Castles in the air

The advent of broadband defined a new market as innovative upstarts saw a window of opportunity in buildings. These start-ups sought to update the outdated cable infrastructure within those buildings and, in the process, changed the meaning of "in-building" communications.

A pioneer in this segment is Allied Riser Communications, also known as ARC. Founded four years ago, it has grown from humble Dallas roots to gain a market cap of $75.1 million. The company pulls fiber through a building's risers, the goal of which is to bring broadband access to every tenant within that building.

"Part of the investment criteria we like to know before we do anything in a building is to know the market opportunity for that building and when the break-even point is," says Gerald Dinsmore, president and CEO of ARC.

ARC's approach has served it well. The company had an active year. In the second quarter of 2000, ARC was in 49 metro markets in the U.S., with access to more than 245 million square feet of space. In May, it began construction in 16 new markets reaching 13 million square feet. On top of that, ARC bought a 68% stake in Shared Technologies of Canada, a conglomerate owned by AT&T Canada, three Canadian commercial property owners and a real estate investment adviser. That investment gives ARC access to 35 million square feet of commercial office space north of the border.

It also has forged partnerships with fiber builders and communications companies working abroad, but it has yet to build out there.

In addition, ARC has signed deals with Universal Access for local loop services; TXU Communications for metro dark fiber; Enron Broadband Services, Level 3 Communications and Qwest Communications for backbone transport; and InterNAP and national ISPs. In June, it began testing AirFiber's wireless optical telecommunications equipment, and this year, it also launched a slew of new offerings, including remote Internet access and security, Web design and hosting, business-to-business portals, Internet-based TV and voice and Internet conferencing services.

The company's goal is to provide broadband services to approximately 800 million square feet of office buildings by the end of 2004.

Sounds like solid growth, and ARC is fully funded through 2002. But that's not reflected in the company's stock, which has flagged from the high 40s to about $1 per share. The company is streamlining its deployment strategy and estimates 2001 revenues of $50 million.

That could account for some changes in the senior management team. In October, Dinsmore took over the post of president and CEO, replacing David Crawford. Other top-level newcomers include Chief Operating Officer Terri Compton, who came from Jato Communications and GTE, and Todd Doshier, senior vice president and chief financial officer.

On the job for less than a quarter, Dinsmore will focus on "igniting sales growth in the company and taking advantage of the services available through Allied Riser," he said. Dinsmore also wants to restructure the compensation plan to ensure the sales team is "working the buildings to get maximum penetration."

Dinsmore brushes off the notion that a building local exchange carrier's customer base is captive. To win and keep customers, ARC must do more than waltz in and rewire the infrastructure; it must sub-segment the population and market to their specific communication needs. "Very critical to the success of the company will be getting the right packages out to the right target markets," he says.

If he succeeds, ARC could be coming soon to a building near you.