Mpower Shares the Wealth

Posted: 2/2004

Mpower Shares the Wealth
By Tara Seals

The boom might not quite be back,
but the bust just might be fading into memory. In a move reminiscent of the
high-flying 90s, Mpower Communications Corp. has launched a new equity
program for its agents based on stock warrants.

The program, which launched in December, offers Mpower agents
options to buy shares in the CLEC in exchange for increasing monthly recurring
revenue. Agents receive warrants when they increase their monthly billing by
$10,000.

This program is creative, unique and certainly brand new, says Jim Ferguson, president of sales and marketing at Mpower.

Agents must beat their monthly revenue numbers by $10,000 to
qualify for warrants. Thus, if a master agency billed $50,000 in recurring revenue
in September (the programs baseline month), it must grow to $60,000 to
receive 10,000 warrants. If it grows revenue by $15,000, 15,000 warrants are
awarded, and so on. Once a distribution is made, the agents baseline is reset
to the new level. So if they billed $50,000 in September and $67,000 in
October, they receive 17,000 warrants, explains Ferguson. But they have to
beat that $67,000 by $10,000 next time to gain more warrants.

The program, which is additional to regular compensation and
bonuses, is limited to master agents with a revenue commitment and a signed
agreement with Mpower, and they must register to participate. New agents also
are eligible and start off with a baseline of zero, but Ferguson says this does
not give them an unfair advantage. In both cases, the respective agent has to
bring us an additional $10,000 in revenue, he says. There are different
types of agents, and they have different ways of growing their revenue streams.

Stock warrants are worth the price of Mpower Holding Corp.
shares (the parent companys stock) for the day they are issued. Agents are
vested immediately once they receive the warrants and can exercise them at any
point until they expire three years later.

A warrant program assumes a companys stock appreciates in
value. For instance: If a warrant is issued when the stock is trading at $1.50,
the agent could wait and exercise the warrant later, when the stock price is,
say, $3.75. The value of that warrant is then $2.25, so 10,000 warrants would
have a value of $22,500.

So far, it looks like facilities-based Mpower is on the track
to grow in value. In late September, it issued 13 million shares in a private
placement and scored $17.5 million in equity from its investors. CEO Rolla Huff
says Mpower emerged from bankruptcy in July 2002 with $50 million in debt that
it has since taken out. We are creating a new risk profile. There is no big
revenue concentration with our wholesale customers, and we own our own
facilities, he says.

In the third quarter of 2003 Mpower posted a net loss of $1.2
million on $36.8 million in operating revenue, a 75 percent improvement over the
previous quarter and 96 percent improvement over the quarter the year before,
excluding reorganization expenses and the gain on the discharge of debt reported
in 2002. The stock appreciated steadily during 2003 and at press time in late
December was trading at $1.38 per share. We trade 700,000 shares a day, so there is liquidity,
Huff says.

Master agent and program participant Vince Bradley, president
and CEO at World Telecom Group, is bullish. They have shed some unprofitable
markets and are even being called a good stock buy pretty rare in telecom
these days, he says, adding it much easier to sell them than some other
companies. We also want to help them however we can since we now own a piece
of the rock.

Meanwhile, the CLEC, which offers service in California,
Illinois and Nevada, plans to use the program as an acquisition strategy. It
is designed to grow our largest existing master agents, and its a vehicle for
us to go out into what is a very competitive environment and bring [new master
agents] on board, says Ferguson, and the relationship becomes a lot more
strategic and more of a partnership than when they sign for the flavor of the
month.