. 19 edition of the "Federal Register." NTIA has asked for comments on several issues, including supply and demand for broadband services and the technical, economic, or regulatory barriers to broadband deployment. Filings should reference docket 011109273- 1273-01. ************************************************************ TELECOM BUSINESS ************************************************************ TELECOM STOCKS BOUNCE BACK IN EUROPE, BUT DON'T EXPECT SAME IN U.S., ANALYSTS SAY A recent rally in the stocks of European telecom carriers isn't likely to spread to this side of the Atlantic, analysts from Goldman, Sachs & Co. said today. Several factors in the past four to six weeks have improved investor sentiment toward Europe- an carriers, but a different set of forces is at work in the U.S., analysts said today during a conference call with clients. For example, competitive local exchange carriers (CLECs) have all but disappeared in Europe, leaving incumbents stronger. Despite the decline of CLECs in the U.S., that sector remains a competi- tive threat to incumbents, analyst Frank J. Governali said. "CLECs still are playing a role here." Investor sentiment in Europe also has been buoyed by carriers' debt-reduction efforts, Goldman Sachs analyst James Sawtell said. KPN NV, for example, last week launched plans to raise about $4.5 billion for debt reduction through the sale of stock (TRDaily, Nov. 21). Sonera recently made similar moves. While many U.S. carriers have large debt loads, the problem was more acute in Europe, where carriers paid dearly for licenses to offer third- generation wireless services. U.S. carriers continue to suffer from factors that are less evident in Europe, such as service cannibalization, Mr. Governali asserted. In the U.S., a significant number of younger consumers are using wireless service rather than wireline service when they establish a new household, he said. In Europe, however, wireless service generally is more expensive than in the U.S., and wire- line service is less costly. That dampens the effects of canni- balization, he said. But some analysts think European wireless rates are due to fall. With several new entrants lined up to launch service in some countries, competition could lead to a price war. Mr. Sawtell suggested that some smaller operators might launch aggressive pricing plans "as a last roll of the dice" if other tactics failed to generate market share for them. At the same time, he said, many smaller operators don't have the financial resources or confidence for a sustained price war. "They run the risk of debasing the market to everyone's detri- ment, including their own," he said. While European carriers bask in a renewal of investor confidence, the U.S. telecom sector still faces a potential restructuring that will involve one or more mergers between Bell companies and large interexchange carriers, Mr. Governali said. He once thought such mergers might begin next year but now thinks merger mania won't resume until 2003. "I don't think this will happen as quickly as we hoped." -- Tom Leithauser, tleithauser@tr.com --------------- NTELOS MULLS OPTIONS AFTER RIVAL SUITOR MAKES SUPERIOR OFFER FOR CONESTOGA NTELOS, Inc., hasn't indicated whether it will sweeten its offer for Conestoga Enterprises, Inc., or let a rival suitor merge with Conestoga. The NTELOS/Conestoga agreement was disrupted last week by D&E Communications, Inc., and NTELOS has until late next week to make a counterbid and win back the support of Conestoga's board. NTELOS, a competitive local exchange carrier and wireless service provider based in Waynesboro, Va., agreed last July to pay $408 million in cash, stock and assumed debt for Conestoga, a rural incumbent local exchange carrier based in Birdsboro, Pa. (TRDaily, July 25). But last month D&E made an unsolicited bid that the Conestoga board decided was superior. The companies unveiled a merger agreement last Wednesday. D&E is offering $33 in cash and stock for each Conestoga share. The NTELOS bid originally was worth $40 per share, but recent declines in NTELOS's stock have devalued the agreement to less than $30 per Conestoga share. If Conestoga breaks the merger agreement, NTELOS will receive a $10 million breakup fee. -- Tom Leithauser, tleithauser@tr.com COM DEV TO DIVEST WIRELESS UNIT, REPORTS LOSS -- COM DEV International Ltd., based in Cambridge, Ontario, an- nounced on Friday that it would divest its wireless division and instead concentrate on its space hardware business. The company gave few details on the planned divestment but said it expected to complete the move by early next year. As a result, COM DEV took a $36.1 million write-down for its fiscal year ended Oct. 31 and will account for the wireless division as discontinued operations. Its decision to sell the assets leaves COM DEV in violation of financial covenants under its bank credit facility. It has received a waiver from the banks through year-end. For the full year ended Oct. 31 and excluding the wireless division operations, COM DEV posted revenue of $76.9 million, up from $62.9 million in the prior year. The net loss excluding charges was $64.9 million compared with a net loss of $2.6 million in the prior year. COUNSEL CORP. 3rd QTR REVS UP, TO $36.5M -- Counsel Corp., an Internet telephony provider headquartered in Toronto, said third quarter revenues grew to $36.5 million from $9.0 million in the year-ago quarter. After taking $16 million in goodwill and other charges, Counsel posted a net loss of $17.2 million in the most recent quarter compared with a profit of $27.1 million in the comparable quarter last year. Counsel's year-over-year revenue improvement reflects the March 2001 acquisition of a controlling interest in I-Link, Inc., and other assets. "Counsel was able to acquire communications assets at a significant discount to replacement cost because of the addition- al effort and capital required to make them profitable," comment- ed Allan Silber, chief executive officer. "We are well on our way to achieving this objective," he said. GLENTEL 3rd QTR REVENUES UP, TO $8.2M -- Glentel, Inc., a British Columbia-based wireless service provid- er, posted third quarter revenue of $8.2 million versus $7.3 million in the comparable quarter last year. The firm also reported bottom-line improvement; the net loss was $147,500 for the most recent quarter compared with a net loss of $937,000 last year. TRW GETS $1.3B MILITARY CONTRACT -- TRW, Inc., says it has won a $1.3 billion contract to provide the "communications payload" for the Defense Department's Advanced Extremely High Frequency system. That system is the military's next generation of highly secure communications satellites and ground systems, TRW said. KOREA THRUNET CONFIRMS MERGER TALKS -- Korea Thrunet, Korea's largest cable modem service provider, confirmed that it has had "general discussions" regarding a possible merger with Hanaro Telecom. Those talks, the company said, have been "based on the mutual understanding that consoli- dation in the Korean broadband Internet market would be benefi- cial for the entire market in the long run." Korea Thrunet said, however, that no detailed merger talks were in the works. NORTEL SEES ASSET SALE CLOSING THIS WEEK -- Nortel Networks Corp. said it was planning a Nov. 28 closing date for the sale of its Clarify assets to Amdocs Ltd. following receipt of regulatory approvals. The sale price is approximately $200 million. ************************************************************ CAPITAL MARKETS ************************************************************ TELECOMS GAIN ON TECH STRENGTH; TRDaily TELECOM INDEX UP 1.9% A basket of big telecom stocks blew past modest gains posted by most broader equities market averages on Monday, fueled by renewed investor confidence in tech stocks with telecom exposure. The TRDaily Telecom Index of 90 larger cap telecom service provider and equipment supplier stocks tacked on 21.5 points, or 1.95%, to close at 1,127. By contrast, the Dow Jones Industrial Average added 23 points, or 0.23%, to close at 9,982. The S&P 500 average went up 7 points, or 0.6%, to finish at 1,157. The tech-heavy Nasdaq composite average powered ahead 38 points, or 2.0%, to end the day at 1,941. Market sentiment on Monday took an early hit on a pronouncement from the National Bureau of Economic Research that the U.S. economy officially entered a recession last March. But by the end of the day, the focus shifted to the same group's estimate that an economic recovery could be underway by next summer. In the telecom arena, tech-related telecom stocks ruled the day. Prominent among price gainers were ONI Systems, which gained $1.38 per share to close at $10.11. Broadcom Corp. added $3.54 per share to finish at $49.99, while Amdocs tacked on $2.35 per share for a final price of $34.75. Selected service providers also fared well, with Broadwing up $1.19 per share to $10.76 and Sprint PCS gaining $1.60 per share to end the day at $27.00. Individual stock price losses in the sector were fairly mild. Lucent Technologies tailed off $0.35 to $8.04 per share after downgrades on the stock were issued by Morgan Stanley and ABN AMRO. Telephone & Data Systems fell $0.50 per share to $91.50 on news that the firm planned to sell $250 million of bonds. -- John Curran, jcurran@tr.com For a Web version of today's TR Daily Telecom Index report with graphics and index components, go to: http://www.tr.com/online/trd/2001/td112601/index.htm --------------- LORAL UNIT LAUNCHES DEBT EXCHANGE OFFER AFTER MARKET WARMS TO RECENT BUYBACKS Loral CyberStar, Inc., a unit of Loral Space & Communications Ltd., today kicked off an offer to swap $927 million of poorly- rated junk bonds for $675 million of new bonds backed by the financial muscle of its parent company. If the recent success of similar buyback offers by other telecom sector players is any guide, today's bid ought to receive a warm reception from the still-struggling junk bond market. The offer calls for Loral CyberStar to trade $675 million of new 10% senior notes due 2006 for $927 million of outstanding bonds bearing interest rates ranging from 11.25% to 12.5% and maturing in 2007. Bondholders who tender in the exchange offer would also get warrants to purchase 6.7 million shares of Loral Space common stock, representing less than a 2% equity stake in the parent company. In exchange for taking a 27% haircut on the principal amount of the bonds, holders of the new debt will be able to rely on the financial backing of Loral Space. The Loral CyberStar bonds now outstanding are non-recourse to the parent company. For its part, the combined Loral enterprise will be able to cut $252 million from its roughly $3.2 billion of long-term debt outstand- ing at Sept. 30 and save $43 million in annual cash interest payments. Bondholders who don't tender in the exchange offer can keep their bonds but will lose the covenant protections that now cover the securities. According to bond market sources, the Loral CyberStar senior notes covered under the exchange offer are now bid at about 50 cents on the dollar in the market and carry a "Ca" rating from Moody's Investors Service. Loral says holders of more than half of the bonds have agreed to accept the offer. The bid is condi- tioned upon 85% of bonds being tendered. Large-scale buyback offers for distressed-priced junk bonds have met with a high degree of success in recent weeks. Earlier this month, Liberty Media closed on the repurchase of $1.5 billion face amount of United Pan-Europe Communications NV bonds at prices ranging from 6 cents to 19 cents on the dollar. Likewise, Level 3 Communications, Inc., last month picked up $1.7 billion face amount of its outstanding bonds at between 15 cents and 48 cents on the dollar. -- John Curran, jcurran@tr.com TDS PLANS $250M NOTE OFFERING -- Telephone & Data Systems, Inc., plans to sell $250 million of unsecured notes maturing in 2041 under a $1 billion shelf offer- ing filed last month with the Securities and Exchange Commission. Proceeds are slated to repay short-term debt and for other corporate purposes. VIMPEL PLANS BOND SALE NEXT YEAR -- Russian telecom service provider Vimpel-Communications said it would sell bonds in international markets during the first half of 2002, subject to market and other conditions. The firm did not say how it would use the proceeds from any such sale or provide other specifics of the transaction. INFOWAVE SYSTEMS RAISES $13.1M -- Infowave Systems, a maker of wireless access software based in Vancouver, British Columbia, closed on a private sale of common stock purchase warrants for total proceeds of $13.1 million. ************************************************************ PEOPLE ON THE MOVE ************************************************************ NEW ATTORNEY AT HARRIS WILTSHIRE -- Cecil Hunt, recently deputy chief counsel for export administra- tion at the U.S. Department of Commerce, is joining the Washing- ton law practice of Harris Wiltshire & Grannis LLP Dec. 1. He will work in the firm's international trade practice. LORAL's NEW ASIA-PACIFIC PRESIDENT -- Loral Space & Communications Ltd. has named Paul R. Davis presi- dent of Loral Asia-Pacific. He was vice president-marketing and sales for Space System/Loral's satellite manufacturing unit in Asia and Africa. He will be based in Palo Alto, Calif. He succeeds William H. Wright IV, who was named president of Loral's majority owned satellite company, XTAR. NEW HEAD OF EQUANT FINANCIAL SYSTEMS -- Equant NV has named Graham Russell head of worldwide financial systems in its Reston, Va., office. He was chief financial officer and director-business operations/customer services for NCR Corp. in Amsterdam. Equant's U.S. headquarters are in Atlanta. PLANET ZANETT APPOINTS DIRECTOR -- Planet Zanett, Inc., an information technology sector confedera- tion builder based in New York, has named L. Scott Perry to its board. He is vice president-strategy and business development for AT&T Solutions. He also recently retired as chairman of the Information Technology Association of America. ARRAY NETWORKS NAMES NEW CEO -- Array Networks, Inc., formerly known as ClickArray Networks, has named Donald Massaro president and chief executive officer. He was president and CEO of Shugart Associates, a low-cost floppy disk maker. Array's founder and former CEO Lawrence Lu will become the chief technology officer and vice president-engineer- ing. Array is a networking software maker based in Campbell, Calif. ******************************************************** TR DAILY Copyright 2001 Telecommunications Reports International, Inc., (ISSN 1082-9350) is transmitted weekdays, except for holidays. Visit us on the World Wide Web at http://www.tr.com. Published by the Business & Finance Group of CCH INCORPORATED. Editor-in-Chief: John Curran Senior Editor: Tom Leithauser Associate Editor: Lynn Stanton Associate Editor: Brian Hammond Associate Editor: Ryan Oremland Associate Editor: Paul Kirby Associate Editor: Ed Rovetto Associate Editor: Michael Romanello Associate Editor: Margaret Boles Publisher: Stephen P. Munro 1333 H Street, NW, 1st Floor-East Tower, Washington, DC 20005 Editorial Information: Telephone: (202) 312-6060 Fax: (202) 312-6111 Email: jcurran@tr.com tleithauser@tr.com Customer Service: Telephone: (202) 312-6100 (800) 822-6338 Fax: (202) 312-6065 Email: customerservice@tr.com PLEASE NOTE: This electronic publication is copyrighted by Telecommunications Reports International. Redistribution or retransmission of any part of this electronic publication -- either internally or externally -- is strictly prohibited. Violation will be cause for immediate termination of your sub- scription and liability for damages. You may print out one hard copy for your personal use. If you are interested in having this publication sent to colleagues at your company, additional authorized recipients may be added to your subscription for a fee. Call Subscriber Services, at (800) 822-6338, or send an e- mail to customerservice@tr.com for more details. If you prefer not to receive TR Daily, please reply to customerservice@tr.com. Federal copyright law prohibits duplication or reproduction in any form, including electronic, without permission of the publisher.
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