RCN Buys Two ISPs1/25/1998 7:00 PM Eastern
Princeton, N.J. -- Cable competitor RCN Corp. swallowed up
Internet-service providers UltraNet Communications Inc. and Erols Internet Inc. for $110.5
million in cash and stock last week, making it the largest regional ISP in the Northeast.
In the agreements, RCN, which sells phone and cable service
in Boston, New York and Washington, D.C., will shell out $35 million in cash and $48.5
million in stock for Erols.
David McCourt, chairman and CEO of RCN, said in a statement
that the acquisitions 'not only make RCN the leading ISP in the Northeast, but they
also give us an opportunity to offer our phone and cable services to a much larger
existing customer base.'
McCourt also said the deals enable RCN to migrate its new,
dial-up Internet customers coming from the acquisitions to RCN's advanced fiber
network, with high-speed Internet connections.
Erols -- started by Erol M. Onaran, who owned the
Erol's video store chain in the Washington, D.C., area before selling out to
Blockbuster Entertainment in 1991 -- currently serves more than 293,000 dial-up Internet
customers in the Washington, D.C., and Northeast regions, and it is based in Springfield,
According to securities filings related to a proposed stock
offering, Erols had $24.4 million in revenue in the first nine months of 1997. That makes
the deal relatively pricey. According to analysts, ISPs generally sell for $100 to $200
per subscriber, or about one times annual revenue. This deal is for about $284 per
subscriber. But RCN may place a higher value on these subscribers, figuring that it can
sell them phone and cable service, too.
RCN will pay $7.8 million in cash and $19.2 million in
stock for Boston-based UltraNet, where the ISP serves 32,000 residential and business