Now it's underbuilding

Overbuilders Digital Access, RCN cut back on expansion plans

Faced with a chilly market for raising money, two of the more formidable cable overbuilders retreated last week, shelving once expansive plans to attack cable operators.

Digital Access Corp. tabled its plans to simultaneously build video and phone systems in four markets, shrinking back to just Nashville, Tenn. And powerhouse RCN Corp. aborted its plan to wire the city of Philadelphia after struggling with city officials for more than two years.

The pullbacks come amidst virtual shutdown of the capital markets for startup telecommunications companies. Although cable companies have led the rebound in the junk-bond market, investors still feel stung by recent wipeouts among competitive local exchange carriers and DSL companies.

"In a very capital-constrained market, we need to deploy our equity-base dollars as efficiently as possible," said Digital Access chief executive Joe CeCe.

RCN contends it was thwarted by Philadelphia politics, not moves to cut back on expansion. The Princeton, N.J.-based company halved its initial $1.5 billion 2001 capital-spending plan.

Digital Access aimed its $450 million in equity bankroll at wiring four mid-size markets: Nashville, Milwaukee, Indianapolis, and Kansas City, Mo. The company had expected to borrow another $900 million.

But the frozen lending markets prompted Digital Access to notify officials in the suburbs around Milwaukee and Indianapolis that construction is on hold. CeCe pulled out of Kansas City in January after disputes with city officials.

"The initial builds go where we get the most immediate return on capital spending," CeCe said. That's Nashville, where home densities are the highest and Digital Access can string more of its plant on cable and bury less underground.