TELIGENT FACES NEW SOBER REALITY

Teligent emerged from 18 months in Chapter 11 bankruptcy last week with a new business plan and the hangover of being one of the first high-flying telecom firms to experience financial collapse and extended recovery.

An archetype of late 1990s excess, the fixed broadband wireless provider was the beneficiary of financing tossed around like confetti on New Year's Eve but crashed when the money ran out. Chapter 11 was Teligent's 12-step program, purging giddy notions of competing head-to-head with incumbents, cleaning away 31 of 34 warehouses with billions of dollars of equipment and 21 local switches and putting the company on a course that appeased debtors and obviated Chapter 7 liquidation.

Most important, Teligent kept its identity.

“Unlike the other players in this space, we weren't acquired by a company that does something else, nor were we bought by an investment fund,” said Jim Continenza, the CEO who took over his current post in May 2001 — just weeks before shepherding Teligent into bankruptcy.

Teligent's senior secured lenders, including JPMorgan Chase, Bank of America and Toronto Dominion, declined to discuss their role for this story but have backed the company's debt-free Chapter 11 emergence and are providing operational funds for the next three to four years. Because Teligent is now a private company, it will not disclose its finances.

Prior to bankruptcy, Teligent was “trying to chase and impress Wall Street,” Continenza said. The company is now private and not trying to impress anyone, he said. “We care about making money. We care about printing cash.”

The old management team — including former CEO Alex Mandl — fled when bankruptcy became inevitable. After takeover rumors involving such notables as IDT, WorldCom and Verizon died off and a management takeover plan fizzled in the post-9/11 financial drought, Teligent shed more weight.

“What's important is what we were able to keep as a result of the restructuring,” said Denisse Goldbarg, Teligent's vice president of marketing. That included thousands of point-to-point 24 GHz spectrum microwave radios, a core of about 100 engineers and network operations personnel, and a Virginia-based network operations center. It also hung on to about 3000 long-distance customers and a fledgling commercial ISP in the Washington, D.C., area.

“We are sitting here fully operational — full procedures, full accounting systems, full IP systems, full NOC, full hardware,” Continenza said. “We're up and running today.”

The staff that the company was able to keep also helps, said Continenza.“You have people who truly understand this with their eyes closed.”

Of course, some of those same people were responsible for Teligent's bankruptcy. Goldbarg, however, said the company's Chapter 11 filing was symptomatic of the time.

“Hindsight is 20/20,” she said. “We had $2 billion to $3 billion thrown at us, with few requirements in regards to controls put on the money.”

Indeed, before bankruptcy there was what Continenza called “a lack of controls, lack of focus, lack of vision, lack of ever getting to cash flow positive.” A lack of ethics, however — also sadly symptomatic of recent corporate failures — was never part of the equation, Continenza said. “Incompetence? Yes. But what you don't have is the fraud.”

The bankruptcy washed away grandiose plans of becoming a telecommunications giant and providing end user service to large enterprises. Teligent today is simply an enabler.

“We will help enhance other people's networks with our technology — help move more traffic to those lines to increase capacity,” Continenza said. “We're here to enhance the profitability to the long-haul people.” The company selected and kept equipment based around its 24 GHz spectrum licenses in 74 U.S. markets to meet this objective.

“We're going to be the CD-ROM of the industry. We're just an add-on — we'll help enhance,” Continenza said. “I won't be huge, but I will make money.”

Lindsay Shroth, an analyst with The Yankee Group, said she was surprised the company opted not to put in point-to-multipoint equipment. “It's very strange to me, looking at the amount they paid for the licenses,” she said.

Those licenses pose other problems. “If they use 24 GHz going forward, they're the only ones that hold those licenses,” one industry source said. “At some point, they're going to bump up against a vendor limitation. If I were a radio manufacturer, I would tend to want to invest — if I invested at all in fixed wireless — where there's more than one licensee.”

Continenza said he's happy to have the gear and vendors — including Harris and DMC Stratex — that hung in there.

“We know we're the only 24 [GHz player],” he said. “We're not mixed in with the 38 [GHz] gang and 28 [GHz]. That's a big security feature we bring to the table.”

While bankrupt, the company suffered only 4% customer churn, which Continenza attributes most to a shaky telecom environment. Customers echoed his theory.

“They've always given me such good service, and I've never honestly experienced any problems,” said Ann Rethaber, president of International Search Consultants, a telecom recruiting firm in Tempe, Ariz., that uses Teligent for 800-number connectivity.

Tracy Mozingo, a financial accountant with custom home furnishings store chain Persnickety, agreed. “You would never have known they were in bankruptcy,” she said.

That was the idea, according to Bill Tyson, Teligent's vice president of customer service. Those 3000 remaining customers are a profitable segment of the business and an asset that the company retained from the old structure, Tyson said.

However, it won't be the cornerstone of the new Teligent. Instead, the company is aiming for carrier's carrier status, providing last-mile connectivity and cellular backhaul services. The CLEC business is gone, along with the switches.

Some compare the new Teligent to First Avenue Networks, which acquired the assets of bankrupt fixed wireless broadband provider Advanced Radio Telecom. The similarities stop there, said Continenza. Despite the potential for competition, First Avenue CEO Dean Johnson said Teligent's ability to convince lenders to back its business plan is a positive sign.

“I am absolutely thrilled that people who may not have been the most enthusiastic equity investors in Teligent have turned around and become willing equity investors,” he said.

TO BANKRUPTCY AND BACK

Status of formerly high-flying telecommunications providers that have filed Chapter 11

TELIGENT FILED: 5/21/01 EMERGED: 9/12/02 CURRENT CEO: Jim Continenza

GLOBAL CROSSING FILED: 1/28/02 ASSETS ACQUIRED: 8/9/02 EXPECTED TO EMERGE: Mid 2003 CURRENT CEO: John Legere

McLEOD FILED: 1/31/02 EMERGED: 4/17/02 CURRENT CEO: Chris Davis

XO COMMUNICATIONS FILED: 6/17/02 COURT-APPROVED REORGANIZATION: 8/27/02 CURRENT CEO: Dan Akerson

WORLDCOM FILED: 7/21/02 EXPECTED TO EMERGE: Mid 2003 CURRENT CEO: John Sidgmore

WINSTAR FILED: 4/18/01 ASSETS ACQUIRED BY IDT: 12/20/01 IDT CEO: Howard Jonas