Qwest Leads $251M Investment in ART

Publicly traded Advanced Radio Telecom Corp. (ART) of Bellevue, Wash., has received commitments for $251 million in private financing, in what is said to be one of the largest equity rounds for an early-stage telecommunications company. The deal, which is subject to ART shareholder approval, is expected to close in the third quarter.

Denver-based Qwest Communications International Inc. led the round with a $90 million investment, which will give it a 19% stake in the wireless Internet service provider. Qwest provides businesses and consumers with local telecommunications services, including broadband data, voice and business communications. Concurrent with the close of the deal, ART and Qwest will enter into equipment and marketing agreements. Under these agreements, ART will provide Qwest with wireless services, and Qwest will provide ART’s network backbone.

“We can now build our network of networks knowing that we have the best of all possible strategic partners,” said Chief Executive Henry Hirsch. “Our service is complementary to any Qwest service, and together we will focus the company on offering very high-speed data connectivity.”

Oak Investment Partners led the syndicate of venture firms with a $40 million investment. MeriTech Capital Partners ($25 million), Advent International ($20 million), Columbia Capital ($20 million), Accel Partners ($15 million), Brentwood Venture Capital ($15 million), Worldview Technology Partners ($15 million), Bessemer Venture Partners ($8 million) and Adams Capital Management ($3 million) all contributed to the round.

Morgan Stanley Dean Witter acted as placement agent for the deal.

“We believe that wireless is the future of broadband access,” said Oak General Partner Bandel Carano. “Together, ART and Qwest will make this future happen.”

As part of the deal, each investor will acquire preferred stock convertible on a 10-1 basis into ART common stock for $80 per share. The investors in the round will account for 45% of ART’s outstanding voting securities. Representatives from Qwest and Oak will join ART’s board of directors following the closing.

Advent had previously invested more than $8 million in ART when it was a privately held company.

“Because of our insider status, we could not lead the round,” said Advent Managing Director Andy Fillat. “Radio technology is just coming to the market, and we believe being able to deliver a fiber without wire is attractive.”

ART currently provides commercial wireless Internet services to businesses in Phoenix, Seattle and Portland, Ore. The company intends to use proceeds from the investment to expand into 200 additional markets in the next two years. In that time, the company will increase its staff to 750 employees from 150, Hirsch said.

He added that ART’s expansion strategy will cost $450 million. In addition to the $251 million raised in private equity financing, ART is seeking $200 million through future debt and vendor financing.

ART went public in November 1996, raising $33.75 million through the sale of 2.25 million shares. Merrill Lynch & Co. was the lead underwriter. At press time the company’s stock closed at $15, a new 52-week high.