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Investment to let Metricom grow

Financier Paul Allen's investment firm plans to take a controlling stake in the wireless access company, paving the way for a new strategy.

Metricom (MCOM) announced today that financier Paul Allen's investment firm plans to take a controlling stake in the company, paving the way for a new strategy for its wireless access service and the funds to execute it.

Vulcan Ventures said it plans to purchase 4.65 million shares from Metricom for $56 million. That investment, which follows an earlier stake and an announcement last month of plans to buy 2.58 million shares from another investor, the Lindner Group, brings Vulcan's stake to 49 percent.

Metricom currently receives roughly half its revenues from its Ricochet products and services division, which provides wireless access and communications in the San Francisco, Seattle, and Washington, D.C., areas.

Although the company currently offers connection speeds of 28.8 kbps, the same as most desktop PCs, it will now be able to roll out 128-kbps access sooner than planned because of the Vulcan financing, Dilworth said.

"I think we'll have a product ready in the early part of 1999. That would have been impossible with the way things were running before," he said, noting that the investment will allow Metricom to accelerate its schedule by six to nine months. "Paul thinks this is something that should be done quickly and wants us to ensure it will be done."

Metricom also plans to expand its service into the Los Angeles area. Analysts have previously cited Metricom's lack of deep financial pockets as holding it back from rolling out its Ricochet service nationwide.

Don Wood, Metricom president, said he does not view other wireless networks as competitors but rather alternative high-speed access services from ISDN to cable modems.

"As people get accustomed to having high-speed access on their phone lines with 56 kbps, ISDN, or satellites, the benchmark is being raised," Wood said. "About a third of our customers use their Ricochet [wireless modem] on their desktop, so we want to ensure that we meet that benchmark."

The company, which was founded in 1985, receives the other half of its revenues comes from its industrial communications division, which sells radios to industrial subscribers like the electric, gas, oil and water industries.

Although the industrial communications used to account for the bulk of the company?s revenues, it has shifted to a 50-50 ratio and is shifting more to Ricochet-based revenues, Dilworth said.

The company's revenues largely remained level over the past two years, around $1.3 million to $1.8 million. But Metricom has posted growing net losses for at least the past five years. In the second quarter, losses reached $16 million, compared with a loss of $8.5 million a year ago.

Vulcan is not expected to take a more active role in setting the company's direction and pace. The deal is subject to shareholder and regulatory approvals.

"We expect [Vulcan] will put four seats on the board, and they have some strategic ideas that sound good to us," said Bob Dilworth, Metricom chairman and chief executive.

Vulcan has previously held one board seat since its initial investment in 1993, Dilworth said, but that seat has sometimes gone unfilled.

(Paul Allen is an investor in CNET: The Computer Network)