By the time the Nasdaq board stopped blinking at the end of Thursday, Choice One had reached a high of $31 per share before closing up 47.8 percent at $29.56 each, after 9.95 million shares were traded.

Acting as the lead manager for the initial public offering, Morgan was prohibited from trading the stock because its venture capital arm, Morgan Stanley Dean Witter Capital Partners, already has its hooks into the company with a pre-IPO investment of approximately $41.7 million, or a 67.2 percent equity position.

After the offering, Morgan's stake was reduced to an amount undetermined by press time, but the kicker is the confusion surrounding the stock's opening price. Wire services initially listed the stock at an opening price of $31 per share, before restating the open at $27 per share.

In a call to the trading desk at Morgan, a trader who prefers to remain anonymous said, "I show that the first trade was $32 per share with a high of $29 and change."

Confusing. The syndicate desk at comanager Lehman Brothers, confirmed the $27 open price and hinted that the initial quote may have been pulled due to the inappropriateness of Morgan making a trade.

"Morgan is the lead manager, but we are doing the trading," said a Lehman spokesperson. "I don't think Morgan can trade because they already own a piece of the company."

RAISING THE ROOF

As underwriters, Morgan and Lehman were flanked by additional comanagers Warburg Dillon Read, First Union Securities, and CIBC World Markets. Together, the Morgan group on Wednesday night priced the stock at $20 per share, which was at the high end of an adjusted price range.

Originally priced in the $13 to $15 per share range, Morgan upped the cost per share twice before the actual offering. Prompted by heavy demand from investors hypnotized by the sound of anything broadband, the Morgan group late in January had raised the price range to between $15 and $17 per share, then finally to between $18 and $20 per share the day before the offering.

"At least you can say that the stock was priced at the high end of its filing range, it went up and finished the day above its offer price," says Paul Bard, analyst at Renaissance Capital. "This week some others haven't even done that."

REGIONAL SPIN

Headquartered in Rochester, New York, Choice One offers local telecommunications service, long distance, data, Internet, and digital subscriber line (DSL) capability to small to medium-size businesses in the Northeast United States.

DSL is a hot sector as telecom providers vie for broadband dominance in a market divided by such service offerings as cable, wireless, and DSL.

"It's my own view that there won't be a single access technology that will prevail," says Christine Nairne, an analyst at EOffering. "It's not like Betamax versus VHS, but I think that it's still early enough in the development of the sector that it will all come down to having a network in place and who was first to do it."

According to a recent study by analysts at IDC, total DSL revenue is expected to increase in the United States from $14.5 million in 1998 to $5.7 billion in 2003, for a 229 percent compounded annual growth rate.

On the surface, that would pit Choice One against market leader Covad Communications, which has an $8.257 billion market cap and a new Strong Buy rating from Dan Ross, an analyst with Sanders Morris Mundy.

"We believe that the market is divided into two sectors: the consumer market, which usually goes for the cheapest solution, which right now is cable, and the small to medium business market where companies like Covad, Rhythms Netconnections, and Northpoint have good position," says Mr. Ross.

Mr. Ross points out that the latter trio has a wholesale approach to the market, whereas companies such as Choice One are targeting the niche retail markets of suburbia.

"Rather than rolling out a national plan, they (Choice One) have targeted the suburbs such as Buffalo, Syracuse, and Worcester, Massachusetts -- places the bigger companies don't go. That puts them more in line against companies such as Network Access and DSL.net," says Mr. Bard at Renaissance.

For the fourth quarter ended December 31, 1999, DSL.net reported a net loss of $9.87 million on sales of $811,000. During the same period, Network Access posted a net loss of $15.9 million on sales of $4.8 million. In contrast, for the year ended December 31, Choice One incurred a net pro forma loss of about $34 million and pro forma revenues of $11.6 million. Choice One's pro forma figures are presented with the caveat that it spent approximately $10.4 million in the acquisition of Atlantic Connections last year.

"This is an expensive business to be in," says Mr. Ross. "But we believe that the DSL market will grow big enough that it will usher in Access at a rate of 'Internet 2.0.'"

That prospect bodes better for Choice One than does its first day of confused trading.

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