CAIS Switches Gears In Business Plan

Michael Lee, brought in Monday to turn failing CAIS Internet, Inc., into a money-maker, has announced Thursday afternoon a complete change in its business plan.

The announcement was made at its conference call reporting the financial results for 2000.

Looking to cut the dead weight residential and hospitality services are having on its financials, the new president and chief executive officer said the company is taking the first steps to reorienting its goals, operations, strategies and relationships.

To do this, CAIS is going into the more lucrative business services arena, providing bundled broadband connectivity to businesses around the country. The carrier plans to keep its 17,000 Web hosting customers.

Lee, formerly the chief business development officer at TelePacific Communications, quickly realized that CAIS had a lot of bandwidth to throw around nationwide but wasn’t getting it out to the right customers.

“There are only a few nationwide independent services providers that can boast of a data network of this size and flexibility,” Lee said. “As we reassessed the company’s business strategy in light of current market conditions, CAIS’ status as a tier-one ISP revealed a significant opportunity to expand its customer base and enable the company to achieve positive cash flow.”

A Tier 1 provider with OC-3 to OC-12 lines traversing the country from West to East Coast, the carrier was having a very difficult time keeping its state-of-the-art network lit up with data.

The business switch comes with a painful $182.8 million charge, as the carrier is forced to write-down a significant portion of its capital costs and contract rights associated with the hotels and residential service.

Hotels, the cornerstone of CAIS’ now-scrapped business plan, were unable to interest customers to use the bandwidth available. Officials plan to start turning off service to hotels in small cities that can’t guarantee a certain level of usage and revenues.

Another anchor in for CAIS was the residential markets it sought to capture with multi-family units like apartments and condominiums. Officials conceded the return on investment was meager, stating that “substantially all” multi-family services would be discontinued.

Now the biggest question remains: can CAIS Internet make the turnaround in time to avoid financial ruin?

Since September, 2000, the company has been making staff reductions from its high of 801 employees to less than half that number. The company has also written IOUs to vendors, promising that its principal payments would be met in 2002 and 2003.

Accountants would or could not say how much the reductions and deferred payments would save the company in 2001, saying only they expected “significant cost savings.”

Time is running out for CAIS. With a cash balance of only $68.6 million in late December, 2000, officials refused to say how much was in the coffers currently. They did say the company would need additional capital in the form of investment or debt financing by late second quarter 2001.

CAIS closed on Wall Street Thursday afternoon at 60 cents a share.

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