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Teleglobe Dials the Wrong Revenue Number

Investors wonder whether the Excel deal won't seriously impede growth.

SAN FRANCISCO -- Shares in



tumbled more than 9% Thursday as investors zeroed in on concerns that the company's merger with

Excel Communications

will slow growth for at least the first half of the year.

The Montreal-based telecommunications company got off to a rocky start Thursday after a delayed opening because of an order imbalance. The stock opened down 3 13/16 and never managed to muscle its way back. The stock closed at 33 7/16, down 3 3/8.

For the quarter ended Dec. 31, the company posted a loss of $185 million, or 74 cents a share, after extraordinary items, compared with a pro-forma net loss of $3.3 million, or 1 cent a share, in the same period a year ago. Excluding nonrecurring charges, Teleglobe posted a profit of $77.1 million, or 31 cents a share, for the latest period.

First Call

had forecast a profit of 26 cents a share, excluding charges.

But what concerned analysts was a nearly 10% slide in revenue to $809.6 million in the latest fourth quarter from $893.2 million in the same period a year ago. The company attributed the fall-off to a delay in the launch of new products in the retail market because of difficulties implementing a new billing system.

Analysts say that when Teleglobe purchased Excel, it bought considerable back office problems that threaten to drag on earnings for the next couple of quarters.

"They kind of met expectations, but revenue growth was pretty weak. I don't think that's a near-term problem," said Daniel Fletcher, an analyst with

Lehman Brothers

who rates the stock outperform. "Excel accounts for 55% of total revenue. They have a ton of work to do there."

Despite results that left a bad taste in the mouths of some investors, the company insists it has fixed the problems.

"Management has mentioned to analysts that the revenue fallout was due to a service and billing problem that was identified late in the year," said Sylvia Morin, a spokeswoman for Teleglobe. "Since then the problem has been addressed, changes have been made and new responsibilities have been assigned. We're convinced going forward that that problem has been dealt with."

The company expects to begin a two-phase rollout of a host of new Excel services in Canada, including toll-free numbers, long distance and international long distance. And analysts remain bullish on the company's prospects for growth in the European market particularly.

Morin said the company doesn't expect the Excel acquisition to hurt 1999 earnings. That's something analysts seem to want assurances about, but they aren't yet convinced. For now, some investors looking at the company's results are saying, "Sorry, wrong numbers" and don't think the company will be able to resolve the problems as quickly as it hopes.

"Basically people will take a bit of a wait-and-see attitude," said Tim Newington, an analyst with

Credit Suisse First Boston

in Toronto. Newington recently downgraded the the stock to hold. "The underlying structure of the company is still there. I don't question the ability of management. It just might take a little longer than people expected."