A new headquarters, its continued integration with SBC Communications,
Inc., and FlashNet Communications, Inc., and a shift away from dialup
Internet service plagued Prodigy Communications Corp.’s third quarter
results announced Friday.
It’s net loss for the quarter was nearly $63 million, or 90 cents a share,
as the Internet service provider looks for solutions to reverse the
substantial negative cash flow it’s incurring.
The Internet service provider did, however, see an increase in its
subscriber base, gaining about 100,000 new dialup and 92,000 digital
subscriber line subscribers in the third quarter.
With 2.7 million overall subscribers, Prodigy would seem to be the eighth
largest ISP in the nation, surpassing Excite@Home’s 2.3 million
customers. However, Prodigy includes in its subscriber base the 527,000
subscribers through Mexico-based incumbent local exchange carrier TelMex, a
Prodigy partner.
The ISP’s churn rate continues to be a bright spot for the company. It’s
DSL division lost only between 1.5-2 percent of its customer base, largely
due to legacy SBC users. Dialup churn rates are at about 1.4-1.9 percent.
It’s the company’s first full quarter under the leadership of former SBC
vice president Charles Roesslein and an almost completely revamped board of
directors, which now includes two members each from Telmex and SBC.
Charles Roesslein, Prodigy’s current co-chairman, president and chief
executive officer, said his company is shifting its focus to capture the
lucrative DSL marketplace.
“Strong demand for high-speed Internet access is the driving force behind
our DSL strategy,” Roesslein said. “Our subscribers to date demonstrate
that we remain the primary provider of DSL service to the residential and
small business markets. Our goal for year-end is to reach approximately
500,000 owned and managed DSL subscribers.”
Prodigy, with its 338,000 DSL customers garnered mainly by SBC, is by far
the largest provider of high-speed DSL services in the nation. Its only
competition comes from rival Covad Communications Group, which has 205,000
subscribers.
According to officials, the cost to do business with dialup customers is
becoming more than it is worth. Dialup access has plateaued for the moment
and, as such, plans to switch gears to accommodate the DSL industry.
But its cash flow problems could erase any gains the company is making with
DSL acquisitions. To roll out DSL service, the ISP is going to incur heavy
losses integrating the higher network costs associated with DSL service.
Prodigy’s line of credit, which stands at $54 million, is expected to last
them through the end of the year and into the first quarter of 2001. After
that, the ISP is banking its hopes on long-term financing from its
shareholders.
Allen Craft, Prodigy executive vice president of finance and chief
financial officer, said the ISP is working with SBC on a “most favored
nation” basis to help ease the financial pain.
“For every DSL customer we bring in, a $75 bounty goes to SBC,” Craft
said. “We’ve made arrangements so we don’t have to pay the bounty up
front, but will break the cost out over three years.”
Prodigy already gets breaks from SBC in the form of line sharing
discounts. A DSL line costs the ISP $30 for the line and layer 3
services. And despite SBC troubles with DSL rollout, Craft is confident
the ILEC can turn it around.
“We’re still estimating to have 500,000 DSL lines out by the end of the
year, we’re very comfortable with that number,” Craft said. “(The SBC)
tells us they’re committed to make sure that happens. They may be having
problems with rolling out lines for us but they’re working on it and
they’ve made significant progress.”
Prodigy acquired more than 200,000 new subscribers with its late-May
acquisition of FlashNet Communicati
ons, Inc. In June, SBC bought a 43
percent ownership stake in Prodigy, moving its residential and small
business Internet services to the popular bi-lingual ISP. SBC also moved
its newest acquisition’s base of operations from New York to Austin, TX.
