Hughes Buys Telocity For $180 Million

It's a sign of the times as Hughes acquires a national footprint, a DSL provider with a reputation for good service, a company that is close to profitability, all at a bargain-basement price.

by Jim Wagner of internetnews.com [December 21, 2000]

Hughes Electronics Corp. took advantage of a depressed market to buy out national broadband provider Telocity for $180 million Thursday.

The satellite company, a division of General Motors Corp. (NYSE: GM), has agreed to advance Telocity $20 million before the tender offer, which isn't expected to start until Feb. 1, 2001, is completed.

The Hughes acquisition, which requires government approval, comes at a time when many investors have lost confidence in high-tech stocks, Internet providers included.

Telocity (NASDAQ:TLCT), despite a successful track record in DSL deployment and service, saw its stock drop from a 52-week high of $16 per share to today's value at about $1.30 per share.

Convergence
The acquisition marries two high-speed platforms, called data communications pipes, leading to a convergence in the technology used to bring broadband access to the masses. By offering wired and wireless solutions, Hughes stands to gain in a broadband deployment race against competitors with only one platform choice.

Hughes, until today, was noted for its two-way satellite Internet access and DirecTV. While popular in sparsely populated regions where other high-speed options weren't available, the service never took in major metropolitan areas, where cable and DSL access/service was abundant at a lower pricing point.

By buying up Telocity, Hughes got a company with a national DSL footprint that needs little cash infusion to run profitably. Telocity is also a name residential customers trust, with consumer DSL forums like DSLReports.com giving it favorable ratings in an industry noted for a decided lack of service and support.

Start slowly
Eddy Hartenstein, Hughes Electronics senior executive vice president, said the company will start marketing from within before deploying throughout the U.S.

"By bundling Telocity's capabilities with the high-quality offerings of DirecTV, we will offer consumers the best of both worlds; digital satellite entertainment and high-speed DSL Internet access, through a single portal into their homes," Hartenstein said. "We will initially target the new service to DirecTV's existing base of more than nine million customers, and then leverage our nationwide distribution network to market a bundled video and broadband service offering to prospective customers at retail."

Despite its popularity, Telocity was due to run out of cash early next year. Hughes' sponsorship, and its expected $20 million cash infusion, now guarantees Telocity's continued existence. The buyout may be a sign of times to come as major companies find that buying an existing broadband provider is a lot easier than starting one up from scratch.

And, thanks to Wall Street, it's a buyout at a bargain-basement price.

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