Fiber-network firm RCN Corp. filed for Chapter 11 bankruptcy protection Thursday, all the while vowing that its restructuring will make it stronger than ever to take on cable companies. One investor taking a big hit in the process was Microsoft co-founder Paul Allen.
In a statement, RCN chief executive David McCourt said: "Today's filing is very positive news for RCN employees and customers. RCN can reduce its debt and emerge as a stronger, more efficient company, giving us a competitive advantage in the long run."
McCourt has long railed against the Telecommunications Act of 1996 and what he says is the "monopoly mindset" of the cable companies.
The Chapter 11 filing has already been worked out between RCN and its chief creditors, led by Deutsche Bank Securities. The filing wipes out much of the firm's debt, reducing it to $480 million from $1.7 billion, with bondholders now to hold the largest portion of equity in the company. According to a report in The Wall Street Journal, Paul Allen had paid $1.65 billion for a 25 percent chunk of RCN. In recent months, Allen sold 40 percent of his interest for $2 million.
In an article in the WSJ last week, McCourt spelled out his reasons for filing bankruptcy and took the opportunity to slam the Telecom Act and cable companies. "Despite all the innovation, the surge in new players, and the billions of dollars lost since the passage of the 1996 Telecom Act, cable rates have soared 40 percent and the industry giants continue to think in terms of how to drive innovation," he stated. "Fortunately, the telecom story is not over. For many telecom companies--including my own--bankruptcy is not the end, but a new lease on life. I believe that the wave of bankruptcy filings will help launch a new era in telecom."