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What lured Microsoft exec to Canadian start-up?

Though he recently sold $13.8 million in Microsoft stock options, Greg Maffei may be leaving behind as many as 570,000 shares--currently worth roughly $64 million--for the chance to head an upstart outfit.

Greg Maffei It's the $64-million question: Will departing Microsoft chief financial officer Greg Maffei ride the fiber optic networking craze to wild success like others before him?

Late last month, Worldwide Fiber became the latest test bed for a high-profile technology executive when Maffei announced he would join the company in late January to serve as chief executive. Though he recently sold $13.8 million in Microsoft stock options, and has vested two-thirds of his 1.71 million shares in the software giant, Maffei may be leaving behind as many as 570,000 shares--currently worth roughly $64 million--for the chance to head an upstart outfit.

In recent years, several companies with a similar bent have lured leading executives from established high-tech firms, only to mint new millionaires and wow Wall Street with their successes and high-flying initial public offerings. For example, Wall Street darlings Qwest Communications and Global Crossing attracted former AT&T executives Joe Nacchio and Robert Annunziata, respectively.

But with competition increasing by the day, there are no guarantees of success for communications companies that plan to make a living by providing the lowest-cost service on the market, analysts warn.

Vancouver-based Worldwide Fiber intends to be a "carrier's carrier," much like Williams Communications, by selling high-speed fiber optic data connections on a wholesale basis to other communications companies, Internet service providers and major business customers. Formed in 1998 as a unit of privately held Ledcor, Canada's second-largest construction outfit, the company is building a 22,000-mile North American fiber optic network, primarily in Canada and the Northwest United States, with a 7,000-mile trans-Atlantic network also in the works. The former network is roughly 60 percent completed, thanks to fiber swaps with more than 30 competing communications companies, according to Will Walls, vice president of finance for Worldwide Fiber.

In making the jump, the well-regarded 39-year-old Maffei, who had been recruited by other firms such as Road Runner, said he hopes to capitalize on the "amazing growth in Internet and data traffic." He brings a slew of contacts on Wall Street, which analysts say capital-intensive fiber optic companies must continue to tap for funding.

"This whole fiber optic backbone market has been dominated by Wall Street the past few years," said Rolf De Vegt, a vice president in the San Francisco offices of Renaissance Business Strategy Group. "To have a chief executive who knows Wall Street well is a key success factor in this business. As long as you keep the funding flowing, you're fine in this business."

Worldwide Fiber has raised $675 million in high-yield bonds and another $345 million in a private placement of stock to Goldman Sachs, Donaldson Lufkin & Jenrette, Providence Equity and Tyco, which is building the company's undersea connection to link North America with Europe. Worldwide is planning a public offering during the first half of 2000, according to executives and analysts.

"The key belief of Wall Street is that to be successful in this business you have to be global. To do that you need lots and lots of capital," De Vegt said.

After helping to lead Microsoft through a two-year barrage of communications-related investments, including major stakes in AT&T, Comcast and Qwest, among others, Maffei has become something of a broadband deal-maker.

"He's very familiar with telecom. I don't think there's a CEO at the top 20 or 30 communications companies that he hasn't met," Worldwide Fiber's Walls said.

Added De Vegt: "Microsoft has been doing lots of investments in the access side. Those kinds of companies are going to be potential customers for Worldwide Fiber."

Still, some analysts---who believe a glut of bandwidth will put pressure on many new entrants---question how Worldwide Fiber is different from several other more established upstart communications carriers.

"They have a history in construction, but in the operator space, operating a network, they do not have a heritage in that," De Vegt said, noting that Williams' recent IPO was lackluster, despite the company's track record as a proven communications company.

Admittedly, Worldwide Fiber primarily built fiber networks, rather than operated them, until roughly 18 months ago. But executives said the company has learned a lot since then.

"In 1998 we were a construction company. But in 1999, what really transitioned us and put us on the map were the supply arrangements with more than 30 carriers," Walls said.

At a relatively new company, Walls said Maffei will have the opportunity to begin with a "blank sheet," giving him more freedom than he had at Microsoft to shape the direction of the company.

Bloomberg contributed to this report.