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A sad chapter in the history of Digital Subscriber Line service will close this week, when the assets of NorthPoint Communications hit the auction block. Rumors are swirling, not only about what will happen to more than 100,000 mostly business customers, but about which company might purchase the bankrupt company.
Potential suitors include Microsoft, Sprint and Telocity, which could each buy a part or form a coalition. Other companies with the financial power to buy NorthPoint or its parts include the regional Bells, including Verizon Communications.
Verizon pulled out of its $800 million merger with NorthPoint on Nov. 29, citing “material adverse change” and saying it was not obligated to supply promised financing for the already troubled Digital Subscriber Line (DSL) provider. Six weeks later, with NorthPoint President and Chief Executive Liz Fetter pointing a finger of blame at Verizon, NorthPoint filed for Chapter 11 bankruptcy protection. The company filed a $1 billion breach-of-contract suit against Verizon in December, and counts the pending legal action among its most valuable assets.
While Fetter insisted that the operational end of the business is unaffected by the bankruptcy, corporate customers have complained about problems.
Bob Hanna, senior vice president at Burst! Media, said NorthPoints DSL service to several of Burst!s Internet advertising company offices has been down at least once per week since the bankruptcy filing. To avoid any post-auction headaches, Burst! is switching to more expensive T1 (1.5-megabit-per-second) lines. “You could walk in the office one day and the DSL is down,” Hanna said.
Burdened by heavy debt and little cash, NorthPoints assets include DSL equipment installed in more than 100 metropolitan areas, a national Asynchronous Transfer Mode backbone and the second-largest installed base of DSL subscribers outside of the Bells.
“We had a billion dollars of undepreciated assets at the end of November,” Fetter said.
Microsoft has the money to buy the assets, said Bart Stuck, managing director at fund management company Signal Lake Venture Fund. The software giant already has a relationship with NorthPoint to sell Microsoft Network-branded consumer high-speed access through RadioShack.
Sprint recently began rolling out DSL beyond its service region, and could jump-start that business by purchasing NorthPoints equipment and subscribers.
Court documents confirmed that Telocity is interested, and sources inside the company said there has been constant talk of acquiring NorthPoint. Telocity is one of the largest DSL service providers in the country, and it already services NorthPoints lines.