MDS operator Look scales back residential operations, hints at possible sale of assets

Poor market conditions and high sales costs have prompted Look Communications Inc to pull out of the single family home market and focus on higher margin accounts in apartment buildings and businesses. It’s a major blow for the company that has touted itself as a third competitor in the terrestrial residential market to cable and telephony. But as others have painfully learned in the long distance market, serving the residential and SOHO markets is far more costly than selling to businesses and multi-tenant buildings. Look made the announcement Dec. 4, after deciding to withdraw a public offering in the wake of tumbling tech stocks. The company’s financial situation was further exasperated in August when its owners, Teleglobe Inc and Telesystem Ltd, pulled the plug on financing following BCE Inc’s proposed acquisition of Teleglobe. Look secured a $208-million bank credit from the Bank of Nova Scotia and the Bank of Montreal, but further efforts to raise money have failed. Look president/CEO David Parkes says it wasn’t a lack of investor confidence that made raising money difficult – it’s volatile market conditions. "It’s just about impossible for anybody to raise equity or high-yield debt funds today … particularly in the telecommunications sector. Things are just so negative," he explains. Look’s revenues reached $50.2 million for the nine months ended Sept. 30, but they haven’t been high enough to cover costs. For example, the company has seen its marketing and customer services expenses increase nearly three-fold from 1999 to 2000, from $13.7 million to $34.2 million. Its cost of sales for those three quarters has gone up from $2.2 million to $23.5 million. Despite the high costs, Look’s largest source of revenue is from its residential/SOHO Internet access business. The company claimed to have garnered a 4 per cent market share in this area, and predicted that its share would rise to 8 per cent by 2002. Reaching that target would have been partially dependent on acquiring other ISPs with an established customer base. As part of its cost cutting, Look is laying off about 300 employees. "We’re pretty well cutting across the board," says Parkes, "with an emphasis on the sales and installation group that were devoted to the parts of our business that took a lot of cash up front, specifically the television distribution business and the high-speed Internet access business to single family residences." Look holds licences for wireless cable TV (MDS) and high-speed wireless Internet (MCS) in markets across Canada. Earlier this year it was awarded MCS licences in every province except Manitoba and Saskatchewan, through its partnership with Inukshuk Internet Ltd. It wants to use these frequencies to create an IP-based local loop. It seems to be the MCS operations, rather than cable TV sales, that have become the company’s newest priority. Parkes says the focus will be on providing high-speed wireless access, DSL, web hosting and other Internet services for the small- and medium-sized business market. The company won’t sign up any new single home accounts, although Parkes says they will continue to serve existing customers. Parkes says Look will work with Scotia Capital, which has been retained to review strategic alternatives, to determine what should be sold, if anything. "We’re willing to look with our partners at Scotia Capital at any single operation or combination of operations that might make sense (to sell)," he told Report on Wireless. Despite the financial setbacks, Parkes is optimistic about his company’s future. "You know at a different time when the markets were more positive and prepared to invest in companies like ours, this would have been a great news story because the success we’ve had against our business plan has been outstanding," he says. Look’s subscriber base has increased more than 100 per cent since 99Q4. "So despite the success we’ve had with it, the irony of it is our success is also our biggest problem and that’s what was drawing up most of the cash," he adds.

MDS operator Look scales back residential operations, hints at possible sale of assets

News | 12/11/2000 5:00 am EST

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