Powerful Montana Power turned into telecom flop

HELENA, Mont. — Two and a half years ago, the business move seemed bold but sound: Montana Power gave up its position as the state’s venerable energy giant to join what so many thought was the unstoppable telecommunications market.

By Matt Gouras
The Associated Press

But shares of Touch America, Montana Power’s new incarnation, are now worth less than $1.

Angry investors say Touch America executives have unfairly cashed in during the debacle, and many fear the crumbling telecom industry is about to take the company down with it.

"The largest corporation ever known in the state of Montana is almost gone, and it’s really a shame," said Carl Anderson, a retired Montana Power manager and investor.

It all happened quickly.

In March 2000, 90-year-old Montana Power said it was giving up its electricity monopoly to focus on its then-fledgling Touch America telecommunications offshoot. Montana Power stock was trading for about $65 at the time.

But the conversion from a solid, if unspectacular, Old Economy energy company came just as the telecom industry fell flat. And Touch America is just one of many trying to hold on.

Touch America officials, citing pending lawsuits by shareholders, declined repeated requests by The Associated Press for interviews.

At a shareholders meeting last week in Bloomington, Minn., Chairman and Chief Executive Robert Gannon acknowledged problems and declared, "It’s our challenge to overcome some of the circumstances we’re in, and we’re going to do it."

When Montana Power sold off its electricity and gas utilities, it used most of the $1 billion in cash it got to lay 24,000 miles of Touch America fiber-optic lines through 40 states.

The lines provide high-speed voice, video and data services, mainly to large corporations.

But that market has been devastated by a glut of high-speed networks.

The company still has about $100 million from the original sale but can do little more than try to hold on and hope the money lasts until demand springs back, said Rod Woodward, an industry analyst for Frost & Sullivan of San Antonio.

Touch America has told investors it needs to add a lot of customers and cut down on huge expenses related to building the sprawling fiber-optic network.

But in its most recent statement to shareholders, Touch America said it expects less money from voice customers the rest of the year and only a little bit more from data lines. And it’s not making any promises on profitability.

Touch America does have one thing going for it — the company is debt-free. Even so, Woodward said, "It’s tough to say what will happen with a company like Touch America. They’re not big enough to buy anyone, but then no one in the industry is really in a position to buy them."

Anderson, who still has stock in the company, said Touch America suffered from bad timing and uncontrollable circumstances. What bothers him, though, are recent hefty payments collected by senior management.

Anderson is among a group of shareholders suing Gannon and other top executives, hoping to force them to return $5.4 million they got after signing new contracts to stay with the company.

Had they left, the executives would have been entitled to payments totaling $10 million. But the $5.4 million stands out considering that in August, the entire company was valued by the stock market at just $55 million.

"It’s the crooked jockey that I’m worried about," Anderson said. "When they turn around and claim they’ve done something that deserves $5 million, it’s unconscionable."

Other lawsuits claim Touch America management purposely deceived investors or hid complicated disagreements with Qwest Communications from shareholders as it sought their approval to get out of the power business.

Shareholder Ron Hirst, a management consultant in California, said Montana Power’s decision to convert to a telecom firm originally made sense. But he noted that signs of trouble were brewing in the telecom industry even as the company began completing the sale of its energy utilities.

"Perhaps (Montana Power) should have reversed that decision just before making it final in 2001 since the telecom nuclear winter had already begun," Hirst said.

Copyright © 2002 The Seattle Times Company

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