AvTel Downplays Hype Over Its Net Technology

Responding to a forced halt in the trading of its shares, the Santa Barbara telecommunications firm whose stock surged more than 1,250% on Thursday took the unusual step Friday of downplaying the value of the high-speed Internet service it announced just a day earlier.

AvTel Communications Inc. issued a statement emphasizing that its new DSLink service, which is up to 50 times faster than standard modem connections, is available to only about 10,000 households in Santa Barbara, and that the company has no plans to roll out its service nationwide.

The statement contradicted reports by two news organizations that quoted separate AvTel executives Thursday--as the stock rocketed from $2.25 to $31 on Nasdaq--saying the company has plans for a nationwide roll-out.

Bloomberg News quoted AvTel Chief Executive Anthony Papa as saying, “We will roll it out nationally.” Meanwhile, Reuters reported AvTel Vice President Todd Greene saying the firm would make digital subscriber line, or DSL, service available around the country “within days.”

The National Assn. of Securities Dealers’ decision late Thursday to halt trading of AvTel stock until it received “additional information” only added to the confusion Friday. NASD said Friday that trading would resume Monday. As is usually the case, NASD officials declined to explain why they ordered traders to stop buying and selling AvTel shares. But a woman answering the phones at NASD’s main office in Washington said, “Every shareholder in the world has called” about AvTel.

One of the callers, Dana Cioffi, purchased 1,000 AvTel shares at about 12:45 p.m. PST Thursday for $22.31 apiece. By the time the market closed 15 minutes later, the shares had reached $31, representing a gain of about $8,690.

Cioffi, who has been trading stocks from her La Canada home for more than three years, said she had planned to cash out of her AvTel stake Friday morning. Now she fears the controversy will depress the stock price so much that she will lose money.

“There’s no way I’m going to get that 22 grand out of this company. There’s only a mad, burning desire to get out of that stock,” she said.

But Cioffi isn’t angry that AvTel may have over-hyped the importance of its new DSLink offering. Instead, she contends, NASD unfairly singled out AvTel.

“Look at [online bookseller] Amazon, which has no profits, and look at how it’s run up and nobody is questioning that,” she said. “Where does Nasdaq draw the line and halt the company and say, ‘You are guilty now until you prove yourself innocent?’ ”

AvTel’s shares apparently caught investors’ interest in a week when almost anything Net-related was rocketing. Yet AvTel’s statement Friday took on a defensive tone with regard to its Thursday release, which included a headline that said, “50 times faster than conventional modems? Now that’s fast!”

The firm on Friday noted that its technology “is not proprietary.” Indeed, many competitors offer the same high-speed Net access.

Also, “contrary to some wire reports yesterday, AvTel has no specific plans to extend DSLink Service nationally,” AvTel said.

Mary McCarthy, an investor relations consultant to AvTel, said Bloomberg “misquoted Mr. Papa” and that “Reuters just picked up what Bloomberg said.”

(The Times on Friday reported that AvTel’s service would be limited to downtown Santa Barbara.)

Reporters from the wire services said their stories were accurate.

“He said what he said,” Anthony Massucci, a Bloomberg reporter based in Princeton, N.J., said of CEO Papa. “He knows he said it.”

Reuters reporter Andrea Orr said Friday “it was perfectly clear” that Greene, AvTel’s vice president, had said the company would soon be offering DSL service in other cities.