Rhythms prices IPO above expected range

The nationwide high-speed Net access provider prices its initial public offering above the expected range, a sign of strong demand once shares begin trading tomorrow.

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Rhythms NetConnections, a nationwide high-speed Internet access provider, priced its initial public offering above the high end of its range today.

Shares in Rhythms were priced at $21 each, according to managing underwriter Merrill Lynch. The company recently increased its range to $18 to $20 per share, up from an initial range of $15 to $17 each.

Rhythms expected to raise about $165 million when it filed to go public in February, but will now raise nearly $184 million, excluding $13 million in fees. Rhythms will issue nearly 9.4 million shares on the Nasdaq National Market under the ticker symbol "RTHM."

Today's pricing is a good sign that shares will be met with strong demand when the company begins trading tomorrow.

"I think the market's becoming more savvy because it understands this company provides the infrastructure, not some flashy Web site," said David Menlow, president of IPO Financial Network. "We're going to see a continued influx of deals like this," Menlow said, as the demand for broadband increases.

Rhythms is one of a handful of competitive local phone companies that offer high-speed Internet access and remote network access for small and medium-sized businesses in major metropolitan markets. Rhythms, like its competitors, leases phone lines from the Baby Bells to deliver digital subscriber line service, or DSL, an "always on" technology that allows users to talk on the phone and surf the Net simultaneously.

Analysts said demand for the Rhythms IPO is due, in part, to Wall Street's early acceptance of a chief competitor.

Covad Communications had a strong first-day showing when the DSL provider went public in January. Covad shares, which priced at $18, jumped more than 150 percent on the first day of trading and have continued to climb since early March, topping out in the low 70s. The stock has traded as high as 73.375 and as low as 31 since the IPO.

"A lot of it has to do with Covad's success, but Rhythms in itself does have a strong management team and good partners," said Ken Fleming, an IPO analyst at Renaissance Capital's IPO Fund.

The company has financial backing from venture capital firm Kleiner Perkins Caufield & Byers and $30 million investments from both MCI WorldCom and Microsoft.

Analysts said the investments provide much needed capital and lend credibility to the DSL start-up. Rhythms will work with the software giant to deliver a business-focused version of its MSN.com portal via DSL.

Like the Covad IPO before it, Rhythms' initial stock offering could forecast the fate of another DSL market entrant.

Fellow competitor NorthPoint Communications filed for an estimated $125 million public offering in February. NorthPoint shares are expected to begin trading in early May.

The Internet IPO market is shaping up to have a strong year, analysts said. Already there have been 26 Internet-related IPOs this year--including iVillage, Autobytel, Mining Co., ZDNet, and Critical Path--compared with 28 Internet offerings in all of 1998, Fleming said.