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Internet Mania Lifts Yet Another Stock --From $2 to $31

Markets: One-day leap comes after AvTel says it will offer high-speed online access. Nasdaq halts trading of telecom firm.

November 13, 1998|WALTER HAMILTON and ELIZABETH DOUGLASS | TIMES STAFF WRITERS

In perhaps the most blatant example yet of the mania engulfing Internet-related stocks, the shares of a tiny Santa Barbara-based company jumped almost 13-fold Thursday after it announced plans to offer high-speed Internet access in its local area.

After trading in the $2 to $3 range the last three months, the stock of AvTel Communications Inc. surged $28.75 to close at $31 on Nasdaq. More than 3.6 million shares changed hands, compared with the stock's three-month average daily trading of just 3,300 shares.

AvTel shares trade on what's known as the Nasdaq Small-Cap market, a portion of Nasdaq that is home to many higher-risk stocks.

After the close Thursday, the National Assn. of Securities Dealers, which runs Nasdaq, said it has halted trading in AvTel shares pending its request for "additional information."

The astounding surge in AvTel stock came after the company said it would roll out a form of high-speed Internet access known as digital subscriber line. DSL works over standard copper phone lines and lets users tap the Internet at speeds up to 50 times faster than standard dial-up modems without disrupting the phone line's other uses.

However, AvTel's stock gain appears to stem more from the latest frenzy surrounding Internet-related stocks than from the technology itself.

Indeed, other companies around the country offer DSL, and the technology is not as fast as that available through cable modems.

The Santa Barbara firm has plenty of company in the race for Internet users. In Southern California alone, Pacific Bell, Covad Communications, NorthPoint Communications and others--as well as Internet service providers Concentric Network, Epoch Internet, Internet Express and Flashcom--can provide users with various speeds and varieties of DSL service.

But AvTel's announcement managed to catch investors' attention in a week when almost anything Internet-related has rocketed, in a frenzy reminiscent of one that occurred in the sector last April.

On Thursday, shares of EarthWeb Inc. surged 42%, a day after the provider of online services to other information technology companies gained 248% in its first day of trading.

Last April, K-Tel International--best known for selling greatest-hit music compilations--helped spark a wild rush into Internet stocks by saying it would sell its products over the World Wide Web.

Shares of many tiny Internet-related companies surged for a couple of weeks around that announcement--only to plunge back in the months after.

The April frenzy coincided with a top in the U.S. small-stock market overall.

AvTel--the center of Internet investors' attention Thursday--is a 2-year-old provider of telecommunication services. Its Internet division is the smallest of the company's three units, said Mary McCarthy, an investor relations consultant to AvTel.

The company reported a net loss of $10.2 million in 1997 and a loss of almost $5 million in the first three quarters of this year on sales of $34.3 million.

AvTel stock is closely held, with 79% of shares held by insiders, McCarthy said. Only about 1 million shares are available for trading, she said--which means that "float" in effect turned over more than three times Thursday.

Anthony Papa, AvTel's chairman and chief executive, said no one at the company sold shares Thursday or was planning to sell in the near future.

AvTel's prices for DSL service would begin at $30 a month, said Todd Greene, an AvTel vice president. That would be competitive with other companies' DSL services.

As for the mood at AvTel on Thursday, "We're business as usual, so [the stock surge] caught us by surprise as much as anyone else," Greene said.

Phone companies and Internet providers have been rushing to add DSL to their offerings to attract speed-hungry customers and, in the case of phone companies, to fend off the encroachment of faster cable modems.

Typically, the service comes in many flavors--ranging from asymmetric digital subscriber line, or ADSL, to high bit rate digital subscriber line, or HDSL--with higher prices for faster speeds.

There are a few catches, however. DSL users must add special, and pricey, components to their computers and often pay a steep installation charge.

In addition, the service is usually available in a limited area. For example, customers cannot access the service if they live too far away from an upgraded phone switch or have copper lines that are not usable with DSL.

AvTel's DSL is currently available only in downtown Santa Barbara.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

The Mania Continues

Shares of Avtel Communications, a Santa Barbara-based firm, took the Internet-stock mania to new heights on Thursday, as the shares rocketed nearly 13-fold after the company unveiled a high-speed Internet modem. Stock closes, weekly and latest on:

Thursday: $31

* Source: Bridge

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