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DSL Prime News: DSL Finance News

Network Plus files for Chapter 11, Orckit backs away from its spinoff, Philips buys into India's ishoni, MPower sells out, and doubts are raised about XO Communications.

by Dave Burstein DSL Prime [February 28, 2002]

Network Plus Chapter 11
Network Telephone doing better
They both were early to voice over DSL, overlap on part of the East Coast, and are among the last of the surviving CLECs. With similar names, they could easily be confused. But the luck ran out for Massachusetts based Network Plus, who filed Chapter 11 last week despite being EBITDA positive in the previous quarter. They had 132K on net customers for voice, and as many more as pure resellers. Goldman Sachs, Fleet, and DLJ had led a $225M financing round in October 2000. It wasn't enough. They are now looking for a buyer in the 11 proceeding.

Tioga/ST Micro
Former parent Orckit backing away
Orckit was a pioneer in DSL, winning major contracts from GTE and Telia. Their role is today rapidly diminishing with almost the Orckit division gone. They spun off their chip design team into Tioga, which worked with Fujitsu to manufacture the chips for Orckit and hopefully others. They became a design house, but no other manufacturer is in production of their chips. ST Micro has been a key Alcatel partner, but needed a design for the future. They advanced $10M to Tioga, and took an option to buy the company. That gives them a high performance ADSL chip, which meets Japan's Annex C requirements as well. Tioga's stock is trading for less than the likely cash value of the deal, presumably because repayment of an Orckit loan takes priority over the shares.

Philips takes 51 percent of Ishoni
$25M for gateway-on-a-chip
Majority of the stock and control of marketing goes to Philips, but the Indian/California ishoni remains an intact company, without imminent changes in operations or staffing. Martin Schenk believes Philips marketing strength will take voice over broadband into new markets. Philips is strong worldwide in cable, video, and settop boxes—there's natural synergies and some products that may be ready surprisingly soon.

Mpower next for Chapter 11
5 cents on the dollar plus 85 percent of the stock
The Wall Street Journal reports Rolla Huff has 63 percent of the bondholders ready to approve a prepackaged bankruptcy which would give bondholders nearly all of the company and 5 percent in cash. Two years ago, the stock was worth over $2B. Gerhard Lang controlled 18M shares, once worth nearly a billion dollars.

In August, Mpower forgave a $4.3M loan to Huff. In addition, in September, the company funded a trust to guarantee senior executives $4.5 million in pay and $7.5 million in severance. Huff and CFO Daley on November 12 reported to the FCC, "We expect that our available cash will be adequate to fund our operating losses and planned capital expenditures, as currently projected, into the first quarter of 2003." Apparently wasn't so, like XO in the next item.

Maurice Gallagher of Valujet began the company as a CLEC in Las Vegas named MGC, installing a Nortel switch in 1996. His stock was once worth over $300M. The company moved to Rochester N.Y. as an accommodation to Huff, once an AT&T executive who had been President of Frontier. They built 761 colos across the country, with 15 Nortel switches and Copper Mountain DSLAMs. They had more COs in place than BellSouth or Qwest early last year.

XO/Concentric: Did they lie?
XO is likely to restructure as well, with Forstmann & Telmex taking over from McCaw.

Peter Elstrom in Businessweek is blunt. "Already, investors have filed at least 14 class actions against the company and McCaw. The central allegation is that XO's management repeatedly told investors it could survive the difficult environment. On Apr. 4, Akerson said: 'We believe that we have both the existing cash and future funding flexibility to weather the carnage that the telecommunications industry is now experiencing.' Then on Apr. 26, Akerson said the company had enough cash 'to fund XO well into the first half of 2003.' That's why investors were shocked at the proposed restructuring. 'People think these guys just flat-out lied,' says Steven J. Toll, a partner at Cohen, Milstein, Hausfeld & Toll who was named lead counsel for the class actions on Feb. 15."

Pity if true.

Copyright 2001 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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