BroadbandNow Inc., a start-up high-speed Internet service
that has attracted some investment from the cable industry, plans an initial public
offering of stock aimed at raising $115 million.
BroadbandNow got its start about four years ago in Irving,
Texas, and it was originally called I3S Inc.
The company had formed agreements with real estate
developers to provide high-speed Internet access to multiple-dwelling units in Texas. It
quickly caught the eye of some heavy hitters in the cable and software industries --
Liberty Media Group and Microsoft Corp. -- and it has hatched plans to expand into cable
households across the country.
BroadbandNow has its own Internet-protocol backbone
network, and it is currently negotiating with cable MSOs to provide connections to their
So far, BroadbandNow has about 2,300 subscribers, mostly in
MDU complexes, and master-service agreements to pass about 600,000 homes. Those homes come
from such operators as Cable Plus Holdings Co., Direct Digital Communications, Seren
Innovations Inc., GTE Corp. and OpTel Inc.
The company said it has other agreements, through wireless
and digital-subscriber-line companies, to pass a total of 1.3 million homes.
BroadbandNow said it would use the proceeds of the offering
to pay down some debt and for working capital to build out its network.
Although the company's existing network only passes about
39,000 homes, it plans to construct an infrastructure with 18,000 route miles serving 48
markets by the end of the year.
But as the company spends to build out that network, its
losses have been increasing. According to its prospectus, revenue in 1999 was $908,000,
down from $1.4 million in 1998. Losses increased nearly five times to $15.9 million from
$3.7 million the year before.
Although the company has been bleeding cash, it has had
little trouble raising money. In the past year, BroadbandNow has raised more than $90
million in private equity financing, including $20 million each from Microsoft, Nortel
Networks and Liberty; $10 million from Lucent Technologies; and $5 million from GE Capital
Liberty and Microsoft own 6.4 percent each of the company's
outstanding shares. Also, former Marcus Cable chairman Jeffrey Marcus purchased a warrant
to buy 300,000 shares of BroadbandNow stock at $18.80 apiece.
Marcus has served as a consultant to BroadbandNow through
his Marcus & Partners L.P. and, according to the prospectus, he received a $200,000
finder's fee from the company for helping to land the Liberty investment.
After the offering is completed, Marcus and Liberty
executive vice president Gary Howard will join BroadbandNow's board of directors.
BroadbandNow offers two tiers of service: "Personal
Service" for residential users and "Home Office Service."
Personal Service offers download speeds of 1.5 megabits per
second and upload speeds of 64 kilobits per second to 1.5 mbps. Pricing for Personal
Service, not including installation fees, ranges from $29.95 to $79.95 per month, plus a
$10-per-month modem-rental fee for customers that require cable or DSL modems.
Download and upload speeds for Home Office Service are the
same as Personal Service. However, pricing is between $129 and $699 per month.
But what sets BroadbandNow apart from its competition, the
company claims, is content.
With its "directPEER" service, the company
aggregates sources of broadband content by connecting the servers of other content
providers and aggregators directly to its private network.
This allows subscribers to receive content without
traversing the Internet, allowing BroadbandNow to manage customer experience on an
end-to-end basis in order to ensure quality performance.
So far, BroadbandNow has reached such an agreement with
Internet portal Yahoo! Inc., and it is working on adding others.
One company that will most likely reach a similar agreement
is Liberty. According to the prospectus, BroadbandNow agreed to distribute content
developed by certain affiliates of Liberty as part of the equity deal between the two