RCN Gives Up On Philly Overbuild

The City of Brotherly Love proved less than charitable to attempts from Princeton, N.J.-based RCN Corp. to overbuild its local cable system.

RCN last week said it would give up its two-and-a-half-year attempt to obtain a cable license from the city of Philadelphia.

The telecommunications overbuilder, which bundles voice, video and data services in a handful of major metropolitan markets, had proposed spending $250 million over seven years to build out a network in the northern sections of Philadelphia. RCN's reluctance to build out the entire city led to suggestions of "cherry picking" the most desirable neighborhoods by the City Council and local cable incumbent Comcast Corp., which is headquartered there.

"We felt there should be a level playing field," Comcast executive vice president and treasurer John Alchin said last week.

Alchin expressed surprise at the timing of the announcement, as city council members were expected to meet to discuss a possible license for RCN later this month.

City council member James Kelley, who chairs the public property committee looking into RCN's cable license, was not immediately available for comment late last week.

Alchin said he believed the city was close to awarding a franchise to RCN, and speculated the company's decision to walk away "has everything to do with Wall Street and nothing to do with Philadelphia."

RCN in December said it planned to cut its 2001 capital spending in half, shelving plans to delve into markets beyond what was already on its plate, including Philadelphia.

Senior vice president of regulatory and government affairs Scott Burnside denied the speculation, and said that RCN had enough capital in place to cover its business plan "to survive and prosper in seven of the top 10 markets in the country-Philadelphia mong them."

RCN has already started building out in some of the Philadelphia suburbs, and serves 10 communities in the metropolitan market. Other RCN markets include Boston; New York; San Francisco; Chicago and Washington, D.C.

"If we had stayed the course, we probably would have prevailed [in Philadelphia] ultimately, but speed to market is an important factor in our business," Burnside said.

S.G. Cowen Securities Corp. analyst Gary Farber was not surprised.

"Going head to head with Comcast on its home turf may not be the best idea," Farber said. He added that because Wall Street was looking at RCN's income statement more closely than ever, it has to try to become cash-flow-positive as quickly as possible.

"If they're not getting a lot of traction in a given market, they have to move on," Farber said.