New Edge Scouts for Telecom Scraps

Are you a service provider looking to sell some broadband assets, or possibly merge with a likeminded company for fun and profit? New Edge Networks may want to talk to you.

The three-year-old carrier, which specializes in offering data services to small and medium-sized businesses nationwide, says it's been inundated with responses to the following ad, which it placed recently in several online forums and trade publications (Light Reading wasn't one of them):

    Seeking Companies or Customer Bases For Acquisitions

    New Edge Networks a national broadband communications provider, is interested in making acquisitions that will add to its growth. If you are interested in selling a company or customer base focused on business broadband telecommunications services, please contact us via email at [email protected] Include a business description and reasons for interest in selling. All responses will be strictly confidential.

[Ed. Note: And please, no fatties or weirdos...]

In fact, there were so many inquiries, some within two hours of the postings, that New Edge felt compelled to clarify just what it was up to in a press release (see Desperately Seeking Startups).

New Edge hasn't bought anything yet, but if the past is any gauge, it will make good on its offer. In its short life, New Edge, which has 275 employees, has spent $1.5 million to buy the business access portion of defunct carrier AtHome (see New Edge Buys AtHome Assets); spent an undisclosed cash sum (less than $4 million) to purchase the U.S.-based data networking assets of Cable & Wireless plc (NYSE: CWP; London: CW) (see C&W Sheds US Customers); and shoveled up a pile of customers and network assets from carriers such as NorthPoint and Rhythms that were either exiting the business or going out of business altogether.

The end result is a carrier that's stitched together a nationwide alternative datacomm network in the worst downturn in telecom history, while wheeling, dealing, and partnering its way nearly to profitability.

New Edge's success appears to be based on making a buck out of what's going free -- or at least cheap -- while keeping an eye firmly fixed on markets where it's already making money. There are three of those markets: DSL services (where New Edge serves 360 small and medium-sized cities in 29 states); Frame Relay and ATM business services (available via a nationwide backbone); and dedicated Internet access (in 30 metro areas, thanks to the AtWork purchase).

Key to New Edge's strategy is offering these services to small and medium-sized businesses in cities not covered by larger carriers -- places like Quincy, Ill.; Boise, Idaho; Fargo, N.D.; and Walla Walla, Wash. New Edge also partners with other alternative carriers to extend its network or theirs (see DSL.net Expands with New Edge).

Sometimes all the wheeling and dealing backfires or doesn't pan out as planned. An early reciprocal sales agreement with Covad Communications Inc. (OTC: COVD) never panned out. In another disappointment, New Edge told the world it planned to add $45 million from the successful migration of over 1,200 Cable & Wireless subscribers. But those subscribers had caught wind that C&W was headed out of the U.S. market and switched their allegiance before New Edge got to them. Luckily, New Edge had agreed to pay out only for successfully migrated customers, up to $4 million. In the end, it got just a few hundred, so it paid a lot less than that -- though how much less, it's not saying.

Nonetheless, it all seems to be working. Privately held New Edge claims to have made $60 million in 2002, triple what it made the year before (see New Edge Revenues Triple). It says it's on track to make $100 million in revenues in 2003, to go EBITDA positive next month, and cash flow positive in May. The firm has $38 million in debt. Funding to date is nearly $400 million, thanks to loyal investors that include Accel Partners, Crosspoint Venture Partners, Goldman Sachs & Co., and Greylock.

New Edge also had a past financing arrangement with Alcatel SA (NYSE: ALA; Paris: CGEP:PA), the multiservice switch supplier for the carrier's 600-central-office network. Cisco Systems Inc. (Nasdaq: CSCO) and Nortel Networks Corp. (NYSE/Toronto: NT) gear comprises the AtWork IP net.

So what's New Edge looking for now?

"We only want businesses that are complementary or supplementary to our core business," says spokesman Sal Cinquegrani. He says there's already been a few turndowns from the leads generated by the ad.

The search will continue until the right fit is found. CEO Dan Moffat, who characterizes himself as an aging surfer, said in yesterday's news release: "We... are fortunate to be in a position of strength for aggressively pursuing acquisitions for capitalizing on opportunities." And Cinquegrani says that if more money is needed to make the deals, New Edge would go back to its investors.

What will the company buy? There are several possibilities, as the detritus of the telecom bust continues to wash through the market. One thing: While it's not clear what the future holds, New Edge so far has shied away from offering so-called next-gen services, such as Ethernet. Clearly, this strategy will have to change at some point if the company means to stay abreast of business service trends.

Where's Dave Schaeffer's number?

— Mary Jander, Senior Editor, Light Reading

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