Want CNET to notify you of price drops and the latest stories?

UrbanMedia cuts staff as market retools

The communications service provider lays off a significant number of employees, making the company the latest telecommunications provider to retool amid tough economic times.

3 min read
Communications service provider UrbanMedia made significant staff cuts this week, CNET News.com has learned, making the company the latest telecommunications provider to retool amid tough economic times.

A final total for the cutbacks is undetermined because UrbanMedia executives continue to seek additional funding from the company's investors, representatives said.

But executives at UrbanMedia, which provides telecommunications services to office buildings, already have informed some workers of a "pretty significant" amount of cuts pegged for at least 10 percent of the company, according to Jeff Barnell, vice president of marketing there. The company employed about 500 workers before the cutbacks.

Executives intend to issue a formal announcement about the scope of the layoffs and the company's funding situation as early as Friday, Barnell said.

UrbanMedia is facing a capital crunch despite having been handed three rounds of funding last year alone. The company received $25 million in January, $32 million in June and $57 million in December.

Strength in the numbers?
The company, founded by several former @Home Network executives in December 1999, is one in a genre of companies that wire large multiple-tenant office buildings in major cities for high-speed Internet access and voice communications.

Some of these in-building providers, facing a shortage of money on which to operate, are refining their businesses by scaling back expansion plans. Others have sold themselves to competitors.

"Last year was about seeing how many buildings we can get," said Amy Helland, a multitenant-unit industry analyst at Cahners In-Stat Group, a market research firm. "That's really transitioned to, 'Let's concentrate on a few buildings and try to drive greater penetration within them.' That's largely because of an inability to generate funds for these broader deployments."

These companies, commonly known as OSPs (on-site service providers) or BLECs (building local exchange carriers), typically strike alliances with commercial property management companies and office park landlords for the right to string their buildings with fiber-optic cables.

The strategy calls for taking market share from traditional communications giants and Baby Bell local phone companies by initiating service faster because each prospective customer's office is prewired. For the landlords, the prewired offices can serve as a competitive advantage over other commercial rental vacancies. However, those semi-exclusive contracts have raised some regulatory hackles.

For UrbanMedia's part, the company offered free broadband Net access as a means of attracting new customers. UrbanMedia planned to then sell these free Net access users a package of additional communications services.

Crunch time
Competitors include publicly traded Allied Riser Communications and Cypress Communications, and privately held Brix Communications, BroadBand Office, Everest Broadband, eLink Communications, Wired Environments, Eureka Broadband, OnSite Access, and Intellispace.

Already some of these companies have had to change their business plans, primarily because the capital investment market has become more selective. In addition, these communications upstarts require immense capital to fund their costly network construction.

According to Cahners In-Stat Group, the in-building providers raised about $1.8 billion in capital in 2000.

Similarly, BroadBand Office, backed by venture capital firm Kleiner Perkins Caufield & Byers, is rumored to have refined its business model recently. According to Light Reading, a communications industry newsletter, Kleiner Perkins plans to divert resources away from BroadBand Office in favor of another start-up. Representatives from Kleiner Perkins, BroadBand Office and a real estate partner of the company's could not immediately be reached for comment.

In addition, Cypress Communications has seen several executive resignations in recent months as part of a management reorganization.

With changes in the industry already afoot, analysts expect the market to look much different a year from now. "I think we'll see some shakeout. We'll see some mergers; there already have been some," Helland said.

For example, Eureka Broadband bought competitor Gillette Global Network in November.

Despite the tough times, some industry watchers continue to have faith in the multitenant-unit market. By some estimates, as much as 70 percent of U.S. businesses are located in multitenant-unit office buildings.

Nevertheless, Cahners In-Stat Group, which estimated earlier this month that the market would grow to $4.8 billion by 2004 from $370 million in 2000, plans to cut its forecasts, Helland said. Cahners is expected to soon release estimates of about $3 billion by 2004 and about $3.7 billion by 2005.

"There will still be growth, even though we're seeing a lot of negativity right now," Helland said. "But in general the MTU market will continue to grow. It's just going to be a different dynamic."