Qwest Partner Near a Deal With Mark John Jeffries Vehicle

Calpoint and PeoplePC may be preparing an Internet service alliance, people close to the situation say.
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Qwest Communications'

(Q)

newest business acquaintance may be a boy with a bow tie.

Calpoint, a California-based startup that

Qwest has said will help speed its path toward more sophisticated fiber optic services, is negotiating a deal to ally itself with a low-tech partner, according to two separate sources:

PeoplePC

(PEOP)

, a computer-and-Internet-access marketer best known for its fictional spokeschild Mark John Jeffries and its onetime deal to supply subsidized computers to

Ford

(F) - Get Report

employees worldwide.

It's not clear how any deal would be structured -- whether, for example, Calpoint would obtain Internet access services through PeoplePC, or whether Calpoint would acquire an ownership stake in the struggling PeoplePC. It's also unclear how or whether PeoplePC's stockholders would benefit from a deal with privately held Calpoint. PeoplePC's shares, which went public last year at $10 a share, were trading at 13 cents Thurssday morning, down a penny. PeoplePC has a market capitalization of $15 million.

But the possible deal between PeoplePC and Calpoint does indicate that, in this world of shaky demand for telecom services, getting picky about one's business associates is a luxury few companies can afford. Though Qwest President Afshin Mohebbi may have told Wall Street analysts last week that Calpoint principals were in the process of acquiring a "very large" Internet service provider, investors might be less impressed by the reality of PeoplePC. The company, which probably has fewer than a million subscribers to its Internet service, is running low on cash and only recently escaped delisting from the Nasdaq thanks to looser rules adopted in the wake of the Sept. 11 terrorist attacks on the U.S.

On Tuesday, Qwest's shares were trading up 24 cents at $18.50, down less than 5% from its pre-Calpoint close of $19.40.

Sam Surloff, an attorney affiliated with Calpoint, declined to comment on Qwest or PeoplePC. A PeoplePC spokeswoman didn't return a call seeking comment.

Certainly, Calpoint's principals have been interested in acquiring an Internet service provider for some time now. One year ago, computer mouse pad marketer mysmart.com -- the principals of which are also principals of Calpoint -- said it would launch a mysmart-branded Internet service nationally in October 2000. Mysmart, however, can't be found in online listings of Internet service providers.

Meanwhile, Mohebbi hinted on last week's call with analysts that an ISP acquisition by Calpoint's principals would lead to new business for Qwest. On Monday's call, he told analysts that the Calpoint principals "are in the process of acquiring a very large ISP,

for which they have committed to move all of their IP and access facilities into our relationship."

Calpoint's principals might find it rather easy to get an introduction to PeoplePC's management. Venture capital groups Softbank Capital Partners and Softbank Capital Advisors Fund invested a total of $30 million in mysmart.com; various Softbank ventures hold a major stake in PeoplePC.

A call to a Softbank executive wasn't returned.

Financial straits may also put PeoplePC in a deal-making mood. As of June 30, PeoplePC had $23.4 million in cash on hand; it had burned through $30.9 million in cash in the second quarter ended June 30. Though Ford and PeoplePC had announced in February 2000 a deal to provide computers and Internet access to 350,000 employees worldwide, Ford suspended the program in May after 165,000 had taken advantage of the program, then in July reimbursed PeoplePC $6.6 million for expenses incurred.