DSL

NorthPoint Puts On A Happy Face

Deadbeat ISPs, fierce competition, falling prices, failed merger plans, and crappy service from ILECs have contributed to NorthPoint's troubles. But the DSL provider's response to its situation might surprise you.

by Jim Thompson [February 7, 2001]

ISP partners defaulted on accounts, fierce competition drove DSL prices down, Verizon Communications bailed out of its merger plans, and crappy service from incumbent carriers are each major events that all contributed to NorthPoint Communications seeking shelter under the bankruptcy law protection.

The game is far from over for NorthPoint. The national DSL provider may not have hit rock bottom just yet, but its downward spiral toward financial ruin has slowed.

Gray skies are gonna clear up
Despite all the problems in recent weeks, optimism reigns within the ranks of this data exchange carrier. Liz Fetter, NorthPoint president and chief executive officer said the company has worked hard on trimming the business and pulling in its belt.

"We're making a lot of tough decisions and I think there are buyers out there who will get a very, very good deal or a very good investment," Fetter said.

Not putting on a happy face
Last November, NorthPoint was blind-sided by Verizon Communications when it pulled the plug on its $800 million merger deal. Verizon nixed the deal one week after NorthPoint lowered its third quarter financial figures, blaming "deterioration" in the data CLECs business operations for its poor performance.

In a statement released at the time of the announcement, Verizon said, "NorthPoint recently reported a continuing decline in revenues, an erosion of its customer base, an increase in expenses due to write-offs for increased bad debt, and as a result, a material increase in net losses."

Although NorthPoint did collect a reported $150 million when it originally inked the deal with Verizon, the firm suddenly found itself short of interim financing funds by some $200 million.

After the announcement, lenders withdrew another $165 million in planned financing, increasing NorthPoint's monetary crisis. According to Fetters, it all happened so fast and was so unexpected that they hardly had time to react.

"It was gratuitously brutal and in my mind, unnecessarily mean," she said when asked about the day Verizon brought the sky crashing down on NorthPoint.

"I personally found out about it just a few minutes before they issued their press release."

Brush off the clouds and cheer up
Within a month, NorthPoint returned fire by filing a lawsuit in San Francisco seeking $1 billion in damages against Verizon for nixing the deal. The lawsuit alleged that Verizon's only interest in NorthPoint was to inflate the short-term value of its stock and to do a little profit grabbing. NorthPoint also accused Verizon of using its poor third quarter performance—information already disclosed to Verizon—as an excuse to weasel out of the deal.

Verizon didn't take the lawsuit lying down—it countered NorthPoint's suit with a petition to have the case heard in its home state of Delaware.

"The attorneys on both sides are duking it out at the moment," commented Fetter. "They filed a stay action in Delaware, meaning they wanted a judge there to, basically, give them his blessing on exiting the contract with no obligations. It looks somewhat probable that the venue will be here in San Francisco."

Things got worse for NorthPoint when Flashcom, one of its largest customers, filed for bankruptcy and stopped paying its bills. "Flashcom did declare bankruptcy and has nearly shut down," Fetters noted. "That, of course, affects our cash and the revenues we are able to book."

A sprinkle turned into a downpour—other ISPs either filed for bankruptcy, or simply defaulted on payments to NorthPoint.

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