Some companies are up, others are down, and some companies are temporarily out of the picture restructuring their finances under the umbrella of Chapter 11 proceedings. But for at least one ISP, it looks like the economic gloom has lifted.

by Alex Goldman ISP-Planet Associate Editor [April 25, 2002]

While Capitol Hill debates the regulatory implications of selling the broadband arm of AT&T Corp.—the largest cable system in the country—to Comcast Corp. the business is looking more like a diamond in the rough for AT&T (NYSE:T).

In first quarter 2002 results released Wednesday morning, AT&T said its net loss increased to $975 million, 28 cents a share, from $192 million, 10 cents a share, in first quarter 2001. It also reported that its revenue fell to $12.02 billion, a drop of 8.4 percent on a pro forma basis, in the quarter.

But the company laid most of the blame for the decline on its continuing struggles in long distance voice services, noting that the revenue declines were offset by growth at AT&T Broadband, primarily in high-speed data, telephony and digital video.

AT&T said AT&T Broadband Broadband recognized $2.44 billion in pro forma revenue in 1Q 2002, a 13.9 percent increase over 1Q 2001, adjusted for significant cable acquisitions and dispositions, as well as the deconsolidation of Excite@Home.

AT&T also noted growth in data/IP/managed services and local services in its AT&T Business unit, though pro forma revenue declined 8 percent to $6.53 billion in 1Q 2002 as compared to 1Q 2001. Of course AT&T accomplished this financial feat even as it disconnected 179,000 users during this same period.

Earlier this week, the market wobbled when IBM Corp. announced a sharp drop in revenues from the previous year. Saying companies spent less on its computer equipment and services, the technology giant reported a 31 percent drop in first-quarter earnings. This was in line with the reduced expectations it laid out last week in a rare earnings warning from IBM (NYSE:IBM).

IBM's earnings results were released after the markets closed Wednesday. Shares of IBM climbed $1.14, or nearly 5 percent, to close at $88.95 Thursday on the New York Stock Exchange.

The Armonk, New York-based company on Wednesday said it earned $1.19 billion, or 68 cents a share in the quarter that ended March 31. In the year-ago quarter, IBM earned $1.75 billion, or 98 cents per share. Revenue fell 12 percent to $18.6 billion from $21.0 billion a year earlier.

Perennial IBM rival Sun Microsystems, Inc. reported a net loss of $37 million, or a penny per share, on revenues of $3.1 billion. In the comparable period last year, Sun (NASDAQ:SUNW) earned $136 million, or 4 cents a share, on revenue of $4.1 billion. The Palo Alto, California-based network equipment maker said the economic environment is still challenging, but the company still expects to return to profitability in the current quarter as previously forecast.

Excluding one-time items, the company said it lost $26 million, or a penny a share, compared to a profit of $145 million, or 4 cents a share, in the year-ago period. The company also said it planned to cut 1,000 jobs from its staff of about 39,000 over the next six to nine months. The layoffs would come through attrition, performance reviews and paring redundancies.

Further down the landside of dot-com casualties lies Williams Communications Group Inc. The company joins beleaguered competitors like Global Crossing, McLeodUSA and Adelphia Business Solutions in bankruptcy.

The Tulsa, Oklahoma-based optical-network provider filed for Chapter 11 bankruptcy protection Monday, despite February statements by Chief Financial Officer Scott Schubert that any reorganization plan would not include bankruptcy or a substantial dilution of equity.

The negotiated Chapter 11 filing is intended to reduce the company's debt by about $6 billion.

In other funding news, Bell Canada Enterprise, Inc. (BCE), Canada's largest communications provider, announced it would cut long-term funding for Reston, Virginia-based Teleglobe, Inc. BCE purchased Teleglobe two years ago, but will take a charge of up to $5.4 billion to write down its Teleglobe investment this year.

The decision is based on a number of factors, including Teleglobe's revised business plan and outlook with associated funding requirements. BCE plans to complete a pragmatic assessment of Teleglobe's near-term prospects, along with a comprehensive analysis of the state of the industry.

In the meantime, BCE will provide only short-term periodic funding to Teleglobe up to a maximum aggregate amount somewhere between $100 million and $125 million. This way, Teleglobe can provide continuing customer service support and fund other operations-related needs while BCE reviews its options for the future, including possible business combinations and restructuring.

Perhaps the most interesting announcement this week came from Seattle-Washington-based Internap Network Services Corporation. The business oriented Internet connectivity service reported its strongest revenue growth in five quarters and record low net losses before accounting for equipment, income taxes, depreciation, and amortization.

Internap (NASDAQ: INAP) reported revenues for the quarter on a consolidated basis were $32.6 million, a 7 percent increase over the prior quarter and a 15 percent increase over the $28.4 million reported for the same period in 2001.

Internap's first quarter EBITDA loss, on a consolidated basis, was $9.8 million, nearly a 30 percent improvement from the $13.9 million loss in the previous quarter. This marked the fourth consecutive quarter of narrowing EBITDA losses for the feisty ISP business.

The company went through a significant restructuring last year, trimming away the fat from its balance sheet by writing down good will and shuttering operations in several markets. Last year Internap incurred $64 million in restructuring costs, a $195 million goodwill write down, and a staff reduction from 834 to 534 employees, with a further reduction to 468 employees during the first quarter of this year. Management's decisive cost cutting actions and conservative accounting practices mean that the company's balance sheet should hold no surprises.

John Scanlon, Internap chief financial officer, said the one department that the company actually added staff to this year is technical support

"That's why we continue to command a premium. We don't use a call center. All calls go straight to our NOC, to engineers with BGP4 training," Scanlon said. "As long as we continue to reduce costs and raise revenue, we're in a good position. We have a conservative balance sheet, rising revenues, and declining EBITDA."

Internap currently operates in 15 domestic markets including Atlanta, Boston, Chicago, Dallas, Denver, Houston, Los Angeles, Miami, New York, Philadelphia, Seattle, Washington, D.C., and San Diego, Irvine, San Francisco, San Jose and Santa Clara, Calif. International markets include Amsterdam and London.

Scanlon is particularly enthusiastic about his newest market, Japan, where Internap is a 51 percent owner of a joint venture, called Internap Japan, with NTT-ME Corporation. With the painful cost cutting complete, Scanlon looks forward to a year of growing revenues while keeping costs flat.

—End