Investors take air out of Woosh

Investors are turning up their noses at Woosh, forcing the fledgling telecommunications operator to slash the price of shares it hopes to sell in its planned flotation.

Woosh had hoped to sell the shares at $1.50 to $1.70 apiece. Now, after investors expressed concern about Woosh's technology among other things, it is asking for orders at $1 to $1.10.

The company is seeking $80 million to fund its expansion and is expected to reveal today the pricing of the shares ahead of a stock market flotation in November.

The cut is a blow to Woosh's high-profile backers, which include The Warehouse founder Stephen Tindall, the wealthy Todd family and Sky TV founder Craig Heatley.

Together they have invested around $130 million. At $1.10, the company will have a market value of $151 million, of which more than half is represented by the cash to be raised during the flotation. To put it another way: the original $130 million invested in the business is worth a maximum of $71 million.

Many of the cornerstone investors are, however, expected to stick with the stock and take as much as half of the new equity.

Woosh adviser ABN Amro declined to comment.

Woosh's wireless technology has been criticised by internet service providers selling copper-cable-based DSL internet access.

"It's fine on a sunny day, but as soon as there's some rain, forget about it," said one ISP that did not want to be named.

Woosh has downplayed the charge and said that while its service is subject to atmospheric conditions, the frequency of outages is rare.

It's also unclear whether Woosh's service can go faster. The company offers only an entry-level high-speed product, which has a download speed of 256 kilobits per second, about five times faster than dial-up. ISPs selling DSL are offering much faster one- and two-megabit-per-second plans.

Chief operating officer Rich Cane has said Woosh is capable of offering higher download speeds but the company is focusing instead on expanding and strengthening its coverage.

Chief executive Bob Smith said last week that "higher speeds are definitely part of our business model" but declined to specify when they may be introduced.

But with regulation just around the corner that will lower costs and open up much faster speeds - up to 7.6 megabits per second, or 130 times faster than dial-up - Woosh could soon be forced to back up its claims or risk being left behind in the dust.

Woosh has 15,000 customers for its broadband service launched in February. The company offers broadband in Auckland, Wellington, Christchurch and Invercargill.

"Where they are now is where they should have been two years ago," said one investor. The company was launched in 2003.

Woosh also unveiled its long-awaited voice service last month. When bundled with Woosh's broadband, it significantly undercuts similar offerings from Telecom.

But it too has drawn criticisms about its quality. Smith himself said that the quality of calls was equivalent to a "high-end cell phone", leading critics to label the service as a trade-off of cost over quality.

Woosh two weeks ago trumpeted the signing of 500 voice customers and said this was beating initial targets. But at the launch, Smith deflected questions about how many customers the company was expecting to lure.