Enron Ends Broadbands Stand-Alone Role

 
 
By eweek  |  Posted 2001-09-10
 
 
 

Less than two months after Enron announced its broadband unit suffered a second-quarter loss of $102 million, the Houston-based energy giant has quietly rolled that business back into its wholesale trading arm.

No press releases or other announcements were made about the move, said Terrie James, an Enron Broadband Services representative, because "it was internal move. A lot of times we do restructurings that we dont announce externally."

From now on, any revenue or losses incurred by Enron Broadband Services will be little more than rounding errors in the numbers of Enron Wholesale Services, the companys massive trading business, which had revenue of $48.5 billion in the second quarter. Enron took in a total of $50 billion in the period.

The broadband business was moved into wholesale services to "be able to absorb some of our financial situations going forward," James said.

More losses may be looming for the broadband unit, in which Enron has likely invested more than $500 million. The company now has 18,000 miles of fiber and 25 pooling points spread across Asia, Europe and the U.S.

Enron was one of the first energy companies to predict big business in bandwidth provisioning and trading. Wall Street loved Enrons projections. In early 2000, one Merrill Lynch & Co. analyst projected that Enrons broadband business would be profitable by the end of this year, and that the companys operating profits from broadband would reach $2.1 billion by 2004. Those estimates helped propel Enrons stock into the stratosphere: It reached about $90 per share last fall, and currently trades for about $32.

There have been ongoing rumors that the decline of the broadband business was part of the reason that Enrons former CEO, Jeffrey Skilling, quit suddenly last month, after just six months on the job. Skilling heavily promoted Enrons broadband strategy. Two other broadband executives have also left Enron in recent weeks, including Ken Rice, the units former chairman and CEO, as well as Kevin Hannon, its chief operating officer and president.

The decision to roll the broadband unit into the trading arm appears to contradict a recent pledge made by Enron chairman and newly re-appointed CEO Ken Lay to make the companys financial reporting more transparent. A few weeks ago, Lay told the Financial Times that Enron would try to give more information to Wall Street analysts, who have long complained about Enrons opaque financials. Lay said the company would begin segmenting its businesses so analysts could better gauge which ones were growing.

Enron Broadband Services had second-quarter revenue of $16 million, and currently employs about 450 people.

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