Winstar Communications, Inc.: Financial Restructuring in the Telecommunications Industry

Abstract

SUBJECT AREAS: Telecommunications, CLEC, Debt Restructuring

CASE SETTING: New York, April 2000

The advancement of technology and continued deregulation were driving change across the Telecommunications industry. Winstar Communications was uniquely position to take advantage of the changes. Winstar provided businesses with broadband services across its own end-to-end network in 60 major U.S. markets. Winstar gained a competitive advantage in the local exchange market by providing last-mile connectivity for the small-to-medium business segment, via proprietary fixed wireless connections. Although the company was signing up thousands of new customers monthly, Winstar's future success depended heavily on its ability to service its mounting debt and pre-fund capital expenditures for further expansion. Moreover, Winstar still needed to drive the business to profitability.

The purpose of the case is for students to realize the difficulty of making refinancing decisions in rapidly changing product and financial markets, when fast growth rates and the "first mover" advantage require sacrifices in profitability. The case discusses Winstar's strategy following the deregulation of the telecommunications market, the feasibility of continued high industry growth rates, the forecasted financial performance, Winstar's ability to service its mounting debt, as well as which financing package is optimal.