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Rhythms finds its own IPO groove

The data-focused competitive exchange carrier files for an initial public offering on the heels of a successful showing from its competitor Covad.

Rhythms NetConnections, one of a new breed of telephone companies offering high-speed Internet access, has filed regulatory documents for an initial public offering.

Rhythms, a data-focused competitive local exchange carrier (CLEC), expects to raise about $165 million in an IPO, according to its registration statement with the Securities and Exchange Commission. Rhythms intends to offer a portion of its nearly 34 million shares on the Nasdaq National Market under the ticker symbol "RTHM."

Rhythms' IPO plans come on the heels of a successful public offering by competitor Covad Communications.

Covad shares surged more than 150 percent when the company went public three weeks ago, and trades now at about $50 per share.

The two companies, together with privately-held NorthPoint Communications and a handful of smaller "data CLECs," offer digital subscriber line, or DSL, services. The technology allows for high-speed data transfers over standard copper phone wires and is the primary broadband alternative to cable modems.

The data CLECs, such as Rhythms, were intended to introduce competition into the local voice market. But the companies are instead trying to siphon revenue from the Baby Bells by offering lower-cost Net access alternatives to some of their best customers--small and mid-sized businesses.

Rhythms was formed in February 1997 by former US West executive Catherine Hapka with more than $20 million in financial backing from venture capital firms such as Kleiner Perkins Caufield & Byers, Enterprise Partners, The Sprout Group, and Brentwood Venture.

Rhythms first offered DSL service last April in San Diego and now serves 11 markets, primarily in California. The company plans to offer services in an additional 23 metropolitan areas by the end of the year and in another 17 in 2000, according to the SEC filing.

Last month, MCI WorldCom made a $30 million investment in the company.

For the nine months ended September 30, 1998, Rhythms posted a net loss of $21 million, or $9.49 per share, on revenue of $248,000.

Underwriters for the offering include Merrill Lynch, Solomon Smith Barney, Hambrecht & Quist, and Thomas Weisel Partners.