Information Processing: TELECOMMUNICATIONS
CAN CRAIG McCAW BE A LOCAL HERO?
Now he's using his megabucks to build a phone network
When three top AT&T executives jumped ship to rejoin their former boss, Craig O. McCaw, at his new company, OneComm LLC, the lure wasn't fat paychecks. Execs Wayne M. Perry and Steven W. Hooper aren't even receiving salaries--only equity in the new company. Instead, the trio leapt at the chance of another entrepreneurial adventure with McCaw, with whom they built a cellular empire that AT&T bought for $11.5 billion in 1994. "There are some valid analogies to the startup of McCaw days," says Perry, the former vice-chairman of AT&T Wireless Services and now chairman of OneComm. "The only difference is Hooper has no hair and I'm a little grayer."
That's not all that has changed. When McCaw smartly cobbled together a patchwork of cellular properties covering half the U.S., he was a pioneer in a brand-new market. But this time around, OneComm is trying to elbow its way into a mature business crammed with entrenched players: the $100 billion local telephone market. Unless McCaw and his troika execute perfectly, it may be impossible to recreate their former glory. "The local market is an established business," says Kevin M. Moore, an analyst with Alex. Brown & Sons Inc. "Craig McCaw doesn't get to make up the rules this time."
MISSION. Maybe not, but he does have a game plan. McCaw created OneComm as an extension to another company he owns, Nextlink Communications, which has been building and buying local networks for the past three years. OneComm's mission is to raise billions of dollars so Nextlink can invest in local phone networks and expand its reach beyond the six states it is in today. In time, OneComm and Nextlink will probably merge--they are separate today largely because McCaw is in the midst of a messy divorce and does not want to mingle his assets.
So can McCaw build another empire? He has already sunk $55 million into Nextlink and, with a net worth of $1.3 billion and his track record in cellular, he should be able to come up with millions more. Add in the deal expertise of Hooper, Perry, and Gerard Salemme, former AT&T vice-president for government affairs, and expansion looks like a sure bet. "We made a lot of friends in the capital markets," says Hooper, the 44-year-old former president and CEO of AT&T Wireless and now president of OneComm. Expect the war chest to be used in part for an acquisition binge, experts say, with one possible target being Brooks Fiber Properties, a Town & Country (Mo.) local access carrier with revenues of $46 million.
Still, McCaw faces enormous challenges. Despite the Telecommunications Act of 1996, aimed at deregulating local markets, the Baby Bells are fighting hard to keep their turf. What's more, early reports that OneComm might bag AT&T as a customer--by selling the telecom giant local capacity--may not happen. Daniel Hesse, the former head of AT&T's local effort who just replaced Hooper as president of AT&T Wireless, says the companies may work together. But AT&T is giving no guarantees. "It's all a matter of economics," says Hesse. One sure thing: If the current merger talks between AT&T and Baby Bell SBC Communications end in an agreement, it won't need OneComm's facilities in SBC's territory.
McCaw, however, can market local service himself, and already Nextlink has what the company says is "thousands" of business customers. But Nextlink has none of the brand-name recognition of the Baby Bells or the major long-distance companies. Worse, McCaw is actually late to the game of building local networks. Teleport Communications Group Inc., for example, was formed 14 years ago and has a
far larger network in the most lucrative big markets. "OneComm is on a large learning curve," says Robert Annunziata, Teleport's chairman and CEO.
McCaw's solution: to focus on second- and third-tier markets where he doesn't have to go head-to-head with the majors. Still, McCaw can't go it alone. What he needs is an alliance with a brand-name phone company--read AT&T--that will buy his capacity and help market to customers.
Without that, his local phone effort could be a costly attempt to relive the glory days.By Seanna Browder in Seattle and Peter Elstrom in New YorkReturn to top