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RCN Heads to Chicago with 21st Century Buy

RCN Corp. Monday acquired 21st Century Telecom Group, Inc. for approximately $500 million.

By acquiring Chicago's only single-source, facilities-based provider of bundled telecommunications services, RCN (RCNC) moves into a high-density major metropolitan market with 3.1 million homes. RCN will offer a variety of phone, cable and high-speed Internet services.

David C. McCourt, RCN chairman and chief executive officer, said deal continues to build on the momentum of their expansion plans.

"The acquisition of a young, dynamic company like 21st Century accelerates RCN's business plan, McCourt said. "It also allows us to move outside our original target markets to enter the nation's third largest metropolitan area," he added.

The addition of Chicago allows RCN to leverage 21st Century's operating and network expertise and provide access to the Chicago Transit Authority's right-of-way. With regulatory approvals and rights of way secured, 21st Century has built nearly 250 miles of fiber along Chicago's lakefront from Evanston to the Hyde Park area, including the "Gold Coast."

McCourt said Chicago was the place to be for RCN to maximize telecom traffic profits from minimal real estate purchases.

"The addition of this market expands our coverage to nearly 42 million homes in an area that generates 44 percent of the nation's telecom traffic in only 6 percent of its geography," McCourt said.

"This increases our revenue potential and creates value for our shareholders."

In October, Paul G. Allen-led Vulcan Ventures, Inc. infused RCN's coffers with a $1.65 billion investment to fund RCN's network expansion.

McCourt said that the 21st Century deal is part of their aggressive expansion plan.

"This is the latest example of how our newly raised capital will be used efficiently to continue our aggressive growth," McCourt said.

Robert J. Currey, 21st Century president and chief executive officer, said the acquisition was a great opportunity for 21st Century because RCN's corporate objectives and operating philosophy are similar to theirs.

"We were the first competitor to challenge the incumbents in Chicago and plan to be a major player in the metropolitan area," Currey said. "We remain committed to providing our 37,000 customers with high quality services at competitive prices."

"With the additional resources of RCN, we look forward to offering new and innovative products in the future to our growing customer base," Currey added.

The closing of the transaction is subject to the consent to remove certain covenants from 21st Century's Senior Discount Notes and Exchangeable Preferred Stock and also subject to customary regulatory approval.

McCourt said the deal opportunistically replicates a proven residential business model.

"We can sell all of our services over one network and still have 85 percent excess capacity left over for future services," McCourt said. "Our new network has lower operating costs than other companies seeking to offer a bundle over older, existing networks originally designed to provide one service. Retrofitting old networks by adding on electronics only increases operating costs."

21st Century's network passes more than 200,000 homes and nearly 600 buildings that are connected to its network facilities. In addition, the company has secured access to over 300 more urban buildings.

Currey will remain president and chief executive officer of 21st Century, as well as assume additional responsibilities at RCN Corporation. His first task will be to seamlessly integrate the companies' operations and educate employees and customers about the RCN br



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