Phone Companies Rally to Avoid a Credit Squeeze

Mar 02 2001

A half-dozen telecom industry executives, lawyers and bankers met Friday with Roger Ferguson, vice chairman of the Federal Reserve's Board of Governors, to discuss the difficulties that upstart carriers are having in raising capital and to talk about the industry's potential to boost productivity in the economy.

Spunky local phone carriers trying to compete against the Baby Bells were the darlings of Wall Street until market sentiment turned against the sector at the end of last year. Now some of the more competitive of those carriers are struggling to find backing in the debt and equity markets.

The Federal Reserve, led by Chairman Alan Greenspan, could help the sector by further lowering interest rates or by encouraging the lenders it regulates to keep their loan spigots flowing. Greenspan, Ferguson and other Fed members also are constantly seeking information to refine their view of the economy's health.

Attendees at Friday's hour-and-a-half meeting at the Fed's headquarters in Washington included Northpoint Communications CEO Liz Fetter, Allegiance Telecom CFO Thomas Lord, telecom entrepreneur Jeff Pulver, and Kathy Brown, former chief of staff to former Federal Communications Commission Chairman William Kennard.

Lord said the group tried to explain the difference between failing dot-coms and companies building communications networks.

"We didn't go to ask for anything but to explain the importance of our industry as infrastructure builders," Lord said. "All of that great stuff out of California won't play unless there's a highway that we're building."

Fed officials asked that the meeting be off-the-record, and attendees declined to comment on the substance of the talks. One participant termed the meeting a useful "exchange of information."

An Allegiance spokesman noted that the company was not currently seeking additional funding. "We're really fully funded," the spokesman said. The Dallas-based carrier, which primarily serves business customers, reported that as of Dec. 31, it had $670 million in cash and short-term investments and an untapped credit facility of $500 million.

Northpoint, a struggling provider of high-speed data lines, was delisted from the Nasdaq on Feb. 8 after filing for bankruptcy in January. It's unlikely to be back in the capital market anytime soon. A spokesperson for the company declined to comment.

A Fed spokesperson was not immediately available for comment.

Although smaller carriers have been frozen out of the capital markets, some of the bigger names, including Global Crossing and Time Warner Telecom , managed to raise hundreds of millions of dollars last month. They were no doubt helped by the Fed's decision to lower interest rates and the possibility of future rate cuts.

But this week, Greenspan and Ferguson both signaled that investors should not depend on further cuts before the Fed's next meeting on March 20.

"Despite the sharp weakening in sentiment, household spending appears thus far to have held up well," Ferguson said in a speech to a securities conference on Tuesday in New York. "How these apparently conflicting signals will be resolved going forward is not at all apparent from today's vantage point and will bear close scrutiny."