Net-Tel Communications Inc. of Washington, a little-known player in the telecommunications industry that has begun building a 50-city voice and data network, has arranged for $210 million in equity and debt financing, company officials said yesterday.
Chief executive Jim Kenefick said Net-Tel, which was founded in 1996 and has grown to 400 employees, expects to spend slightly more than $100 million over the next few years to complete the nationwide network.
Washington-based venture-capital firms Allied Capital Corp. and Gold & Appel are together investing $30 million in the company, which sells long-distance and local telephone service and Internet service to small and mid-size businesses, Kenefick said.
Nortel Networks Corp. has agreed to lend Net-Tel $100 million over a period of three years to buy Nortel switches and other equipment. Nortel will also invest $50 million in Net-Tel.
A similar deal has been struck with Williams Communications Group Inc., which is lending Net-Tel $20 million to purchase fiber to build the telecom network and investing $10 million in the company.
Riyad Said, a telecom analyst with Friedman, Billings, Ramsey Group Inc. in Arlington, said he's seeing more and more "vendor financings" in which a smaller company gets capital or a loan in return for giving a big corporation a guaranteed chunk of business and a stake in a potentially successful start-up.
"Companies are looking for ways to solidify relationships with key suppliers," Said said.
He also said that "scale matters" as numerous companies compete to sell telecom services to businesses.
With these investments, Net-Tel also hopes to raise its profile.
"We've been in stealth mode for a while," Kenefick said. He said the company, which had 18 employees two years ago, will take in about $40 million in revenue this year. Kenefick said he's hired people away from telecom companies MCI WorldCom Inc., Level 3 Communications Inc. and Qwest Communications International Inc.
About 100 people work out of the Georgetown headquarters, and the rest are spread among Net-Tel's 22 offices.
As the company grows and the headquarters become cramped, Kenefick said, he's looking for potential new space all over the Washington area. But he likes being in the city. "Georgetown is going through a renaissance with all the buildings going up and the new mayor in place," Kenefick said.
The company's service is available in Los Angeles, Chicago and New York. In the next six months, Net-Tel plans to offer service in nine new markets, including Washington.
If all goes well, Kenefick said he'll consider filing for an initial public offering in 2000. "We have the money and the people . . . we'll look at the public markets next year," he said.
Business: A privately held company offering local, long-distance and Internet service in Los Angeles, Chicago and New York. Will soon offer service in the District and eight other new markets.
Chief executive: Jim Kenefick
1999 revenue (projected): $40 million
Web address: www.net-tel.net
SOURCE: The company