Stock soars for upstart LV phone company

The stock of Las Vegas-based MGC Communications Inc., a local telephone service provider, continues to soar due to its high-speed Internet access plans and an investment in the company by a respected industry player.

MGC closed Monday at $47.50 a share, up $1.50 from Friday's close. This morning, the issue was up another $1.125 to $48.625. Earlier this month, the issue skyrocketed from a $9 close on April 1 to the $45 range last week.

Three events have contributed to investors' confidence in MGC:

The company announced some details of its high-speed data service. Initially announced last year, the company plans to introduce the product sometime in the first half of 1999. MGC plans to offer digital subscriber line technology called xDSL that merges voice and data transmission and the company believes it has an advantage in its markets because of its ability to offer more choices in a suite of products to a growing customer base. The company initially intends to market the product to small and medium-sized businesses and eventually will offer it to residential customers.

MGC is one of three telephone companies nationwide to use digital subscriber line technology for Internet access. The advantage of DSL is that voice and data transmissions are broken down into packets that can be transmitted over one phone line.

Other companies, including Sprint, Cox Communications and Nextlink, offer various types of Internet access through other forms of technology.

Providence Equity Partners, an investment firm that has worked with other telecommunications companies, has acquired $37.5 million in preferred stock in MGC. Analysts say Providence's previous involvement with other successful companies like Brooks Fiber, MetroNet Communications and Verio has given MGC a boost as well. Two other investors pumped in another $10 million.

Analysts have upgraded their valuations of MGC stock. Furman Selz analyst W. Todd Scott raised his price target from $27 a share to $90 a share for 1999. Furman Selz helped underwrite the initial public offering of MGC in May. Another analyst, James Henry of Bear Stearns, reiterated his "buy" rating on the stock.

The xDSL and investment announcements and the analysts' upgrades come on the heels of a successful fourth quarter marked by growth.

MGC reported revenues for the fourth quarter, which ended Dec. 31, of $6.5 million, a 33 percent increase over third quarter 1998 revenues of $4.9 million. Access lines sold and installed during the fourth quarter increased by 30 percent over the prior quarter to 61,205.

For the year ended Dec. 31, MGC reported revenues of $18.2 million, a 381 percent increase over year-end 1997. Gross profit for 1998 was $1.1 million compared with a loss of $100,000 for 1997. The 61,205 access lines sold and installed at year-end 1998 represented a 224 percent increase compared with year-end 1997.

MGC provides local and long-distance services to small business and residential customers in Las Vegas, Atlanta, Chicago, Southern California and Southern Florida. The company is investigating expansion into two markets in Ohio.

Clark Wood, investor relations director for MGC, said the company could not comment on the jump in the stock price, other than to say that Providence is a well-respected investment group and its move may have persuaded others to take a closer look at MGC.

Wood said the company has begun discussing deploying its Internet project and is in the final testing stages with a vendor he would not disclose. He said an announcement would be made on the vendor when testing is complete.

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