Business News - Metro Carriers Feast on Failed Competitors' Leftovers

Posted: 09/2001

Business News

Metro Carriers Feast on Failed Competitors’
Leftovers
By Josh Long

Metropolitan carriers that have installed their fiber optic networks inside commercial buildings are gobbling up the tenant rights and network equipment belonging to foundering competitors at an astonishing rat.e.

With the passing of each bankruptcy proceeding, telecom providers are gaining quick access into key commercial buildings, where thousands of prospective customers reside.

In late July, Dallas-based Allied Riser Communications Corp. set the stage for more change after announcing that it would suspend retail sales of broadband data applications and services and transition its customer base to other service providers. The company, which has wired fiber optics to more than 900 commercial office buildings in the United States and Canada, says it will let go 290 employees, approximately 75 percent of its workforce, and close sales offices.

To get a flavor for the recent acquisition activity, consider these agreements.

* San Francisco-based Yipes
Communications Inc., a provider of Ethernet-based MANS and WANs, has signed an agreement to purchase assets belonging to national in-building carrier, Broadband Office, for $2 million in cash and $2.5 million in equity. The agreement also forgives a $900,000 debtor-in-possession financing bridge loan Yipes made to Broadband Office in conjunction with the bankruptcy filing.

* Bethesda, Md.-based eLink
Communications, an in-building provider of broadband services to small and medium-sized businesses, has received court approval to acquire assets belonging to New York-based OnSite Access Inc. An OnSite Access source says e-Link made a $6.1 million bid, but e-Link executives said in July the amount of the deal is still unknown until the acquisition becomes final following regulatory approvals. (Focal Communications Corp. purchased OnSite Access’ voice customers.

* In the spring, New York-based IntelliSpace picked up assets belonging to New York-based TSI Broadband, ultimately gaining the business of hundreds of small to medium-sized enterprises. The company also has made a regional acquisition with an unnamed company in an undisclosed region, achieving similar results, according to IntelliSpace chief marketing officer Paul Brindak.

Inking agreements in bankruptcy court has not been the only method by which metropolitan carriers have set the stage for acquiring new business.

For example, in a mass marketing campaign, dubbed the “Internet Rescue Program,” IntelliSpace has fired off tens of thousands of letters in several direct mail campaigns to businesses that contracted with embattled CLECs such as PSINet Inc., Winstar Communications Inc. and NorthPoint Communications Group Inc.

IntelliSpace has picked up hundreds of customers in 14 U.S. markets, and “literally every day we get more and more people,” says company spokeswoman Kathryn Lancioni. Some bankrupt providers reputedly have given their customers barely any advance warning that they planned to disconnect their data services, leaving companies stranded.

IntelliSpace and others have watched their competitors stumble. Eager to deliver bandwidth to thousands of businesses located in high-rise buildings, emerging providers burned through mountains of cash wiring structures.

Many service providers, however, put the cart before the horse–they spent the money before signing enough contracts in a building to make a capital investment profitable. In part, it wasn’t their fault. Wall Street largely considered the amount of real estate a carrier had access to while determining a company’s value, sources say. But then, the Internet bubble exploded, and investors got stingy.

Now, metropolitan carriers are carefully analyzing each structure to determine whether it is worthwhile to turn up services.

Although carriers have picked up network equipment from defunct carriers in bankruptcy proceedings, this does not preclude them from making an investment. Despite inking the deal with Broadband Office, Yipes still will have to purchase state-of-the-art Ethernet and optical networking equipment and connect its fiber rings to the buildings, executives say. Broadband Office owns older network equipment, they say, a situation common in an industry that considers last year’s technology archaic.

“I view [the agreement] largely as a speed-to-market move on our part,” says Yipes CEO Jerry Parrick. “I wouldn’t characterize this as really saving money for us. I think what it saves is a considerable amount of time.”

By late July, Yipes had signed master agreements with nine major real estate managers and owners to gain access into 2,000 buildings throughout the nation, which comprise more than half of Broadband Office’s portfolio, totaling hundreds of millions of square feet of office space. Yipes also was continuing negotiations with nearly 20 other regional and national real estate entities to gain access into the other 1,500 buildings, says a spokesperson, who adds that the majority of structures are located in dense urban areas or nearby.

Yipes, will evaluate each building closely to determine the cost of providing service.

The purpose of the acquisition was to give Yipes a broader footprint in 21 U.S. markets, but the company has scoped out 40 additional markets, Parrick says. Entering those markets will hinge on whether Yipes can execute a fully funded plan in the initial 21 markets, he says. That kind of strategy is a far cry from only a year ago, when metropolitan carriers were engaged in a real estate race.

The mindset is much different today.

“The assets need to pay for themselves in a very short time period,” says Intelli-Space’s Brindak.

Thanks to its agreement with OnSite Access, eLink Communications anticipates reaching cash-flow positive in late 2002, moving ahead of its earlier projection of attaining that goal in mid-2003, according to eLink spokesman Joe Tedino.

eLink has gained access to up to 194 wired buildings in New York–including the Empire State Building and GM Building–potentially tripling the carrier’s customer base from 1,000 to more than 3,000 customers. Prior to the deal, eLink mostly provided communication services in Washington, D.C.

In an interview in July, Tedino said the company was notifying OnSite Access customers that it would transition service to eLink with the same terms and conditions it enjoyed with OnSite Access.

“This acquisition begins the logical evolution of the in-building services provider market,” said newly appointed eLink CEO John Prisco in a news statement. Without providing the details, executives expressed an interest in additional acquisitions.

“There is no longer a land grab in the industry right now,” said Tedino. “You have seen lots of companies close down markets and try to conserve cash and try to stay focused, and that may offer some opportunities for a company like eLink.”

Business News
Links

Allied Riser Communications Corp. www.alliedriser.com
AT&T Wireless Services Inc. www.attws.com
Broadband Office Inc www.bbo.com
Covista Communications Inc. www.covista.com
Capsule Communications www.capsule.com
eLink Communications www.elinkcommunications.com
Focal Communications Corp. www.focal.com
Global Crossing Ltd. www.globalcrossing.com
IntelliSpace www.intellispace.net
NorthPoint Communications Group Inc. www.northpoint.net
OnSite Access Inc. www.onsiteaccess.com
PSINet Inc. www.psinet.com
Startec Global Communications Corp. www.startec.com
Winstar Communications Inc. www.winstar.com
Yipes Communications Inc. www.yipes.com