MFN FINALLY GETS FUNDING, BUT PRESSURE PERSISTS

The $611 million in funding that Metromedia Fiber Network garnered last week after several extensions is enough to fully fund the company's business plan, according to the firm's newly promoted CEO, Nicholas Tanzi. Even though it is flush with cash, however, the company must now focus on execution and cost savings at a key point in its business plan as it grapples with an economy that is rapidly slipping into recession.

MFN is at the point in its development where network construction takes a back seat to the establishment of recurring revenue streams through its fiber networks. The company also must adjust to a restructured senior leadership team announced simultaneously with the new funding.

Tanzi, the company's former president and chief operating officer,  is taking over the CEO post from MFN founder Stephen Garofalo, who is now chairman. Mark Spagnolo has been taken over the president and COO slot. Spagnolo is the former CEO of SiteSmith, a managed services provider that MFN acquired this year, and the former head of Internet backbone provider UUNet. 

"Our objective was to start broadening the management team consistent with our business objectives: building a global communications company that focuses on transport, Internet services and managed services," Tanzi said.

According to Vic Grover, analyst for Kaufman Bros., the management transition should address Wall Street analysts' concerns about the company's shift from a construction focus to a recurring-revenue business.

MFN must strictly guard its cash-a strategy the company already has begun addressing. The company revised the bottom end of its Q3 revenue guidance $91 million, down from $107 million. MFN also expects to be EBITDA-positive in early 2002, one year earlier than previously planned due to a series of cost-cutting measures.

The company must zealously focus on revenue generation as well, said one analyst.

"They need to focus on sales and profitability, [and] they need to get their burn rate down," said Cary Robinson, senior research analyst for U.S. Bancorp Piper Jaffray. "They need to focus on execution and get people to buy dark fiber and managed services."

Even with those efforts, however, Robinson believes capital expenditures, trade payables and interest expenses will force MFN to raise more cash by the second half of next year, a task that could be made more difficult because of the share dilution that took place in this round.

"This funding obviously wasn't easy to get done, but next year it's going to be a different world," Robinson said. "It depends on what the economy does."