e.Biscom: An Italian Dot-Com with a Future

The fiber-optic pioneer is growing at Web speed

The idea was so audacious it could only have been dreamed up during the Internet boom. In 1999, a group of Italian investors, led by telecom entrepreneurs Francesco Micheli and Silvio Scaglia, hatched a scheme to jump-start Italy's Net infrastructure by running fiber-optic cable all over the country. Finding the billions of dollars needed wasn't a problem. Only six months after launching e.Biscom, Micheli and Scaglia presided over an initial public offering that raised $1.5 billion and valued the Milan company at $7.3 billion. It was the largest IPO of a non-state-owned company in Italian history.

Sounds like the opening chapter of another dot-com tragedy. But so far, e.Biscom hasn't met with an unhappy ending. Sure, the company is now valued at just $1.4 billion. But sales have been rising steadily from its ultra-speedy Net services and related businesses, such as a fiber-optic network in Hamburg, Germany. Revenues hit $110 million in the first quarter, up 56% from a year ago. And while e.Biscom is still bleeding red ink -- it lost $65 million in the first quarter -- it made money before depreciation, amortization, and interest expenses. "They had to invest a lot to get off the ground, but it looks like they are going to make it," says Enrico Coco, an analyst with Banca Leonardo in Milan. Since hitting an all-time low of $11.66 in October, the stock has doubled.

But what of the plan to wrap every inch of Italy from Padua to Palermo with strands of glass? That has been scaled back as e.Biscom, like every European telecom startup, grapples with spotty demand and tight capital markets. "We continue to roll out the fiber network, but now there are other options," says Chief Executive Scaglia, who's branching out into less expensive digital subscriber line (DSL) technology to fan growth. With $700 million in cash and credit available, Scaglia says the company has enough money to survive until it turns cash-positive in 2005.

Still, the 44-year-old CEO is retooling e.Biscom for speedier return on investment. The original plan was to invest $6 billion in a fiber network that would provide a host of snazzy services -- lightning-quick Net access, TV-on-demand, voice, and video. To its credit, e.Biscom has managed to sign up 213,000 customers who pay an average of $78 per month for its "FastWeb" package. But Scaglia has decided to limit the fiber rollout to six of Italy's largest cities and wait until the company starts making money before expanding further.

In the meantime, e.Biscom is moving downmarket in search of new opportunities. Its new DSL access offers the same bundle of features available to fiber customers, but for one-third the price. Some 80,000 subscribers have already signed up for the service, which traverses the heart of e.Biscom's fiber network but relies on regular copper lines in and out of buildings. The combination falls short of the 10 megabit-per-second speeds of a pure fiber setup but still is more than three times faster than the 1.2-megabit DSL service offered by former monopoly Telecom Italia. And for e.Biscom, wiring up new DSL customers costs the company $600, half the outlay for a fiber hookup. As Internet impresario Scaglia has discovered, it's better to adapt and survive than to go down dreaming.

By Eric Sylvers in Milan

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