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Digital Access going out of business
"It is very disappointing," said chief executive officer Joe Cece, a veteran cable TV executive. "We ran into incredibly bad timing."
By Patricia Horn
PHILADELPHIA INQUIRER STAFF WRITER
Digital Access Inc. of Bala Cynwyd is closing its doors and canceling its plans to build its own telecom networks in several cities to compete against cable TV, phone and
Internet companies for residential customers.
Around 50 people will be laid off, with some already receiving their severance packages.
Digital Access had said last week that it was pulling back on its plans to build networks in Milwaukee, metropolitan Kansas City and Indianapolis and would focus solely on
building its network in Nashville, where it has a franchise. In that market, Digital Access would have competed against Comcast Corp., the Philadelphia cable company.
But now, the company has decided to close altogether. "It is very disappointing," said chief executive officer Joe Cece, a veteran cable TV executive. "We ran into incredibly
bad timing. The market opportunity is fine, but the capital markets are conspiring against the ability to exist in this business model today."
The fate of Digital Access and other firms with similar plans is a blow to the nascent competition for cable TV and residential phone customers that had begun developing in
many large metropolitan areas around the country in recent years.
Digital Access and other similar companies - called "overbuilders" since they build their own telecom networks - raised hundreds of millions, even billions of dollars, in 1999
and 2000 to win cable franchises, construct networks and start marketing their cable, phone and high-speed Internet service.
But as the stock market tumbled and the capital markets closed to these ventures, many of these companies have not been able to raise the additional sums they need. So they are
pulling back on the communities they plan to enter, or closing down.
Digital Access, for example, had raised $450 million in venture capital in 1999, with the largest investment coming from financial powerhouse Goldman Sachs. It had needed to
raise another $900 million from the capital markets to fulfill its business plan.
"This is a capital intensive business," said CeCe. "The model requires there to be a relatively healthy debt and high yield market. These markets are now in the tank. Without the ability to leverage the equity we raised, we can't deliver the returns the investors are looking for."
The company had hoped to find an alternative to closing down, said its chief executive officer Joseph Cece, such as finding a merger partner, but those options did not work out.
So this week, the board voted to close.
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