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TheStreet Open House

CompleTel Up Modestly but Websense Soars in Debuts

Updated from 2:46 p.m EST

Websense (WBSN:Nasdaq), a company that makes software that enables management to monitor employees Internet surfing, received a strong reception on Wall Street Tuesday, more than doubling in its first day of trading.

But investors offered a surprisingly moderate response to CompleTel (CLTL:Nasdaq), a new issue in the fast-growing European network access market, which rose 38% after its initial public offering.

Websense rose 29 3/4, or 165%, to close at 47 3/4 Tuesday.

The San Diego-based company took in $72 million on the sale of 4 million shares, in an underwriting led by Chase Hambrecht & Quist.

The initial offering price was raised to $18 a share, up from a prior range of $12 to $14 share.

Websense's products enable businesses to monitor, report and manage how their employees use the Web. With its Websense Enterprise software and database products, managers can enforce Internet access policies for different users within a company in order to improve employee productivity while conserving network bandwidth.

International Data Corporation, a market research firm, estimates that the market for Internet access control and monitoring software increased about 80%, to $63 million in 1999, from $35 million in 1998. The market should reach $562 million by 2004 and grow at an annual rate of 55%, IDC forecast.

"Privacy is a huge issue," said Manuel Royo, an analyst at Southwest Securities who covers WebTrends (WEBT), another Internet data-monitoring company. "I know our company has software that reads everything we get in email and send out."

Royo has a buy rating on WebTrends and no rating on Websense. His firm has not done any underwriting for either company.

While investors endorse the business side of Websense, others worry that its software may infringe on employees' personal freedom.

"Employers who monitor Web usage have a window to their employees' personal lives," said Lewis Maltby, president of the National Workers Rights Institute.

Other Internet-monitoring companies take the approach of watching all the employees all the time and then punishing abusive Web use after the fact, Maltby said.

"Websense's concept is that instead of allowing employees to use the system in an abusive manner and then police it, they design a system that allows the employees to use it in the way that an employer deems legitimate," he said. "The genie in the bottle with the Websense approach is that it all depends on the employer" and what the employer considers appropriate use of the Web.

Maltby spoke at a conference organized by Websense just two weeks ago, where he was paid a honorarium of $1,000. He has worked on issues of electronic monitoring for more than a decade. He knows of no existing lawsuits against a company for privacy matters regarding this type of software, but he noted that the technology is still very new.

Notably, Websense lists the Department of the Army as a client, suggesting a possible federal expansion in Internet monitoring.

"The biggest problem is this: People's primary source of info is the Web, and people turn to it for intimate personal problems like abuse, marital problems, addictions," Maltby said.

Ultimately, he considers this kind of monitoring completely unnecessary. "It would be much better to monitor the amount of time people spend on the Web, instead of how they spend their time," Matley said. "One would also be tempted to argue that all the employee should care about is the employee's results rather than what they're doing on the Web."

Along with WebTrends, Websense's competitors in the market include Symantec (SYMC) and Telemate.net Software (TMNT).

As of Jan. 31, Websense products were in use by more than 7,500 organizations in 50 countries. The top five users of Websense Enterprise based on subscription fees since January 1999, include American Express (AXP), AT&T Wireless Services, Compaq Computer (CPQ) and IBM (IBM).

Sales rose to $8.6 million in 1999, a 25% jump from 1998. But the company lost $1.25 a share last year, far wider than its loss of 80 cents in 1998.

The major shareholders are Philip Trubey and Janet McVeigh, the husband and wife founders of the company who each own 30%; Morgan Stanley Venture Partners with 19% and Crosspoint Venture Partners with 12%.

Meanwhile, CompleTel Europe, a local network access provider from the Netherlands, rose 6 7/16 to close at 23 9/16 Tuesday, a somewhat tepid showing for a company in the highflying telecommunications sector. Smaller networks have been aggressively acquired in the rapidly consolidating European telecommunications market.

The European company, a subsidiary of CompleTel LLC, raised $465 million by offering 27.2 million shares at the price of $17.09 though joint underwriters Salomon Smith Barney and Goldman Sachs.

The company priced the stock at the top of the initial offering range of $14.95 to $17.09.

CompleTel is a competitive local exchange carrier operating primarily in retail and wholesale segments of France and Germany, markets already well served by dominant France Telecom (FTE) and Deutsche Telekom (DT).

CompleTel offers integrated, voice, data and Internet services to customers, including local and long-distance voice services, dedicated high-capacity and Internet-related access and applications services.

The company plans to operate metropolitan-area networks in 11 cities -- Paris, Grenoble, Lyon, Marseille, Lille, Nice and Toulouse in France and Berlin, Essen, Munich and Nuremberg in Germany -- and provide Internet-related services in these cities and the U.K.

CompleTel will use proceeds from the offering to expand its networks in their existing markets, to develop metropolitan area networks in an additional six cities in France and in Germany, and to accelerate the deployment of Internet-related services, according to their registration with the Securities and Exchange Commission.

CompleTel LLC controls approximately 77.5% of outstanding ordinary shares.

In England, Madison Dearborn Partners owns 48% of CompleTel.

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