NorthPoint's End

Officials for the now-defunct DLEC penned their final chapter, filing for conversion from Chapter 7 to Chapter 11 bankruptcy. But the lawsuit against Verizon continues.

by Jim Wagner ISP-Lists General Manager [June 20, 2001]

It's official: NorthPoint Communications pulled the plug on its operations by filing for a conversion from Chapter 11 to Chapter 7 bankruptcy protection Wednesday.

The filing is merely a formality for creditors to pick over the scraps that remain of the former national broadband provider.

The company filed for Chapter 11 bankruptcy on March 23. Ostensibly, Chapter 11 bankruptcies is used by companies to get some breathing room with creditors while the organization is restructured.

But NorthPoint had already sold off its physical assets to AT&T for $135 million soon after filing for bankruptcy.

The Chapter 7 filing is NorthPoint's way of saying that it can't get any money on the open market for its remaining assets.

AT&T, while interested in the network equipment already deployed at central offices throughout the nation for its own broadband roll out, had no interest in any of the less-tangible assets NorthPoint had to offer.

Officials at the now-defunct data competitive local exchange carrier (DLEC) had hoped to sell off its subscriber base to potential buyers to offset some of the huge losses the company had incurred during its brief lifespan. As is the case when Internet service providers (ISPs) go out of business, many competitors are willing to take over the customer base to boost their own subscriber count.

AT&T, or anyone else for that matter, didn't want to carry on a business that obviously fared poorly for NorthPoint. With a majority of residential digital subscriber line (DSL) customers, the DLEC was never able to make enough profit to cover expenses.

Margin of pain
Well aware of that fact from the beginning, DLECs like NorthPoint, Covad Communications and Rhythms NetConnections, Inc., fought for market share, the only way to offset the relatively cheap price for DSL service.

Under perfect conditions, it's a theory that might have worked. But provisioning and support problems with local telephone companies like SBC Communications and Verizon Communcations, who own the network that DSL service is run on, cut even deeper into already-slim profit margins.

The end result was financial ruin for NorthPoint. Rivals Covad and Rhythms are alive and operational, but clearly on the ropes, financially, as they try to accrue customers. Either of the two could have bought up NorthPoint's customer base, but are financially unable to make that kind of purchase at this time.

The suit of the dodo
Even though NorthPoint the operational entity might be going the way of the dodo bird, NorthPoint the legal machine is still looking for recompense from a failed merger between itself and Verizon.

NorthPoint executives cried foul and filed a $1 billion lawsuit after the incumbent local exchange carrier (ILEC) nixed a deal that would have brought immediate financial aid to the failing DSL provider.

David Frail, Verizon spokesperson, expects the lawsuit to continue even though he hasn't heard otherwise.

"Legal entities can last a very long time, so the idea that the suit might be continuing shouldn't really be a surprise," Frail said.

As such, he said, Verizon could not comment on the company's shareholder stake in NorthPoint and whether officials expect to get back any of their equity funding.

The lawsuit raises an interesting point: are creditors going to fund the continued legal battle against Verizon? NorthPoint investors, eager to show something (anything) for the whole experience, might not need to be convinced to have lawyers find a way to get some of their money back.

Delisted on Nasdaq weeks after filing for bankruptcy, NorthPoint stock has since been trading on the Over-The-Counter Bulletin Board (OTCBB: NPNTQ) reaching a low of one cent per share.

NorthPoint officials were not available for comment on the filing.

—End