RCN’s refocus could roil investors

RCN Corp., the Herndon, Va., cable company, is unplugging itself from the West Coast market and strengthening its regional roots in the Northeast and Chicago, but some analysts are concerned about investor unrest.

Last week, the local cable, telephone and Internet service provider pulled out of San Francisco, selling its assets and 18,000 subscribers to Astound Broadband, a subsidiary of Wave Division Holdings LLC, in Kirkland, Wash., for $45 million.

“It makes sense to focus on the Northeast market,” said Peter Aquino, RCN’s president and chief executive officer. “We have a lot of things we want to do, and we’re going to put more capital to work.”

In addition, RCN said it is selling its operations in Los Angeles, where the company currently has 2,000 subscribers.

“I think it is a good move,” said Chris Roberts, an analyst at Tejas Securities Group Inc., a brokerage and investment banking firm in Austin. California is a very competitive market, and they never had the scale to compete.”

Since rising from bankruptcy protection in 2004, the local cable firm has been trimming its unproductive assets while reinvigorating its East Coast presence with new acquisitions.

In addition, the company sold its stakes in Megacable S.A. de C.V. and Megacable Comunicaciones de Mexico S.A., a cable operator in Mexico, for $350 million, in March 2006.

In December, RCN bought Consolidated Edison Communications Holding Company Inc., a broadband communications company in New York, for $32 million.

The New York area is where they want to grow,” said Colby Synesael, an analyst at Merriman Curhan Ford and Co., a New York investment banking firm.

“There is advantage in having a geographic footprint that is contiguous,” Mr. Synesael said. “It makes it easier to scale everything and target customers when they are in one area.”

RCN Corp. has a subscriber base of 425,000. In 2006 the company had $585 million in revenue, up 10 percent from $530 million a year earlier.

The company said net loss for 2006 dropped 91 percent to $11.9 million from $136 million the previous year.

In RCN’s quarterly report, the company said it would repay $350 million to $400 million to its investors, some of whom rode out the company’s bankruptcy.

Some analysts believe there is unrest among the investors and see the repayments as a way to appease edgy shareholders.

“In September of 2006, the company considered selling itself, Mr. Synesael said. “When it became apparent the company would not sell, the board recognized that the long-term shareholders wanted liquidation.”

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