Allen Raises Stake in Fiber-Optic Firm
Microsoft co-founder Paul Allen is investing $1.65 billion in RCN, an operator of a fiber-optic network that will partner with Allen’s growing stable of cable TV and Web businesses.
The investment is one of the biggest ever by Allen as he expands his holdings in broadband, new media, entertainment and technology companies.
With the deal announced Monday, Allen’s Vulcan Ventures investment company will increase its stake in RCN from 4.5% to 27.4%. However, Vulcan would control no more than 15% of RCN’s voting shares.
RCN, based in Princeton, N.J., will use the money to finance the expansion of its fiber-optic network, which stretches from Boston to Washington and from San Diego to San Francisco, providing Internet, telephone and television services.
Allen’s investment should allow RCN to link a third of the homes in major U.S. markets by fiber-optic cable by 2003, RCN executives said. It’s a key step in Allen’s ambitious effort to deliver an array of information services to the home.
As part of the agreement with Vulcan, RCN will form a joint venture with three companies controlled by Allen: the budding cable empire Charter Communications; the Go2Net network of Web sites; and High Speed Access, a provider of high-speed Internet access over cable TV lines.
The new venture, Broadband Partners, will initially focus on providing high-capacity Internet service to RCN and Charter customers, and to other cable systems later on.
Vulcan and RCN officials also said they would form a joint venture focused at bringing telephony to customers in the Los Angeles area. That would represent Vulcan’s first effort to bring telephone service to its cable customers and should provide valuable experience that could be applied to the rest of its cable network, Vulcan President Bill Savoy said.
“This very significant investment in RCN serves as validation of RCN’s strategy of building a new, state-of-the-art fiber optic network capable of providing bundled phone, cable, high-speed Internet and future services,” RCN Chairman David McCourt said.
The RCN investment comes as Charter prepares to sell $3.5 billion worth of stock in an initial public offering.
Allen bought St. Louis-based Charter just last summer. At the time, Charter had 1.2 million subscribers in 19 states. Since then, Charter has bought or announced plans to buy 11 other cable companies for more than $15 billion.
Once the deals are finalized, Charter will have 6.2 million subscribers in 36 states, making it the fourth-largest cable company in the country behind AT&T;, Time Warner and Comcast.
Vulcan’s investment in RCN will take the form of preferred stock convertible to 26.6 million shares of RCN common stock. The preferred shares must be converted to common stock within seven years at $62 per share.
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Reuters contributed to this report.
