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By eweek  |  Posted 2001-02-26 Email Print this article Print
 
 
 
 
 
 
 

Lauder's telecom empire on skids

More than a million business customers of Ronald Lauders RSL Communications may have to find new ways to connect as the telecom empire built by the cosmetics heir crumbles.

Once high-flying RSL has been delisted from Nasdaq and is staying afloat with a $100 million personal loan from its chairman, Estee Lauder heir Ronald Lauder. Hell still have a job if his telecom dream dies: Hes chairman of the cosmetics giants subsidiary Clinique.

RSL Communications is under pressure from investors to either shape up or sell off the assets and close shop. An international conglomerate with operations in 23 countries, RSL brought in $1.1 billion in revenue in the nine months ended in September, but reported $1.5 billion in debt and losses of $391 million. RSLs worldwide business customers buy varied voice and data services, and more than 200 carriers buying its wholesale services. The company declined requests for comment.

RSLs tale sounds a cautionary note to entrepreneurs who invest in new communications technology, illustrating that operating a fiber-optic network doesnt automatically translate into running an efficient business. The companys problems have included a lack of focus, with several shifts in its business plan, analyst research suggested. Now, business customers are faced with an uncertain future.

Lauder got the idea for RSL while traveling in Europe. He wondered why phone calls to the U.S. were so expensive, according to published reports, and decided to start a communications company that would make international links more efficient.

Weeks later, Lauder hooked up with an old friend, Israeli consultant Itzhak Fisher. Sitting in a hotel lobby in Tel Aviv, Israel, in 1994, the duo sketched RSLs business plan on a paper napkin.

Today, RSL owns subsidiaries in most Western European and Scandinavian countries, as well as in Asia, Canada and South America. It has filed for various telecom licenses in places where it doesnt have affiliates yet, and has leased 111,000 miles of optic fiber. It also has acquired Deltathree, a voice-over-Internet Protocol telephony provider that competes with AT&Ts Net2Phone.

RSL came under investor pressure early this year, and announced plans to sell off subsidiaries in Japan and Hong Kong, and shares of other joint ventures. The plan seems to be under way, with RSL selling off a stake in German directory assistance business Telegate for $14.9 million.

This sale of assets might be too little, too late. Companies such as Hawaii-based MBN Communications have looked into buying RSLs Australian unit, ComVergent, but stopped short of making an offer.

Analysts and deal makers evaluating the company believe that RSLs international operations and Deltathree stake are much more valuable than other assets of the U.S.-based company. And Deltathree seems to be distancing itself from its parent.

"We dont get capacity from RSL at a favorable rate, meaning we pay market price," said Paul White, chief financial officer at Deltathree.

RSL co-founder Fisher was forced out of his position as president and chief executive last August. But while the company is buying time with lipstick money to sell more subsidiaries, acquisitors feel time is on their side. Lauders loan runs out on June 30, according to RSLs Securities and Exchange Commission filing.

 
 
 
 
 
 
 
 
 
 
 

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