Wholesale Channel - PointOne Seeks Buyer in Voluntary Bankruptcy Filing

Posted: 10/2001

Wholesale Channel

PointOne Seeks Buyer in Voluntary Bankruptcy Filing
By Josh Long

PointOne Telecommunications Inc., an Austin, Texas-based provider of voice-over-packet services, filed

for Chapter 11 protection in the U.S. Bankruptcy Court in August.

The facilities-based provider of wholesale long distance voice services said the voluntary filing would give it the best opportunity to strike an agreement with a buyer or restructure its debt while remaining operational. Many competitive local exchange carriers (CLECs) have used this strategy during the past year.

The company has retained O’Melveny & Myers LLP and Brown McCarroll L.L.P. to assist in the restructuring. PointOne also is working with Kaufman Brothers to evaluate strategic alternatives.

During the restructuring, PointOne will continue to operate its business in the “ordinary course,” according to Patricia Tomasco, an attorney at Brown McCarroll L.L.P.

The company is trying to identify potential acquirers, said PointOne CEO Paget L. Alves, during an interview in mid-August.

“If that is an option, we would like to understand that very quickly,” Alves explained.

Despite scooping up 37 new customers and growing its revenue from $300,000 a month last December to $2 million a month in August, PointOne did not grow its business as fast as it anticipated, and it missed a quarterly revenue covenant, Alves said. Therefore, the provider has been cut off from $24 million in its credit facilities while building a national IP network.

The company tried to raise sufficient equity during the spring to fund operations until it hit certain revenue milestones, but the harsh state of the capital market prevented the facilities-based provider from reaching its goal.

Last February, it was able to close $25 million in equity and $45 million in debt in its third funding round. The money was earmarked for network expansion, cash requirements and the development of IP-based products and services.

The voluntary bankruptcy filing allows PointOne to seek restructuring options and limit its liability while grooming the network, Alves said.

PointOne leases fiber to carry traffic over its private IP network. Because of the situation, the company has scaled back its footprint to 41 markets. It had planned to operate a network into 60 markets.

Although PointOne has activated its gear in 41 markets, it had signed contracts for circuits in regions where it is not operating.

The bankruptcy, filing will allow PointOne to terminate contracts without being held liable for fulfilling the remainder of the agreements, Alves said.

Alves said the company didn’t meet its revenue projections because prices have dropped, and carriers purchasing wholesale services have taken longer to make buying decisions, slowing sales.

Of course PointOne is not alone.

The entire wholesale market has taken a beating this year, including carriers like 360networks, which ran out of funding while building a worldwide fiber-optic empire. The company filed for Chapter 11 protection in the U.S. Bankruptcy Court in June. Other carriers, like Viatel, have begun dissolving core assets.

Alves said the company’s softswitch technology is not to blame.

Customers increasingly have been satisfied with the technology’s ability during the past several months, he said. The company uses Sonus Networks’ softswitch technology for Class 4 voice services. The carrier-grade platform is designed to transport and terminate millions of calls per day.

The private IP network supports the convergence of voice and data services, but the company designed the network to support voice first, executives said.

PointOne sells long distance voice services to carriers, although its potential customer base could include IP providers seeking to incorporate voice services into their data offerings. Furthermore, the open architecture of the IP network allows the carrier to offer new features, such as hosted unified messaging and a hosted conferencing service, Alves said.

“That is an emerging marketplace for us, but it’s not our core business at all today,” he added.

PointOne had planned to deliver services to small- and medium-sized enterprises by launching an indirect channel program with agents, CLECs and value-added resellers (VARs), but the company has not yet launched the program.