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Pepco, RCN's Partner, Wants to Sell Out

Electric utility Pepco Holdings Inc. wants out of its cable joint venture with RCN Corp.

The joint venture between PHI's wholly owned subsidiary, Pepco Communications LLC, and RCN is called Starpower Communications LLC. It serves consumers in Washington D.C.; Falls Church, Va., and Montgomery County, Md.

The move is part of Pepco's ongoing effort to redirect capital back to its core energy business, PHI CEO Dennis Wraase said in a statement.

To depart from what Wraase termed a “distressed telecommunications market,” PHI expects to write down its investment in Starpower to “fair market value.”

A “significant portion” of the asset's book value as of Sept. 30, 2003 — which PHI pegged at $141 million — is likely to be adjusted downward, PHI said.

RCN isn't in a position to comment on its partner's actions, said RCN vice president of public relations Barak Bar-Cohen. He said the joint venture has been operating in the nation's capital for five years. “We believe the asset is very valuable,” he said, adding that PHI's action shouldn't affect current customers or employees.

According to RCN, the system has 170,000 “marketable homes” in the region, where it competes with incumbents including Comcast Corp. and Verizon Communications.

As of Sept. 30, 2003, Starpower reported 48,600 subscriber homes which take one or more of its products, including bundled video, high-speed Internet and telephony.

The venture was building out multiple franchises until late 2000, when RCN began to retrench. Bar-Cohen said the expense of building systems throughout the U.S. did not match the income generated by the early operations.

Starpower went back to its franchisees for relief on buildout requirements. A new agreement is in place with Montgomery County, he said, and renegotiations are “amicably proceeding” with Washington, D.C., and Falls Church.

Despite the buildout slowdown, the venture continued to launch such services as home networking, which it began offering last October. In January, PHI said it was “actively monitoring” RCN's debt restructuring. At that time, RCN chose to defer payment on $10.3 million in interest, PHI said.

In addition to providing consumer choice, the joint venture may have pressured Comcast to accelerate its $100 million rebuild in Montgomery County. It was finished in July 2001, one year ahead of schedule.

Bar-Cohen said he couldn't comment on whether or not RCN would have to approve any buyer of Pepco's stake. The contract includes confidentiality agreements, he said.