Corrections or additions?

This article by Barbara Fox was prepared for the December 6, 2000

edition of U.S. 1 Newspaper. All rights reserved.

Life in the Fast Lane: RCN

Seven months ago Jamie Herring, RCN’s vice president

for real estate, was told by his boss, CEO David McCourt, to get RCN’s

corporate campus built by 2002 or find another job. With this gentle

encouragement Herring assembled a team of architects, developers,

and engineers who wanted a piece of the lucrative RCN pie and moved

quickly to break ground on Princeton Pike (U.S. 1, May 3). Now the

former headquarters building for Union Camp has been demolished, the

trees have been removed, the foundations and the pond have been

partially

dug, and the storm drains are almost in. The roadside view is of bare,

bleak earth.

Last week, in response to RCN’s falling stock, Herring had to put

this huge construction project on hold. It’s only a temporary hold,

he insists, six months to a year, and the architects have been

instructed

to finish their drawings. "This isn’t a crisis," says Herring.

"We are a company that is growing as quickly as we can, and we

have to be agile. There are always challenges, and this is one of

them."

RCN provides three-way communication services — high speed

Internet

connections, local and long distance phone, and cable television —

to major residential markets in the United States. It has just over

7,000 employees.

Herring grew up in Princeton, where his father has an ocean modeling

research company at Research Park (Dynalysis) and his mother moved

from being head of leadership gifts at Princeton University to

Barnard,

and is now head of development for the Asia Society. After Princeton

Day School, Herring majored in political science at Johns Hopkins,

Class of 1986, worked in real estate for Jones Lang LaSalle in New

York, and earned an MBA from Columbia. His wife, Kathy, has a cooking

business named Twin Fish, and they have three children under seven.

He plays hockey in the Pennington and Kingston adult leagues.

Two months before the groundbreaking, RCN’s stock fell below 60, and

one month before it went below 30. At the groundbreaking, when CEO

McCourt was asked whether the stock would affect his expansion plans,

he brushed off that idea. "We never start anything we don’t intend

to finish and we always have enough money in the bank to finish what

we start," he said then. "If the capital market stays closed,

we will use the money we have. The fundamental value of the company

has not changed. Over time this company will be worth much more than

it is today. If we keep doing what we are doing you will be back in

this room in a couple of years and the stock will be worth $200 a

share."

The stock has indeed moved dramatically, but in the

wrong direction — even lower. In May it dipped below 20. Over

the summer it hovered in the 20s, dropped to 10 in October, and is

about 11 now. Meanwhile, RCN shifted its strategy, moving away from

centralized training and administration (which would require a large

campus) and moving toward training people in each market area. RCN

already has training locations in Manhattan, Queens, and Boston.

"We

are refocusing our efforts on building out our major markets, and

the stock market is requiring us to be as efficient with our funds

as we can," says Herring. "It is a change, but we have to

adapt."

RCN has about 700 workers in 220,000 square feet at the Carnegie

Center

now. Its first construction phase, 450,000 square feet in four

buildings,

was intended to hold 1,200 people and be completed by 2002. RCN was

hiring at the rate of 15 people per day, nationally. Though Herring

says this decentralizing strategy will not affect the need for lots

of office space in Princeton, RCN will slow its hiring, particularly

in Princeton. It is also considering moving some people from the

Carnegie

Center to other key markets and if that happens, it will certainly

need to reduce its space.

The blight of bare earth at the RCN site was to be replaced by

landscaping

in 2002. Though that will be delayed, RCN has given assurances that

everything necessary for the site to weather the winter is being done

— just as if the project were still on schedule. RCN will finish

putting in the storm drains and provide hay cover and silt fences.

One foundation was partially dug, and that has been partially filled

in.

"We had done a large part of the site work anyway, except for

putting in the roads," says Herring. "The Union Camp building

has been completely demolished, and 95 percent of the building is

being reused." The demolition contractor, Red Ball, is reselling

some of the materials (equipment, steel, and concrete) and refining

the remaining rubble to use as a base for the roads.

Some of the trees were taken down but most of the building was on

farmland, Herring says. The future pond has not yet been dug but is

represented by a swale that feeds into the storm sewer. "There

are some costs associated with winding down and starting up, but the

majority is not duplicated work," says Herring. "The biggest

challenge is making sure the team is intact. We spent a lot of time

creating a team with strong players that can balance cost, design,

and speed. We are looking forward to working with them six months

down the road. None are looking for one-shot deals."

"This is not uncommon that projects go on hold or have different

schedules," says Gordon Griffin, the lead architect for this

project

from the Hillier Group. "That is always the challenge, keeping

the team." Among the Hillier architects are Rick Taylor, John

Conroy, Tom Stearns, Tim Haworth, Mark Chen, Jeff Berghage, Brian

Kanefsky, Toby Johnson, Ernie Hunt, and Joan Grozalis. Stearns worked

with Louise Schiller of Louise Schiller Associates on the landscape

design. The team also includes Schoor dePalma’s traffic engineer Henry

Ney and civil engineer Mike McKenna. Sordoni Construction is the

general

contractor.

Richard F.X. Johnson is in charge of the project for Matrix

Development

Group, which represented RCN in the land negotiations, as did attorney

Christopher Tarr of Smith Stratton Wise Heher & Brennan.

Delayed though it may be, the result of the $110 million project will

be beautiful, says Herring. The "grand entrance," as he

describes

it, opens off Princeton Pike between the former Union Camp building

and Lewisville Road and is on the crest of a natural hill. "As

you look down you face the pond and the campus beyond the pond."

The Georgian-style buildings will have pitched roofs and brick and

limestone facades. Recessed arcades, covered canopies and walkways

will encourage people to walk from one building to another.

Courtyards,

steps, pathways, and sitting areas are planned to create the feeling

of a campus. All the buildings will face out onto the large pond and

are inside the "ring" road. This phase of construction is

on 55 acres on the side of Princeton Pike, with the back part

remaining

farmland.

"The campus was a key terminology in CEO David McCourt’s

thinking,"

says Griffin. Hillier had done the Bristol-Myers campus on Scudders

Mill Road and is doing a 4 million square foot campus for Sprint in

Kansas City. "The CEO wanted to create an environment that brought

disparate groups together into one home. The attention to detail in

the landscape is a key thing, and a lot of special things are being

done with attention to the pedestrian."

Construction of the first phase was supposed to cost $110 million,

not including the cost of the land, and no one is saying what the

delay will cost. But McCourt has been told that having his own

facility

would save $70 million over 10 years and also that — in the event

of a downturn, he has an effective exit strategy — the ability

to lease out some space.

Others in the real estate business question whether a money-burning

telecom company should make grand plans for a campus that is more

typically owned by older, more profitable companies such as

Bristol-Myers

Squibb and Merrill Lynch. They also ask whether a brand-new company

that must focus its energies across the nation can indeed build and/or

run a campus more cost effectively than leasing space.

"RCN is a good company but will be a very attractive target for

takeover and the one thing nobody wants is a pile of bricks and

mortar,"

says one insider.

Aside from its stock price, how is RCN doing, anyway? Paul Allen’s

Vulcan Ventures had chipped in $1.65 billion and the company has $2.6

billion in available cash. That means the company is fully funded

to "pass" (run cable by) 5 million homes and is continuing

to execute that plan. It is active in 16 markets — with 7 of the

top 10, including New York, Chicago, Philadelphia, San Francisco,

Boston, D.C., and Los Angeles. It is constructing a network in 90

cities across the country.

In the third quarter, RCN "built" to 200,000 homes and added

50,000 connections over its own new network, and its other networks

are being upgraded to carry telephone, cable, and highspeed Internet.

Of every dollar spent, RCN says, 90 cents goes into building the

network.

Such capital expenditures for the third quarter were $346 million

or a total $802 million for three quarters.

So far so good, but the real threat of competition from wireless

technologies

and the specter of an economic downturn are also looming in the

background.

"To be agile you have to be exposed and be able to juggle the

ball," says Herring.

— Barbara Fox

RCN Corporation (RCNC), 105 Carnegie Center, Suite

300, Princeton 08540. David C. McCourt, chairman and CEO.

609-734-3700;

fax, 609-734-7551. Home page: www.rcn.com.


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