Providence Wins Big With Telecom Company –

Providence Equity Partners Inc., the private equity firm that invests in media and telecommunications, is seeing a 15-times return on its investment in MetroNet Communications Corp. now that the company is merging with AT&T Canada Corp.

On March 4, AT&T Canada and MetroNet, a Canadian competitive local exchange carrier (CLEC), announced their merger, which should be completed in May. The company provides local telephone service in cities across Canada. The total transaction value will be approximately US$4.9 billion, according to an announcement by MetroNet. The merged company will be called AT&T Canada, but MetroNet shareholders will indirectly own 69% of it. MetroNet will have eight of the 12 seats on the newly formed board of directors.

Providence invested in MetroNet in 1996 with $40 million in equity, which at that time gave it a 60% interest in the company. Providence’s stake in MetroNet has been diluted to approximately 23% after an initial public offering and, with the announced merger, is worth $600 million. The investment firm will sell all of its remaining shares to AT&T Canada by 2003, according to a source at Providence.

MetroNet’s business plan follows that of Brooks Fiber Properties Inc., a U.S.-based CLEC which Providence helped start in the early 1990s. Brooks Fiber was bought by MCI WorldCom Inc. in January, 1998, for $2.9 billion.

The deregulation of local phone markets has led major long-distance providers like AT&T to look for strategic partners who can help them compete with providers of local phone service. Providence began to build MetroNet before local competition was even permitted in Canada, which regulators opened up in May, 1997. Providence lobbied the Canadian parliament for deregulation and assisted in drafting legislation, the source said.

Part of MetroNet’s growth required spending $1.5 billion laying fiber optic lines, which the company financed through high-yield bonds and bank debt. MetroNet held an IPO in December, 1997.