Teligent, Inc

views updated

TELIGENT, INC.

Teligent, Inc. is a Vienna, Virginia-based competitive local exchange carrier (CLEC) that uses its own high-frequency microwave and broadband SmartWave networks to offer local and long-distance phone services, Internet access, World Wide Web hosting, and similar services to small and mid-sized businesses. Domestically, Teligent serves 43 major cities; its international reach includes Argentina, Spain, France, and Germany. Like most other telecommunications upstarts in the early 2000s, Teligent struggled with mounting debt as intense competition and falling prices undercut profitability. When investors began dumping telecommunications stocks, the firm found itself unable to secure the additional capital it needed to maintain operations. As a result, in May 2001, Teligent filed for Chapter 11 bankruptcy protection.

Teligent was first known as Associated Communications, jointly owned by Telecom Ventures and Pittsburgh, Pennsylvania-based Associated Group, which had held licenses to offer broadband fixed wireless services in 31 U.S. markets since the beginning of the 1990s. The company secured the licenses free of charge, before the Federal Communications Commission began auctioning them to interested parties. Associated Group also owned stakes in a personal communications service provider and a mobile communications firm based in Mexico.

When the telecommunications industry was deregulated in 1996, allowing competition in the local telephone carrier market for the first time, Associated Group decided to put its licenses to use. According to Peter Elstrom in a BusinessWeek Online article, the industry's deregulation came at the same time that "European countries, led by Britain, were opening up their markets to competition. The stakes were huge. Telecom revenues on both continents totaled nearly $300 billion, and the markets were growing about 10 percent each year." Believing they needed a seasoned executive to best capitalize on this growth, Associated Group used a $20 million sighing bonus and an 18 percent stake in Associated Communications to lure Alex Mandl away from his position as president and chief operating officer of AT&T Corp. In August 1996, Mandl began to oversee the new venture, which became known as Teligent, a wireless service provider that competed with the local exchange carriers.

In October 1997, Nippon Telegraph and Telephone (NTT), the largest telephone company in the world, invested $100 million in Teligent. Associated Group and Telecom Ventures fronted the firm another $60 million in capital. When Teligent completed its initial public offering (IPO) in November, Associated owned a 55 percent stake; NTT, a 12.5 percent stake; and Telecom Ventures, a 45 percent stake. The IPO raised $400 million. A private offering in February of 1998 secured another $250 million. Northern Telecom, which agreed to provide network hardware to Teligent, invested another $800 million in the firm. Throughout 1997 and 1998, Mandl worked on developing Teligent's infrastructure and securing authorization for the firm to operate as a CLEC.

Teligent began offering its services in Austin, Dallas, Houston, and San Antonio, Texas; Los Angeles, California; New York, New York; Tampa, Florida; and Washington, D.C. in October 1998. Teligent's 18 GHz frequency, lower than the 38 GHz frequency offered by competitors like WinStar Communications, allowed the firm's digital microwave networks broader coverage and increased capacity, two things Mandl believed would become increasingly important when his firm's networks started being used for things like video conferencing, data transfer, and Internet access. The technology also allowed the firm the flexibility to allocate bandwidththe amount of data that moves along transmission lines or circuits at a given speedbased on customer demand. And rather than develop their own versions of the expensive cooper and fiber networks used by traditional local telephone services providers, Teligent instead placed antennas on the roofs of its customers, mainly small and mid-sized companies housed in office complexes, and transferred digital signals from a nearby site. A typical site cost roughly $260,000 and covered 30-square miles. Because Teligent's infrastructure was markedly less expensive than conventional fiber networks, which cost an estimated $300,000 for each mile completed, it was able to offer its services for roughly 75 percent of the price charged by competitors. Sales in 1998 reached $1 million.

Teligent offered its services in 40 markets by the end of 1999. Revenues that year surged to $31 million. Although losses totaled $539 million, stock climbed to a high of $97 per share in March of 2000. In October of that year, the firm paid $74 million for teleconferencing services provider Executive Conference, Inc. One month later, Dell Computer Corp. and Teligent forged an agreement to sell Dell personal computers, capable of handling high-speed Internet connections, to businesses already using Teligent for Internet access. Despite a 400 percent jump in revenues to $31 million, the firm's lack of profitability and $1 billion debt, which cost more than $100 million in interest each year, became increasingly important issues to shareholders. Losses for the year grew to $808 million. In an effort to placate investors, Teligent laid off roughly 800 employees and announced its intention to slow growth in the interest of generating earnings more quickly. By December, stock had plunged to roughly $3.50 per share. Customers totaled 35,500.

The problems plaguing Teligent were symptomatic of issues surrounding the telecommunications industry as a whole, according to an April 2001 BusinessWeek Online article. "Telecom just didn't turn out to be the fast-growth business executives had banked on. The number of bits transmitted and the number of minutes on the phone are rapidly rising, but severe prices drops have meant overall revenue growth is modest. Company after company has missed its financial targets, stocks have plunged, and burned investors have slammed capital markets shut." Although Teligent was growing more quickly than many of its competitors, revenue growth had fallen short of expectations, and shareholders began to bail out. In April 2001, long-distance firm IDT purchased a 54 percent stake in Teligent, prompting Mandl to tender his resignation. The firm laid off another 900 employees in May. However, these cost-cutting measures failed to satisfy potential investors. Unable to secure the $350 million in funding it needed, the firm declared bankruptcy that month. NASDAQ removed the firm from its National Market in June. Despite these blows, Teligent remained operational, planning to emerge from Chapter 11 a leaner, more competitive telecommunications player.

FURTHER READING:

Andrejczak, Matt. "Former AT&T Head Takes Teligent Public." Baltimore Business Journal, October 24, 1997.

Dix, Denise. "Teligent's Mandl Sizes Up a Tough Market." Network World, March 6, 2000.

Elstrom, Peter. "Telecom Meltdown." BusinessWeek Online, April 23, 2001. Available from www.businessweek.com.

Haynes, Peter. "Teligent's Test." Forbes, March 9, 1998.

Meyers, Jason. "Insurgent Intentions: Its Launch Target Met, Teligent Enters Price and Service Battle." Telephony, November 2, 1998.

Swartz, Nikki. "InTeligent Challenger." Wireless Review, March 31, 1999.

"Teligent Files for Chapter 11 Bankruptcy." Fiber Optic News, May 28, 2001.

"Teligent Scales Back Telecom Effort." The Business Journal, December 1, 2000.

"Turning to Chapter 11; Teligent Declares Bankruptcy." Telephony, May 28, 2001.

"Web Bill BreakthroughStartup Teligent Providing Value-Added Service to Small and Midsize Companies." Information-Week, November 2, 1998.

SEE ALSO: Mandl, Alex